Surge in house prices

April increase highest for a decade
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The Independent Online

House prices surged ahead by a massive 3.4% during April, according to new figures released today.

They come almost immediately after Bank of England Deputy Governor David Clementi indicated that the boom would not lead to an imminent rise in interest rates.

Mr Clementi said he was not convinced a dangerous bubble in the housing market existed which would justify a rate rise.

The Nationwide said the April increase was the highest monthly rise since it started monitoring monthly figures in 1991, and was probably only matched by a few isolated months in the late seventies and eighties.

The jump pushed annual house price inflation up to 16.5%, while the average price of a house is now £100,473.

Interest rates have been held at 4% since November and the City has been forecasting a rise to rein back consumer spending and the booming house market.

Last week the Organisation for Economic Cooperation and Development predicted rate rises would be needed within weeks to keep inflation under control.

But in a speech to the Chartered Surveyors Livery Company's international dinner last night, Mr Clementi said: "There are some who believe the MPC (Monetary Policy Committee) should act now to contain what they perceive to be a dangerous 'bubble' in house prices.

"I am not convinced by this view, for two reasons."

While residential house price inflation had caused some concern and could clearly not be sustained forever at current rates, the evidence for a bubble was not conclusive, he said.

Mr Clementi added: "By their very nature, bubbles are hard for policy–makers to identify, particularly at the time."

Speaking about the latest house price figures Alex Bannister, Nationwide's group economist, said: "This means that UK house prices have risen by just over £14,000, or 16.5% over the last 12 months, and by 90% since the market's recovery started to take hold six years ago."

He dismissed fears that the market was in danger of overheating.

According to Nationwide the average UK property currently costs the equivalent of five–and–a–half years' take–home pay, compared to seven at the end of the 1980s, while mortgage interest rates are currently more than 7% lower than they were then.

Mr Bannister said mortgage payments account for just under 25% of take–home pay, compared to 58% at the end of the eighties.

He said: "From both perspectives the market looks sound. With mortgage rates set to remain relatively low in the next few years it is likely that house prices could be even higher without major concerns."

He added that the key risk to the housing market would be large job losses, stemming from further negative shocks to the corporate sector, such as another serious fall in equity markets, caused by or coupled with a downturn in the US economy.

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