British house prices show 'record' surge

House prices surged ahead by a massive 3.4% in the UK during April - their highest monthly increase since records began, figures revealed today.

Nationwide said the increase, which is the biggest since it started monitoring monthly rises in 1991, was probably only matched by a few isolated months in the late seventies and eighties.

The jump pushed annual house price inflation up to 16.5%, while the average price of a house is now £100,473 (€162,117).

Alex Bannister, Nationwide’s group economist, said: ‘‘This means that UK house prices have risen by just over £14,000 (€22,600), or 16.5% over the last 12 months, and by 90% since the market’s recovery started to take hold six years ago.’’

He dismissed fears that the market was in danger of overheating.

According to Nationwide the average UK property currently costs the equivalent of five-and-a-half years’ take-home pay, compared to seven at the end of the 1980s, while mortgage interest rates are currently more than 7% lower than they were then.

Mr Bannister said mortgage payments account for just under 25% of take-home pay, compared to 58% at the end of the eighties.

He said: ‘‘From both perspectives the market looks sound. With mortgage rates set to remain relatively low in the next few years it is likely that house prices could be even higher without major concerns.’’

He added that the key risk to the housing market would be large job losses, stemming from further negative shocks to the corporate sector, such as another serious fall in equity markets, caused by or coupled with a downturn in the US economy.

But Nationwide said in some areas of the country affordability was already becoming stretched.

In London prices are nearly eight times the average take home pay, compared to nine times in the eighties, meaning first-time buyers with average take-home pay are finding it difficult to enter the market without a large deposit.

The society said affordability constraints would ultimately dampen price growth in the capital, but it would be a relatively slow process as there were currently a large number of people earning enough to get on the property ladder.

Across the whole country, Nationwide said higher interest rates combined with affordability constraints and slower growth in take-home pay would gently slow the market over the next couple of years.

The continuing boom in house prices will not lead to an imminent rise in interest rates, the Deputy Governor of the Bank of England indicated last night.

David Clementi said he was not convinced a dangerous bubble in the housing market existed which would justify a rate rise.

Interest rates have been held at 4% since November and the City has been forecasting a rise to reign back consumer spending and the booming house market.