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Monday, 1 July, 2002, 17:01 GMT 18:01 UK
UK house prices soar 20%
Demand outstrips supply graph
Britain's biggest building society says house prices soared in June at an annual rate of nearly 20%, the highest rise for 13 years.

The news comes as the Bank of England (BoE) prepares for a two-day meeting to set interest rates this week.

The Bank faces calls to raise rates to cool the housing market gently and avoid a crash.

For the first time, the Council of Mortgage Lenders (CML) has urged the Bank to put up interest rates.

No sign of a slowdown

Nationwide Building Society said house prices rose by 3.3% in June from May and that house price inflation was now storming ahead at an annual rate of 19.8%.

Nationwide has raised its prediction for house price inflation in 2002 to almost twice the rate it was forecasting in March.

It now expects house prices to rise by 18% across the whole year, compared to the 10% annual increase it predicted in March.

An 18% rise would be the fastest annual increase since 1989.

"The housing market continues to hold up because of current economic conditions, notably high employment levels and low mortgage rates," said Nationwide group economist Alex Bannister.

"But its strong growth in recent months is being driven by high levels of confidence and the expectation that prices will rise strongly over the next few years," he added.

Months of rising prices have pushed first time buyers out of the market in many parts of Britain, particularly South East England, and raised concerns about the risk of a sudden collapse.

Pain for first-time buyers

In May, house prices were up 2.1% from April and by an annual rate of 17.9%, Nationwide said.

A recent survey by research group Hometrack predicted house prices would "boom for at least another year".

In its view, a continuing surplus of buyers was creating excess demand for property, which would sustain the market and continue pushing up prices in future months.

Rapid house price rises have sparked fears of a return to the problems of the early 1990s, when many homeowners found themselves saddled with properties worth less than they had paid for them and repossessions rose.

Accountancy firm PricewaterhouseCoopers has warned that property in London is overvalued by approximately 31%.

Key workers such as teachers, nurses and social workers are increasingly unable to afford to buy homes, according to the Local Government Association.

It wants local authorities to have extra powers to improve the stock of affordable housing.

Toilet in Highbury, London, sold for 182,000
Victorian toilet, many not so careful users, in good location - a snip for 182,000
The latest sign of the market's overheating, a disused public toilet in the north of London was recently sold for 182,000 .

Once again, location was the deciding factor, with the urinal just yards away from Highbury tube station.

Property developer Christopher Eliades loved the "cottagey apperance" of the toilet, and hopes it can be converted into offices.

Bidding for the Victorian building started at 75,000.

"We wanted somewhere which was nicely situated but still central and with good parking. The toilet had all of this", said Mr Eliade.

Rates to rise?

So how likely is the Bank of England to raise interest rates when its monthly meeting ends on Thursday?

Last week, Bank of England Governor Sir Edward George appeared to rule out an early rate rise.

He said that with inflation comfortably below the government's target rate, the Bank did not necessarily have to "deliver immediately", and still had some leeway before making a decision on a rate rise.

Interest rates are currently at their lowest level since the early 1960s.

Although the Bank makes its decisions independently of the government, it must take account of guidelines on inflation set out by Chancellor of the Exchequer Gordon Brown.

Inflation is currently running at 1.8%, putting it well below the bank's target of 2.5%.

Did you manage to sell up, cash in and move somewhere cheaper? Are you frozen out of the housing market? Or do you have trouble finding or selling a property?

BBC News Online readers told us their experiences

I feel sorry for any first time buyers in today's climate.. My wife and I were very lucky to get onto the first rung of the ladder exactly a year ago when we got married. It was a struggle to get a mortgage on our combined income even then, but had we not done it then, we would almost certainly now not be able to afford to live anywhere in the South East. Surely a BUST looms?
David Archer, Hertfordshire, England

I had my mid-terraced house valued for a remortgage 2 months ago. Result, 100,000 now, after a further valuation, the property is valued at 130,000 (the house makes more than I do!!). This is Cardiff 2002. Incidentally, we bought the house three years ago for 49,000
Tony, UK

I reserved a 2 bed apartment in Sheffield in Feb for 59k. The exact same apartment, on the floor below is now being marketed at 74k - 4 months later - and they are not even built yet!!
Craig, UK

I am a financial adviser, specialising in the mortgage market. I have never been so busy and damand sems to be increasing, rather than slowing. As long as interest rates remain at 4 to 5%, nothing will change.
Paul Russell, Bournemouth, UK.

