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Tuesday, 4 September, 2001, 07:16 GMT 08:16 UK
Nationwide lifts house price gloom
'For Sale' sign
London is still the most expensive place to buy a house
Analysts at the Nationwide building society have confounded market pessimists by revising up their forecast for the growth in UK house prices this year.

Even in the worst case scenario for the economy, the housing market is likely to be well supported and price growth in excess of inflation is likely

The Nationwide, reporting house prices up 0.4% last month, has predicted that house prices will end 2001 11% higher than they began it, compared with an earlier forecast of a 7% rise.

The revision follows a series of warnings that the UK housing market is set to stagnate, with the Nationwide itself warning last month that "house prices are rising at an unsustainable rate and that the market must slow at some stage".

The building society predicted on Tuesday that the slowdown would not kick in until next year, with the south east of England housing market seen as most vulnerable.

Wages factor

"We believe the trigger for lower price growth in London and the South East could be lower bonuses and pay settlements over the Christmas and new year period," the society said.

An increase in interest rates, and fall in the value of sterling, could brake the market even further, Tuesday's report warned.

Houses for sale
The average cost is now 90,361
But it added that "even in the worst case scenario for the economy, the housing market is likely to be well supported and price growth in excess of inflation is likely".

"We see no pressing need for a correction in house prices."

Consumers 'optimistic'

The society credited resilient consumer confidence for its decision to revise upwards its forecast

"Current levels of confidence and borrowing suggest consumers remain relatively optimistic despite recent job loss announcements," Tuesday's statement said.

"There is enough momentum to carry the market through to the end of the year in buoyant fashion."

Nationwide also reported higher levels of house sales, set to hit 1.45 million this year compared with 1.38 million in 2000, supported by the lowest mortgage rates for 41 years.

But the society questioned whether the number of first time-buyers would continue to rise as strongly as it has in recent months, and predicted that the UK's low inflation economic environment would, in failing to erode mortgage payment levels, also affect the market.

"Mortgage payments as a proportion of income will not reduce as quickly as during the 1980s.

"This is likely to mean that house prices will not rise as quickly and homeowners do not move as frequently over the next 5-10 years as they did in the past."

August data

August 0.4% rise compares with a 1.1% increase in house prices during July.

"Although this could signal a slowing in the market, it remains too early to be certain," Tuesday's report said.

The average price of a UK house is, at 90,361, 11.9% higher than it was a year before.

The BBC's Jenny Scott
"The Nationwide is warning poeple not to overstretch themselves"
See also:

08 Aug 01 | Business
Property prices: county by county
02 Sep 01 | Business
House price boom surges on
20 Aug 01 | Business
House price rises 'set to slow'
16 Aug 01 | Business
House prices set for shake-up
03 Aug 01 | Business
Property price rises start to slow
10 Jul 01 | Business
London homes cost twice UK average
31 Aug 01 | Business
London faces economic crunch
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