House prices set to rise again in the Year of the North

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The Independent Online

Homeowners are set for another year of inflation-busting house price increases in 2004, according to HBOS bank.

HBOS, which owns Halifax, the UK's largest high-street mortgage lender, said the price of the average property would rise by 8 per cent next year.

This would be a marked slowdown from the 15 per cent jump this year and 26 per cent in 2002, but still well ahead of forecasts for both economic growth and inflation over the coming 12 months.

Housing analysts have repeatedly failed to predict the strength of house prices over the past five years and HBOS yesterday said that prices might rise even higher than its current forecast.

"The prospects for the housing market are good," said Shane O'Riordain, general manager of group economics at the bank. "If anything, the risk to our forecast is actually on the upside, as the three pillars that have underpinned the housing market during the last two years - low interest rates, good employment and good affordability - continue into 2004."

Its upbeat forecast comes despite growing fears that households will cut their spending and borrowing plans, given the record levels of debt in the UK and recent rises in both taxes and interest rates.

Mr O'Riordain said the slowdown in prices was driven by the rising cost of owning a home, particularly due to "significant increases to council tax, coupled with hefty rises in utility bills".

The HBOS forecast is similar to that of the Nationwide building society, which currently expects house prices to rise by 9 per cent in 2004, but will produce its final forecast for the year tomorrow. But it is double the 4 per cent increase forecast by FPD Savills, the upmarket estate agency. Richard Donnell, the company's research director, said: "We see the market being squeezed by problems of affordability. But it is a tough judgement call between how robust growth will be in the North and how weak it will be in the South and what the net effect of that will be."

HBOS agreed, saying 2004 would be the "year of the North", where house prices are forecast to rise by 17 per cent following the 33 per cent surge this year. It is also forecasting double digit growth in Yorkshire - a separate region from the North - the North-west, Scotland and Wales.

In contrast, growth in regions under a line from the River Severn to the Wash is expected to see prices rise no faster than 8 per cent. HBOS is forecasting house prices in "prime" central London will grow 8 per cent, compared with Savills' figure of 4 per cent.

HBOS also warned that first-time buyers were likely to find it increasingly difficult to get a foot on to the property ladder.

During this year the number of people buying their first home has fallen to its lowest level since records began in 1974, and the number of first-time buyers entering the market is expected to continue dropping in 2004.

As a result of strong price rises in northern regions, the problems faced by first-time buyers, which have previously been confined to London and the South-east, will spread to the Midlands and the North during the next 12 months.