We emigrated from hotspot Harrogate in Yorkshire to beautiful Vancouver Island off the West coast of Canada almost 2 years ago.

We are selling our 2 bed flat (it was on the market one week and we had 5 offers, all over the asking price!) for 88,000. We will clear 50,000 which will turn into a 50% down payment of around $115,000 on a 5 bed, 3 bath country house set in 2.5 acres etc.

I feel for the youngsters starting out in the UK.
Ken D. Peacock, Canada

I wish people would stop trying to apply London/SE conditions to the rest of the country. We have a lovely bungalow just outside Bristol. We have found a buyer hard to come by, and talk of 20% annual inflation/overheated housing markets does not reflect our experiences at all. In fact, the local estate agents were all recently saying the market had gone a little flat.
Roy Benjamin, England

House prices in Northern Ireland are also soaring in some areas - while wages are still 15- 20% lower than mainland UK. Average house prices are 95,000. We bought our home (3Bed Semi) in 1997 for 58,000 and sold for 123,000 - considerable price rise.

We bought a new home for 225,000. The key to success in the housing market is clearing your mortage as soon as possible as we did on that 58,000. Keep all debt to minimum (mortages, bills and credit cards) - don't make others rich on the interest you pay them !
Orla Donachy, N.Ireland

The cottage we purchased as a second home in Cornwall has soared 150% in value since we purchased it 5 years ago. When we first purchased it there was a lot of unemployment, but that has now eased with the improved economic situation.

Local developments like the Eden project, and very low interest rates have had a dramatic effect on prices, which is why Cornwall is now a property hotspot. Many local people who were unemployed are now back in work. Whilst under ordinary circumstances they could have expected to have made their first step on the housing ladder, they have now been frozen out.

Higher property prices benefit only property sharks and flabby builders, not decent working people.
alan goswell, UK

My partner and I are first time buyers, earning reasonable salaries and with a mortgage agreed and ready to go. The ideal buyers. We are rapidly being priced out of the local housing market, and feel that articles like this serve only to fuel the greed of sellers. We've lost 2 sales since February, and both came after our previously keen vendors saw and read news items about the continuing rise in house prices, then decided to take their properties off the market in order to put them back on a couple of months later when the prices had risen again.

Personally I'm hoping for a housing crash, as although it won't improve our situation, it would be a smack in the face for the avaricious vendors.
Sarah Little, UK

I live in a place where house prices are almost as absurd as London. I finished a good degree around 3 years ago, and work in IT, which is a pretty well-paid profession compared to many (teachers, medical, etc). I've just about finished paying off my student debt, I'm looking to buy my first home, and... Oh, dear. If I can't even dream about it, what hope does any first-time buyer have?

People say, "Move away from Cambridge," but my whole life is here: friends, new job, family nearby. So I do the only thing I can: invest my money and wait.
A Buyer, Cambridge, UK

We put our house on the market the week following the Jubilee holiday, i.e. the day England played in the World Cup at midday, and we have had very few viewings and nobody has come back. Supply seems at least to match demand in our area, and the heat has gone out of the situation
Ade, England

I was buying a 2 bedroom terraced house in Portsmouth back in January for 76,500 but I was held waiting for the vendors to find a house for themselves to move into - this went on for a few months and of course the house prices shot up over this time and they couldn't afford to get the house they wanted so they pulled out of the sale and remarketed there property for 11,000 more at 87,500.

This left me almost 1000 out of pocket as I had forked out for a homebuyers survey and a good solicitor for my conveyancing. ... I [am] now priced out of the market for the type of house I would have liked. I can now only afford to go for a one bedroom flat for the same price as I was paying for a two bedroom house.
Matt Ward, England

We cannot find a house to buy, despite being cash buyers thanks to an early completion, because people are commanding stupid money for their homes (because there are so few available) which is pricing us out of the market.

We want to spend in the 400k region but a local agent told us that these houses are on the market at over 600k at the moment.

Also, many homes on the market, are only there because the owner wants to see if they can make a quick buck and don't actually want to move. They are wasting the time of those genuine buyers (like us) because they agree to sell then realise they can't afford to move because everyone else is behaving as badly as they are.
Claudia, UK

I purchased my first house in Milton Keynes in Jaunuary, towards the end of the market pausing for breath after September 11th. Astonishingly, I would struggle to afford a 2 bed house here now - they are going for more than I paid for my 3 bed just 5 months ago.
Marcus Hughes, UK

As a twenty three year old, last November I bought a terraced property in the Ribble Valley - I paid 46k for the property but it needed a lot of modernastion - eight months later I had a letter posted through my door asking if I wanted to sell - I have just sold it half complete for 92k - what a problem to have!
Barry Clegg, Lancs

Who exactly are raising house prices? Are the estate agents saying to the sellers "try this price, you've got nothing to loose" or are the sellers asking estate agents to increase the price suggested by the Agent?

