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Thursday, 30 May, 2002, 08:29 GMT 09:29 UK
House prices surge ahead
Houses for sale
The Bank of England will be watching prices carefully
British house prices rose in May at their highest annual rate in 13 years, according to the latest survey from the Nationwide Building Society.

The news is yet more confirmation that the prolonged property boom has yet to come off the rails, despite mounting fears of a crash.

Overall, house prices rose by 2.1% during the month, taking their annual growth rate to 17.9% - the highest since the boom of the late 1980s.

House-price inflation will be a major factor when the Bank of England considers UK interest rates next week.

The Bank is believed likely to begin raising rates this year, the first rate increase since February 2000.

Boom, or bubble?

The question facing property investors is whether surging house prices represent a straightforward boom, or an bubble about to burst.

"Although the likelihood of a collapse as happened a decade ago seems low, the longer that prices rise sharply like this, the greater the risk of a sharp correction," said Philip Shaw, chief economist at Investec Bank.

But Alex Bannister, Nationwide's group economist, said the boom showed few signs of running out of steam.

"Record employment levels and low interest rates continue to underpin consumer confidence and this is translating into stronger activity levels," he said.

The number of completed house purchases rose by 27% year on year in May, the Nationwide said, and a corresponding surge in mortgage applications was seen as evidence that turnover will remain buoyant.

Rents reverse

Separately, however, the Royal Institution of Chartered Surveyors reported that rents in Britain had fallen in April, for the first time in more than two years.

A downturn in the rental market could spell trouble for the increasing number of investors buying property to let.

Buy-to-let deals have been a major driver of the house-price boom in recent years, but economists have become increasingly concerned over what some see as a highly risky investment.


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