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Saturday, 4 September, 1999, 12:36 GMT
House prices 'could rise 35%'

house Learn the lessons of the 1980s, the report warns


House prices could increase by one third by the end of next year unless interest rates are put up swiftly, a report has predicted.

The Property Maze
This could push the cost of an average home up from 75,000 to more than 100,000 by the end of 2000.

An independent report by Deutsche Bank says the Bank of England needs to act quickly to slow the current aggressive housing market, which is already 10% higher than it was a year ago.

"Real incomes are rising, the cost of buying is not too much and beyond that real house prices are not overvalued at all," said Mr Barr.

These conditions could potentially trigger rapid growth in the housing market in the next few months.

Prices in the South, which traditionally have the fastest recovery, could rise by 35% in the next 16 months while in the North East they could rise by a fifth.

Similarities with 80s

Mr Barr said the Bank of England should raise interest rates in November from the present 5% in order to calm the rising prices.

"If you do not raise rates you will get a strong pick up in the housing market.

"The market would pick up a strong head of steam and the Bank would then find it will have to raise rates more sharply than it would have to do," he said.

He warned that lessons should be learned from the boom and bust in the housing market of the 1980s.

"Everyone says that history does not repeat itself. They say it is not like it was in the 80s and the 80s boom could not occur again.

"We believe that is wrong, increases of this kind could not be sustained. There are many similarities between what is happening now and the situation back then.

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See also:
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02 Sep 99 |  The Economy
House price rises hit 10-year high
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Boom time ahead for UK?

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