If first-time buyers are priced out of the market, that means the majority will stay with mum and dad untill their 30s. Not a pleasant thought! and how can anyone save when so much must go towards paying the mortgage!
Tony, UK

I am a single income earner in London, on 31,050, which puts me above the threshold for shared ownership schemes - but the market is well and truly beyond my reach - and accelerating!
Susie Haywood, UK

I can't afford to live in London even though I earn 40,000 a year. A crash is sure to come.
Joe Walsh, UK

I'm living and working in Brasil at the moment. Even though it is temporary, I sold my house in the UK late last year when I left. I didn't think the money from renting would be enough to cover the hassle. I am regretting that now as prices continue to rise. In fact, if I were to return now, I do not think I would buy a house at all as, knowing the prices in Canada, America and here in Brasil, the UK is so overpriced.
Mike Donlon, Brazil

I was a first time buyer, straight from university when I bought a house last August and moved in in December. I'm glad I did that as opposed to renting for a while as the value of the 2 bed modern terrace I bought has now reached the very limit of my mortgage ability (i.e. 4 x salary). However, if interest rates rise my current debt from University means I may be in a sticky situation!
J Clark, England, UK

My observation of the current market is that the headlines do not reflect the reality on the ground. Visiting my former home town of Richmond in Surrey last week I was astonished at the amount of houses with "For Sale" boards outside them, and when I looked at some of the details on the Internet many of them had photographs in which there were no leaves on the trees, indicating they have been on the market since at least April.

Anecdotal evidence from a friend in country house sales is that the top of the market is struggling.

I can't help feeling that the mortgage lenders and estate agents who tend to supply these headlines have a vested interest in seeing the bubble continue to inflate.
Nick Tod, UK

As a would-be first time buyer, I'm now effectively frozen out of the housing market for the forseeable future. I'm a recent graduate and live in Reading - not my choice but you have to go where the jobs are.

I earn too much to qualify for afordable housing, yet there isn't any in this part of the country for myself and my peers. The only way into the market is to mortgage yourself to the max, have your family put up as guarantors etc and hope there isn't a crash - not something I'm keen to do at the moment. It's just so frustrating.
Ian, UK

In January of this year I had purchased a 5 bed detached house for 160k. Unfortunately it fell through but is now back on the market. Having fallen for it previously, decided to buy it again. This time for 200k. A price increase of 40k (25% in 5 months).

The market has gone crazy and I cant see an end.
Mark, Newcastle upon Tyne, England

I bought a tiny run down flat in Tottenham in 1998 for 63k. I spent 1k on a cheap kitchen to increase sale prospects, as the old one was very old fashioned, and sold the flat 18 months later, for 90k and after deductions banked 22k cash as I moved in with my boyfriend. It still had damp when I sold it but flats were so sought after that it went within a couple of weeks. I had a bit of fun but spent most of the money on my new flat, which has also increased in price considerably. Definately the most profitable thing I've ever done, perhaps likely to do. I was very lucky and seemed to hit the market at exactly the right time.
Becky Astley, England

I am a well paid accountant in London but I cannot afford to even get started on the property ladder. Banks are currently offering me mortgages which would buy me a studio flat in unsafe parts of London. I dread to think what nurses and teachers must feel, I myself feel frustrated. How are young people supposed to start families when they can't get accomodation? ... I tell you, house prices WILL crash because otherwise Britain faces chronic social unrest.
Stephanie Serapiglia, UK

Completely frozen out. Don't think I will ever be able to buy a house. Currently living with parents. Thinking of leaving UK all together.
Sohail Rana, London (UK)

We are one of the lucky families. we own a 3 bed semi in Hampshire now worth 150,000 which we bought for 71,000 3 years ago. We were not so lucky in 1997 we sold a flat in Gloucestershire for 18,750, which my husband bought 8 years earlier for 44,000.....

Don't let this happen again, we had to find over 25,000 to be able to move! It's taken us years to recover.
Lorna, UK

The BBC's Rory Cellan-Jones
"Demand for homes is soaring"





See also:

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