House prices surged ahead by a massive 3.4% during April, according to new figures released today.
They come almost immediately after Bank of England Deputy Governor David Clementi indicated that the boom would not lead to an imminent rise in interest rates.
Clementi said he was not convinced a dangerous bubble in the housing market existed which would justify a rate rise.
The Nationwide said the April increase was the highest monthly rise since it started monitoring monthly figures in 1991, and 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.
Interest rates have been held at 4% since November and the City has been forecasting a rise to rein back consumer spending and the booming house market.
Last week the Organisation for Economic Cooperation and Development predicted rate rises would be needed within weeks to keep inflation under control.
But in a speech to the Chartered Surveyors Livery Company’s international dinner last night, Clementi said: “There are some who believe the Monetary Policy Committee should act now to contain what they perceive to be a dangerous ‘bubble’ in house prices. I am not convinced by this view.”
Speaking about the latest house price figures Alex Bannister, Nationwide’s group economist, said: “This means that UK house prices have risen by just over £14,000, 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.
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.
Paula John, editor of Your Mortgage magazine, said: “The majority of existing homeowners will of course be delighted by today’s news.
“It is the first-time buyers who are at greatest risk. There are far too many determined to get on that ladder by hook or by crook. And some lenders are encouraging them to do this by offering four or five times salary (multiples).”
She said she was also concerned by research claiming that 47% of first-time buyers planned to borrow their deposit from the bank, in the late 1980s one in five homes was bought without a deposit.
She added: “Anecdotal evidence has it that a number of first-time buyers are now taking out interest-only mortgages and not taking out any form of investment policy to back them up. If this carries on it could turn into a huge financial disaster/scandal in years to come.”
EGi News 30/04/02
