House prices have risen by 5 per cent since the start of the year and show
no signs of slowing down, according to figures from Nationwide.
Despite media predictions of a property slump, the society's monthly index
shows that house prices rose by 0.8 per cent in May compared with a 0.3 per
cent drop at the same time last year.
This has resulted in the annual rate of house price inflation increasing
to 7.7 per cent in May from 6.6 per cent in April. The average cost of a
house now stands at £87,267, which is 50 per cent higher than the
average price of £58,196 when Labour came to power in 1997.
Nationwide expects the market to remain healthy and dismisses fears of
overheating. It says mortgage rates are at half the level of the 1980s,
with loan payments accounting for just over 20 per cent of gross income
compared with almost 50 per cent during the 1980s' boom.
Group economist Alex Bannister says: “Comments in the press, based on the
house price/income ratio – the number of years of annual income needed to
buy a house – say the market is overheating but our analysis suggests the
ratio is almost exactly in line with its historical average.
“Although the economy is set to slow, we expect the rec-ent pace of annual
price gro-wth to be maintained. Withincomes rising and interest rates
falling, we remain confident in our forecast of a 7 per cent rise in prices