House price hotspots see rises of 25%

HOUSE PRICES should surge by 8 per cent this year, the UK's largest building society said yesterday, nearly twice its previous forecast. Nationwide said it had revised its outlook after recording rises of up to 27 per cent in parts of London.

The society said its previous 4.5 per cent figure was caused by under- estimating the rate of recovery in the UK economy.

It forecast 6 per cent inflation for 2000, but said the risk of a repeat of the housing boom-and-bust of the late Eighties remained low because many regions would have only minimal rises.

Nationwide said house prices rose 9 per cent in the last three months compared to a year ago, with the capital hitting 12.6 per cent. The national hotspot was Newham, east London, where prices surged 27.24 per cent, although the borough includes some of the UK's most deprived areas. Prices in Islington, north London, rose by 25.7 per cent, with neighbouring Hackney recording a 21.65 per cent rise. Brent, in north-west London, achieved a 20.55 per cent rise.

"London still holds the key to house-price inflation," Nationwide said in its quarterly review. "We expect price increases in London to remain higher than the rest of the UK for at least another six months. As a result we have revised our forecast for the UK to 8 per cent this year."

Unemployment's continued fall in the face of predictions of a rise, combined with interest rates at a 30-year low, had fuelled demand.

Jeremy del Strother, Nationwide's communications director, added: "Our forecast for 8 per cent is for the whole of the UK. But few regions will actually see their house prices rise by 8 per cent as sharp gains in some areas will be offset by much slower growth in others."

Mr del Strother said the risk of a housing boom was low. In real terms, prices were still 7 per cent below their long-term trend and about 20 per cent below the 1989 peak.

Lower inflation and the erosion of mortgage-interest tax relief, to disappear in April 2000, made home-buying less attractive as an investment.

Britain's ageing population would also reduce the flow of first-time buyers. The average age to buy a first home was now 27 - three years older than the peak of the 1980s boom. Also, the increase in university places meant more young people were being saddled with student loans and were therefore unable to buy property.

Nationwide said house price inflation would slow in 2000, resulting in a fall in the annual rate to 6 per cent.

Two days ago, the Centre for Economics and Business Research said London prices would surge 26 per cent overtwo years. But the centre said prices would have to rise at least 40 per cent more, compared with the level of average earnings, before hitting Eighties levels.