Price rises lure the gazumpers back

House prices this month have returned to their highest level for five years while mortgage lending continued to increase in July, according to new figures yesterday.

Nationwide Building Society yesterday reported a 1.7 per cent jump in average house prices in August, but spokesman Philip Williamson said: "We still feel that any talk of a damaging boom in prices is seriously misplaced." According to the Nationwide, it is a shortage of properties for sale that accounts for this month's price increase. House prices in some regions remain nearly one-third below their late Eighties peak.

The South-east is enjoying the most dramatic gains at the moment, following the pattern of the boom. Estate agents in the region are reporting signs of buyers competing for suitable mid- to high-priced properties.

Mr Williamson said the number of housing transactions "remains disappointing". They declined slightly between June and July, according to official figures. Nevertheless, the mood amongst mortgage lenders is optimistic. The Nationwide's house-price index has climbed every month this year.

The Halifax Building Society's house price index, due next Monday, has shown a similar year-on-year rate of increase to the 5.4 per cent reported by the Nationwide yesterday.

Separate Bank of England figures confirmed that total new mortgage lending rose in July. Net lending was pounds 1.5bn compared with pounds 1.4bn in June and an unusually low pounds 896m the previous July. The number of new approvals, the best indicator of future lending trends, rose to 95,000 from 88,000 in June.

Adrian Coles, director general of the Council of Mortgage Lenders, said: "Every sign of improvement breathes more confidence into the market and strengthens the recovery which is now under way."

Economists' views about future prospects for house prices diverge. Simon Briscoe at City bank Nikko Europe predicted that the recovery would entice more properties on to the market, capping house-price inflation. However, others believe the housing market could be poised to repeat its classic pattern of an excessive boom whenever buyers decide that bricks and mortar are once again an attractive investment.

Blow to rate hopes, page 16