Housing market steady

The growth in property prices has slowed to its lowest level for almost five years, says the Nationwide Building Society.

Property prices rose by an average of 0.8% in April, compared with 1.4% the month before, the building society says.

Over the last year, the cost of houses has increased by 6.6%, the lowest rate since August 1996.

The Nationwide's announcement came minutes before bankers confirmed that mortgage lending has reached record levels.

On target

Despite the slowdown in the property market, prices of homes will continue to rise faster than those of High Street goods, said Alex Bannister, Nationwide's group economist.

"Despite an expected weakening in the economy, the market remains on course to achieve our forecast of a 7% rise in property prices this year," said Mr Bannister.

Broader inflation is rising by about 2% a year.

Mr Bannister warned, however, that a further deterioration in the US economy, or a fall in share prices, could see UK house prices rising slower than the Nationwide has forecast.

Earnings link

Salary levels are a key factor to watch in forecasting the health of the housing market, and perhaps more influential than changes in interest rates, Nationwide analysis has revealed.

"Our research indicates that a one-off 0.5% cut in mortgage rates raises house price growth by just 0.25%," Mr Bannister said.

"In contrast a one-off 0.5% reduction in income growth was much more influential, reducing house prices by 0.6%."

House prices have risen in line with annual earnings over the last half century by an average of 8.5% a year.

Long-term growth

Since 1952, the average house price has risen by 4,500% to £86,244, the Nationwide said.

But there is little current danger, however, of the housing market overheating as it did in the late 1980s, when a boom leading up to 1989 was followed by five years of falling prices,

Prices are 10% below where they were, in relative terms, at their 1980s peak, the Nationwide said.

'Attractive options'

The Nationwide's survey comes a week after a survey of members the Royal Institution of Chartered Surveyors revealed optimism over the future of the property market.

Tim Sweeney: cheaper mortgages "driving activity"

And on Monday the British Bankers' Association revealed that new mortgage lending by major financial institutions surged to £7.65bn in March, 28% more than in February.

Tim Sweeney, BBA director general, credited the rise on cuts in mortgage rates.

"We expected to see stronger lending in March... but the extent of new lending appears to have been more than just the usual seasonal upturn.

"Customers are now being presented with more attractive financing options and this must be driving activity in the mortgage market."

He also foresaw continuing "strong lending", following the decision two weeks ago to cut UK interest rates.

Monday's BBA report expanded on figures published last week.