Nationwide raises forecast of house price inflation to 15%

Click to follow
The Independent Online

The Bank of England will not use interest rates to target the housing market, one of its senior officials said yesterday as a leading mortgage lender almost doubled its forecast for house price growth this year.

The Bank of England will not use interest rates to target the housing market, one of its senior officials said yesterday as a leading mortgage lender almost doubled its forecast for house price growth this year.

Kate Barker, a member of the Bank's monetary policy committee, said there was no need to raise interest rates "straight away". "We don't want to send a shock to the consumer."

She said she was concerned about the impact of the recent rise in the pound, warning business confidence could cool if sterling remained strong. "We are targeting inflation, not consumer borrowing or house prices - we are looking right across the economy," she said during a visit to Scotland. "The inflation forecast doesn't imply that we need to slow the economy straight away."

Her comments came as Nationwide building society said the price of the average home rose 1.4 per cent this month, taking the rise in the first quarter of 2004 to 5.3 per cent - the strongest since the end of 2002. Nationwide said it expected continued strong growth and raised its forecast for house price growth this year from 9 per cent to 15 per cent.

Alex Bannister, its chief economist, said despite rising interest rates the market was still supported by a shortage of new homes. "We expect continued upward pressure on house prices," he said.

Nationwide said the price rises were widespread across the country with northern regions still topping the regional league table but London and the South East showing signs of emerging from their slowdown.

Prices rose by more than 36 per cent in Wales over the last year followed by a 33 per cent annual rise in the North of England, which took prices there above the £100,000 mark for the first time.

Nationwide said it was confident price growth would moderate as rates rose to 4.75 per cent and first time buyers were kept out of the market by unaffordably high prices. Nationwide said there was little chance of the boom turning into a bust as happened in the late 1980s.

"While the latter half of 2004 is likely to see slower growth in prices, a slump remains unlikely," Mr Bannister said. "Despite a rise in interest rates, there is little chance of a significant economic downturn this year."

Comments