Uppers and downers; Real homes

In some areas house prices are going bananas - is this the Eighties all over again? ISABEL BERWICK asks the experts

A friend of a friend has just bought a one-bedroomed flat in Notting Hill, London. Nothing crazy about that - if you don't mind American gawpers or your front garden being used as a rubbish bin by the market. And apparently this flat has a magnificent living room and a back garden. But for pounds 600,000 I would expect a troupe of performing white tigers thrown in as well.

This is no urban myth. There are thousands of people who work in the City and can afford to pay pounds 600,000, cash, for a starter home. They are distorting the market and sending prices spiralling upwards for all London buyers, even first-timers and those trying to buy in less-than-fashionable areas. A new survey of Land Registry data shows that run-down old Tooting in south London has the second fastest-rising prices in the country, up 80 per cent in three years. (Less surprisingly, Virginia Water in Surrey was number one, with prices up 92 per cent.)

But all the mad housing market anecdotes come from London and its satellites. Outside the home counties it's a different story. There's still a shortage of good properties on the market, but despite the lowest mortgage rates for 30 years, prices are static in some northern areas. Even so, prices nationwide look set to rise by an average of anywhere between 6 and 10 per cent during 1999.

So are we experiencing the start of a mini-boom or is this a London price bubble that will burst - with catastrophic effects for those of us caught up in this millennial madness? The spectre of negative equity still hangs in the air, and many people chasing what seem to be very overpriced London flats will worry that they may not make money on their new homes. We asked four top housing market experts to give a long-term view. Read and be calmed.

The house price guru

John Wriglesworth is the UK's best-known commentator on house prices. He has been studying the market for 20 years, and now runs his own consultancy.

"Housing is for nesting, not investing - gone are the speculative days. When I bought my first flat I was earning more per month in house price rises than in salary. In certain pockets of London that is true now. I know a boom when I see one, and we are in a mini-boom: double-digit price rises nationally, and rises of 15 to 20 per cent a year in the South East. Mortgage lenders tend to be cautious about predicting house price rises for fear of over-egging the economy."

Advice

"Housing is still a solid investment for the long term, taking a 15-year view. Buying now is better than renting and the low interest rate environment points to fantastic affordability. But no one should look for a quick buck."

The City economist

Richard Urwin is head of the economics department at City investment manager Gartmore, part of the NatWest group.

"The wrong starting point is the perception that we are in a boom. In the late Eighties prices went up by 150 per cent in three to four years. If you go back to 1996, prices have gone up by 25 per cent since then. I won't say house prices can't fall, but the starting point is light years away from the situation we had in the late Eighties.

"The key point is to look at the ratio of house prices to average earnings. Houses are cheap relative to people's income and on a 10-year time horizon you are not going to lose out by buying now."

Advice

"In 10 years' time we will be in EMU and interest rates will be lower than they might otherwise have been, so the cost of your mortgage loan will stay low. The crucial thing is to look at is the interest rate against house price inflation. This is what screwed people in the early Nineties. If you are paying less on the mortgage you won't be financially extended even if house prices stop rising."

The estate agent

Harry Hill is chief executive of Countrywide Assured, the UK's largest estate agency firm.

"With the exception of some London boroughs, prices are by no means out of control. Much of our business nationally tells a different story. North of Birmingham prices are going up by at best the rate of inflation and not at all in some places. In Newcastle and Sunderland, there's no movement.

"It should be remembered that, though some houses now cost no more than they did eight years ago, there are still people who have only just emerged from negative equity."

Advice

"I still think housing constitutes the best form of investment for the average person. Every pounds 500 spent on rent is money down the drain; pounds 500 paid on a mortgage is building value."

The mortgage lender

Phil Jenks is head of mortgages at the Halifax, the country's biggest mortgage lender.

"One of the reasons prices are rising is that there aren't a massive amount of houses listed for sale. The primary reason why prices dropped in the early Nineties was that interest rates rose and many people put their houses on the market because they couldn't afford the mortgage. There's no reason for that to happen now."

Advice

"Now is an ideal time to step on to, or move up, the property ladder. Mortgage rates are at their lowest since the mid-Sixties and housing remains highly affordable. Plus, there are some very competitive fixed rates available."