Speculators drive housing boom

The housing market is being driven by a speculative boom, a leading industry body warned yesterday as it reported a sharp jump in prices last month.

The housing market is being driven by a speculative boom, a leading industry body warned yesterday as it reported a sharp jump in prices last month.

The Royal Institution of Chartered Surveyors said prices rose in March at their fastest pace for a year and a half, driven by a shortage of properties, historically low mortgage rates and speculation.

"The speculative element is beginning to build up," said Milan Khatri, the chief economist at Rics, which said homes were now seen as a "golden asset" by investors.

It insisted that forecasts of an imminent crash in prices were misplaced but warned homebuyers not to assume the era of low interest rates would last.

"The key message is that the economic environment could change and five or 10 years from now inflation and interest rates may be higher," Mr Khatri said.

Ian Perry, a Manchester surveyor and Rics' housing spokesman, said homeowners would continue to reap capital gains "for the present at least".

He warned that the market could be "very different" in a decade's time as economic circumstances changed, pointing to the experience of the early 1990s when a surge in interest rates punctured the housing bubble of the late 1980s.

Rics said the rate hikes in November and February had done little to dampen homebuyers' enthusiasm. Financial markets expect rates to rise as high as 5 per cent by the end of the year - a 40 per cent jump since they troughed at 3.5 per cent just 10 months ago.

But separate figures yesterday gave comfort to economists forecasting only a gradual tightening of monetary policy.

The British Retail Consortium said March high street sales posted the slowest growth so far this year. Retail sales were 4.4 per cent higher than a year ago, down from 6.8 per cent in January.