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Britain's housing boom shows no sign of coming to an end, Nationwide Building Society said yesterday when it revised its forecast for price increases this year from 6 per cent to 10 per cent.

The society said "very healthy" economic conditions with low unemployment, substantial pay increases and low interest rates made owning a home much more attractive than renting.

Its latest figures showed the average price of a home rose by 0.9 per cent in March, almost double what analysts had expected. This means the average value of a home, at £96,792, is almost 14 per cent higher than a year ago. In parts of the South there were signs of speculative super-boom, with annual price rises in parts of London surging as high as 32 per cent.

Alex Bannister, group economist, said: "Double digit house price growth is ultimately unsustainable but that phrase is sounding somewhat tired. The question is, what will slow the market down? There is nothing obvious on the horizon. We are looking for the market to naturally slow itself down as prices become unaffordable – but that is a slow process."

He said a rise in mortgage rates, currently at their lowest level for half a century, would help slow the market, but the Bank of England announced yesterday it had decided to leave base rates unchanged at 4.0 per cent. Mr Bannister said rates would have to hit a 10-year high of 8 per cent before property became as unaffordable as it was in the 1980s boom.

The society said although first-time buyers were finding more difficulty getting on the property ladder, they were still keen to become home owners. There was a 50 per cent rise in the number of people hoping to buy their first house in the year to January 2002.

Mr Bannister said: "Affordability is not dissuading first-time buyers at present and compared to the 1980s it remains good." But he warned there was a real risk of a speculative bubble if people started to believe house prices were guaranteed to rise 10 per cent a year. "If the market continues to grow at this pace you will end up with people borrowing too much, banks lending too much," he said.

"If first-time buyers are making a decision to buy on the expectation that prices will rise 10 per cent every year in the future then frankly they ought not to be buying."