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Strength returns to housing market

31 October 2003
The housing market showed signs of strength returning to the market as prices increased rapidly and record levels of house purchases were approved.

The latest survey from the Nationwide Building Society revealed that whilst most regions across the UK saw house price growth reducing, London showed rising prospects led by rising equity markets and a recovering corporate sector.

The Nationwide found that house prices in October increased by two per cent taking the annual rate of inflation to 16.1 per cent, up from 15.5 per cent in September.

The survey claimed that the market was being driven by the fact that homebuyers appear to have shrugged off slower pay growth, fears of imminent interest rate rises and speculation of tax increases in next year's budget.

The survey also revealed that it is existing homeowners how are driving the market as first-time buyer numbers remained depressed, with only 34,000 getting their foot on the ladder in September, 9,000 fewer than the previous year.

Alex Bannister, Nationwide's Group Economist commented: 'Whether the relaxation of lending criteria is helping sustain the market, it is clear that there is a considerable amount of momentum. With price growth running ahead of the levels we had expected, we are increasing our forecast for house price inflation in the year to December 2003 to 15% from 13%.'

Mr Bannister claimed that although the prospects for interest rate rise are high over the next couple of months this would not have a major effect on the market. He argued that even a rise in the Bank of England's base rate to five per cent would not eat too far into homeowners' disposable incomes.

The Nationwide claimed that housing market slumps are more related to labour market developments and policy changes such as tax increases in the forthcoming Budget.

The Nationwide's survey mirrors other housing market surveys which saw renewed strength in the market. The Royal Institute if Chartered Surveyors (RICS) saw buyers returning to the market in their latest survey. The property website, Hometrack, also saw a number of improving indicators suggesting that the run-up to Christmas would be a strong period for the housing market.