Home buyers ignore rate rise fears

The prospect of a rise in interest rates has failed to dampen demand in the housing market, with prices continuing their upward surge, according to figures out today.

The latest monthly index from property website Hometrack, which uses data from 3,500 estate agents, found that the average property increased in price by 0.4% during October. The volume of transactions also rose during the month - up 7% on September.

Interest rates are expected to rise in 10 days' time, when the Bank of England's monetary policy committee holds its November meeting. Four of the MPC's nine members voted to raise rates this month to put the brakes on consumer spending. Analysts believe last week's news that retail sales surged in September, and the economy expanded at a healthy rate of 0.6% in the third quarter, helped settle the argument in favour of higher borrowing costs.

City investors are now betting that rates will jump to 5%, from their current 48-year low of 3.5%, by the end of next year.

Hometrack's findings are in line with other recent indices including those from the Halifax and the government. All of the main housing surveys have concluded that the highest price rises over the past few months have been concentrated in the north of England and the Midlands.

According to Hometrack, the most significant price rises have been in areas where property values remain much lower than the national average. The 10 regions with the highest rises have an average house price of £114,790, while in the 10 regions with the smallest rises, and those where prices have fallen, a home costs £187,080 on average.

The highest growth areas were Hereford and Worcester, which saw prices rise by 1.6%, and East Riding and Yorkshire, with an average increase of 1.4%.

Three areas registered price falls. In north-west London, prices fell 0.5%, although prices for Greater London rose by 0.7%, while values also dropped in Buckinghamshire, by an average of 0.2%, and Northumberland where they fell 0.1%.

John Wriglesworth, Home track's housing economist, said: "The housing market is heading for new heights. There is no doubt that the year is finishing with new price highs. Expectations of rising interest rates are having very little adverse effect on housing demand, with transactions continuing to increase across the whole country."

Mr Wriglesworth added that as long as any interest rate rises were "modest" the housing market would remain "robust" into the new year.