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House prices continue to soar

House prices continued to rise last month with the average UK property price increasing by 2.5 per cent to £108,818 from £106,693, according to the latest figures from Nationwide.

This means annual house price inflation has now reached 21 per cent, the highest since the second quarter of 1989.

The building society says that while the prices of equities and goods on the high street both fell, the housing market remains strong and the average price is well up on last year&#39s July average of £89,692.

It says that although last month&#39s increase is slightly weaker than the 3.3 per cent growth in June, it is slightly above the average 2.1 per cent increase over the past six months.

Although affordability is becoming more of a problem, particularly in the South-east, Nationwide says the demand remains strong, driven largely by the favourable economic backdrop.

It says further evidence of high levels of demand can be seen with estate agents reporting severe shortages of property on their books and sales at their highest levels since 1989.

But Nationwide reported gross lending of £17bn in June rather than the £20bn exp-ected for the time of year – which it puts down to the Jubilee and the World Cup.

Group economist Alex Bannister says: “Buyers appear to believe that interest rates will remain lower than in the past and are willing to borrow more to finance property purchase, given the current relative appeal of property and other investments.

“There is a risk that some households will overstretch themselves and we would urge both lenders and borrowers to maintain a prudent and cautious approach to home buying.”

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