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Is trap springing on the boomtown rates?

The overheating housing market will cool down towards the end of the year,

according to Nationwide Building Society.

The first quarter of 2000 has seen the usual hot spots in the market but

Nationwide says the rate of house price rises is unsustainable.

The South-east has continued to drive the trend, with prices up by 20.8

per cent, followed by 20.3 per cent in the South-west and 16.3 per cent in

East Anglia.

Prices in certain pockets of the country are now above their long-term

trend levels.

In London, prices are 7 per cent above their long-term trend and

Nationwide says the ripples are spreading out from the capital to areas

such as Surrey, Brighton, Oxford and Cheltenham.

But divisional planning director David Parry believes this is

unsustainable in the long term.

Nationwide&#39s seasonally adjusted figures show a quarterly increase in

house prices to 4.8 per cent in the first quarter of this year from 4.6 per

cent in the last quarter of 1999.

The annual change shows a rise of 15.1 per cent from 12.6 per cent in the

last quarter of 1999. The average house price in the first quarter of 2000

increased to £77,698 from £74,638. In the UK as a whole, the Nationwide

survey shows affordability remains very good with around 15 per cent of

borrowers&#39 gross income taken up by mortgage payments.

Even if base rates rise to around 6.75 per cent, as Nationwide expects,

homeowners will still be able to enter the housing market comfortably.

But the boom is not restricted to affluent areas, with some deprived areas

in central London topping the table for house price growth.

Hammersmith, which is 18th in the list of most deprived areas according to

the Department of Environment, Transport and the Regions, has the highest

annual house price inflation in the country at 45.5 per cent in the first

quarter.

Parry says: “The key drivers of house price inflation remain positive this

year. We expect the economy to grow by 3.5 per cent, earnings&#39 growth to

remain robust and unemployment to fall further.

“There is little on the horison to suggest that the housing market will be

knocked off course this year but there are factors that could have a

negative impact. Clearly, a series of &#39poor news&#39 events would undermine

confidence, weaken demand and produce a slackening in house sales and price

growth.”

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