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FTSE beats property for first time in five years

House-price inflation slumps to single digits following 2004’s increase of nearly 13 per cent

Equities outperformed property for the first time this century in 2005 as returns from the FTSE 100 outstripped the Nationwide house-price index by more than fivefold.

The FTSE 100 rose by 16 per cent compared with a 3 per cent increase in residential property prices.

Nationwide expects property values to rise this year by between 0 and 3 per cent. In 2004, house price inflation was 12.7 per cent.

Group economist Fionnuala Earley says the average house price grew by only 4,500 in 2005, helped by growth of 0.5 per cent in December.

The average UK price of 157,250 is almost exactly the same as in May 2005.

Earley says it was the first time in five years that annual house price inflation was in single digits at the end of the year. 2005 was also the first year since 1999 that the equity market has outperformed the housing market.

She adds that despite three years of positive returns from the FTSE, the index remains 10 per cent off its 1999 peak while house prices are more than double their levels at the end of 1999.

Standard Life Investments head of global strategy Andrew Milligan says he expects the housing market to remain stable in 2006 although expensive compared with average earnings.

Milligan says: “Equit- ies will continue to outperform cash if we see stable inflation and interest rates. However, we will see similar trends in 2006 as we have in 2005, when the equity market fell off in the spring.”

Earley says: “There is uncertainty about the economy at present but we still expect that the next move in interest rates will be down.

“Reaction to the Bank of England monetary policy committee’s minutes in December led to a further softening in market expectations and the futures market is now pricing in a cut in base rates by March.”


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