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Nationwide forecasts house prices will rise 10% this year

Nationwide is predicting that house prices will jump by 10 per cent over the next 12 months on the back of healthy economic conditions.

In its quarterly review, Nationwide says that over the last three months, increases in house prices were fairly evenly spread, with East Anglia showing the greatest percentage rise for the third successive quarter with 18 per cent growth over 12 months. London shrugged off concerns about City job losses to record growth of 16 per cent.

On a local authority region basis, Mid-Devon performed best, with prices up by 40 per cent over the last 12 months.

Outside England, the story is different, with Northern Ireland seeing increases of only 4.5 per cent, Scotland 8.5 per cent and Wales 10.5 per cent.

Overall, Nationwide says prices are up by 13.8 per cent on the year.

Despite prices being higher than in the 1980s&#39 boom, Nationwide says affordability remains generally good. Interest rates would have to double to 8 per cent to push mortgage repayments to their 1980s&#39 height. But it says affordability will eventually dampen the market. First-time buyers are finding it hard to get into the market but Nationwide says they are largely unwilling to give up on their aspirations of homeownership.

Possible interest rate rises will be be small enough not to dampen house price growth, claims Nationwide.

Group economist Alex Bannister says: “Very healthy economic conditions, with low employment, strong real pay increases and low interest rates add up to make homeownership look very attractive compared with renting.

“Although higher base rates and unemployment will dampen market conditions later in the year, we believe there is enough momentum for prices to increase by 10 per cent during 2002.”

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