House prices expected to jump 8% before being hit by higher rates

The housing recovery is set to continue despite higher mortgages this year, with rising prices encouraging buyers and sellers back into the market. The recent surge in prices in the capital is expected to spread beyond London and the South this year but the increase in activity and prices will be short-lived, tailing off in 1998.

The number of housing transactions, set to increase by more than 10 per cent in England and Wales this year, will spark a big jump in house prices. The average UK house price is expected to rise by 8.4 per cent, twice as fast as last year's 4.2 per cent rise, according to the latest edition of "Regional Housing Market Prospects" from Cambridge Econometrics.

In East Anglia, the West and East Midlands, Yorkshire and Humberside, the North-west, the North and Wales, activity is expected to overtake London and the South, with increases in the number of transactions ranging from 11.2 per cent in the North-west to as much as 15.3 per cent in the North.

But while low mortgage rates in 1996 encouraged the current spate of activity, the anticipated rise in mortgage rates will hit the market next year, with all regions expected to show a sharp downturn in the number of houses sold or purchased.

London, the South-east and the South-west are forecast to show the steepest decline, with drops of over 3 per cent. While London's housing market is still bustling, there are already signs of a downturn. The number of transactions will go up only 10 per cent this year, compared with a massive 17 per cent in 1996.

Despite slowing activity, house prices will continue to rise next year, albeit at a less hectic rate. Prices throughout the UK will go up by an average of 7.3 per cent in 1998. This year and next, East Anglia and the South will experience the fastest acceleration in house-price inflation, but the growing numbers of buyers and sellers in Northern locations will not usher in commensurate inflation.