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Nationwide says house price rise to hit 7 per cent

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&#39s 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&#39 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

this year.”

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