Spring boom in house prices `is no cause for celebration'

IT MUST be spring. The sun is out; the tulips are in bloom; there are reports of the first cuckoo. And newspapers blossom with headlines of an imminent boom in house prices.

The collapse in interest rates means mortgages are more affordable than for many years. There is talk of London house prices rising by 30 to 40 per cent within five years. Lenders are confident things are going in the right direction. Halifax talks of a "house-price rebound" after months of stagnation, and others have been similarly upbeat.

Yet none of this makes much difference to the vast majority of house owners. Certainly, for a few, a price boom can be seen as unadulterated good news - especially those who least need the windfall.

For those selling up and moving to a smaller property, an increase in house prices is like winning the lottery. And those who inherit property find themselves richer than they had dreamt of.

For the rest the story is less clear. First, there is the question of whether the much-vaunted boom really is on the way. This week's Halifax house-price survey described a 1.2 per cent rise in March. The annual rate of house-price inflation is now 4.4 per cent. Halifax and others expect house-price inflation for 1999 of about 4 per cent - hardly dramatic.

Even if house prices were to rocket as they did during the 1980s - with rises of 25 per cent over a year in some areas of London and the South- east - there may be little reason for most people to cheer.

A first-time buyer will find the bottom rung of the ladder is higher off the ground. Even owner-occupiers who have made a tidy pile on their property find they are stretched if they try to move up a rung.

Yolande Barnes, research director at property consultants FPDSavills, says a price boom is no cause for celebration.

The knock-on effect of a cut in interest rates is a renewal of the boom-bust cycle in the housing market, she says. "The only questions then will be: when will the boom stop, to what extent will prices have grown above sustainable levels and how far will prices fall in the ensuing slump?"

Sue Reid of the Council of Mortgage Lenders says we should be interested in seeing only "modestly rising price rises", if disaster is not to follow. Boom leads to a repetition of the negative-equity horror stories from the crash in the early 1990s, when those who bought at the top could sell only at a loss.

Britain is singularly obsessed with house prices as a measure of our well-being. More than two-thirds of properties in this country are owner- occupied, compared with 40 per cent in Germany. At the turn of the century, 90 per cent of Britain's population lived in rented property. The property boom started in 1945.

Some say our house-buying habits may hamper the merging of interest rates with our continental neighbours.

John Muellbauer, professor of economics at Nuffield College, Oxford, believes a surge in house prices is bad news. "I think it could scupper our chances of joining the European monetary union," he says.

Perhaps that's the point. The joyful talk of sky-high house prices is a secret plot by the Eurosceptics to ensure the pound stays sovereign for eternity. What fiendish plan will they come up with next?