House prices set to rise 5% despite economic woes

HOUSE PRICES will continue to rise by an average of five per cent next year, in spite of global economic woes, according to an authoritative study released yesterday.

Detailed forecasts by Cambridge Econometrics, a respected independent think tank, show prices being supported by an increase in income for most households in the UK.

The think tank predicts a big slow-down in housing market activity, with three per cent fewer properties being bought and sold. But prices would slow down, rather than fall.

The average UK home will already have risen by 9.5 per cent in 1998, according to Cambridge Econometrics. Pricesrose by 10.5 per cent in 1997.

The optimistic forecasts were supported by a UK economy still in good shape, the think tank said. "Prices are estimated to be below what would be justified by economic fundamentals, and so prices are forecast to continue to rise in 1999 to correct this."

The forecasts will soothe growing anxiety among homeowners that house prices are slowing down or even threatening to drop. Recent data has shown a slight fall in prices during August.

Mortgage lenders are increasingly confident this was a statistical blip and not a long-term trend. They are now anticipating a one-per-cent cut in interest rates over the next year, a crucial factor in restoring the confidence of house buyers. Further signs of optimism came as Halifax published a regional breakdown of house price data in the third quarter of 1998.

Halifax said house prices were still rising modestly from July 1 to September 30. The sharpest rises were in the northern-most counties, where prices rose by 4.5 per cent in those three months alone.

Prices in the South-East suddenly slowed down, rising by just 1.3 per cent in the same period. The overall average price of a home in the area - pounds 99,529 - is still below its 1989 level.

Homeowners enjoyed the biggest boom in Northern Ireland, where prices rose 3.2 per cent in the third quarter.

However, the contrast between the north and south is likely to even out over the next year, according to Cambridge Econometrics' analysis.