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Monday, August 2, 1999 Published at 21:37 GMT 22:37 UK

Business: The Economy

Is the housing boom getting out of control?

House prices in the UK are rising faster than at any time since the late 1980s boom - the BBC's economics reporter, Martin Shankleman, asks whether we should be worried.

Gordon Brown won't say the word, Tony Blair doesn't want to hear it, but to many observers the UK housing market is starting to show signs of an old-fashioned "boom".

Estate agents report queues of would-be buyers chasing the few properties on the market, and stories abound of purchasers bidding for properties in impromptu auctions.

The clearest evidence yet of boom conditions comes with the extraordinary jump in house prices reported by the Halifax, the UK's biggest mortgage lender.

Spring-loaded market

Its report shows that the market took off this spring, with prices shooting up 6% in the past three months.

The July rise of 2.2% was the biggest single monthly increase in six years, and you have to go back to the last great housing boom of 1988 to see similar sustained patterns of house price inflation.

That boom ended in bust. Will it be different this time?

The 1988 surge was triggered by rapidly rising incomes and the delayed ending of dual tax-relief on mortgage repayments.

This year's spike in prices has been fuelled more by huge reductions in mortgage costs through low interest rates, which has meant the economy is awash with cheap money.

Interest rates have fallen by one third over the past year, and buyers are reacting as they can now get more house for their money.

Confidence is the key

The government's success in giving the Bank of England independence to set interest rates means that borrowers and financial institutions have greater faith that interest rates are likely to stay low.

Earlier this year, house-buyers were being frightened by stories of impending global recession. Now that has eased, borrowers can be more confident about taking out large loans at cheap rates, certain that their jobs are safer.

The Halifax's group economist, Martin Ellis, is reserving judgement on whether the summer spike will continue.

He admits that his forecast of 6% inflation this year has already been overtaken by events.

Any further rises will make him feel uneasy, and would be a severe test of a government which claims to be totally committed to ending economic boom and bust.

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