House prices accelerate again

Will rate rises slow the market?

UK house prices rose in October at their fastest rate for more than a year, according to the latest survey from the Nationwide.

The building society found prices rose by 2% during the month - double the increase seen in September - pushing annual house price inflation up to 16.1%.

Earlier this week, official figures showed UK borrowing was surging, led by a jump in housing lending.

Economists expect the Bank of England to raise interest rates next week in an attempt to counter the debt boom.

Strength returning

Evidence has been building in recent weeks that the housing market is picking up speed once again.

Rate rises should dampen the market next year but on their own they will be insufficient to cause an early-nineties style slump Alex Bannister, Nationwide

The Royal Institution of Chartered Surveyors (Rics) found house buyers returning to the market in their latest survey.

And on Monday, a survey by property website Hometrack said several indicators showed the market was gaining strength in the run-up to Christmas.

According to the Nationwide survey, the average property price is now £131,947, up from £130,473 in September.

October's jump in prices has led the Nationwide to revise its 2003 growth forecast up to 15% from 13%.

"This latest, relatively rapid rise in prices, combined with a record level of house purchase approvals in September, indicates that some strength has returned to the housing market," said Alex Bannister, Nationwide's group economist.

"This turnaround appears to have been led by rising equity markets and a recovering corporate sector."

Despite the increasing prospect of higher UK interest rates, the Nationwide said there was little likelihood of a housing market crash.

"Rate rises should dampen the market next year but on their own they will be insufficient to cause an early-nineties style slump," Mr Bannister said.

"The nineties crash resulted from a combination of factors including increasing joblessness and low equity levels as well as rising interest rates."