House price boom fuels rate rise fears

House prices continued to rise sharply in June, leading surveys will show this week.

Statistics from Halifax Bank of Scotland and Nationwide Building Society will add to the dilemma facing the Bank of England as it meets on Wednesday to decide whether to raise interest rates. The risk for the Bank is that the longer it waits to raise rates, the more likely it is that the housing market will crash rather than have a soft landing.

Figures on the strength of the housing market coincide with a warning from the building industry that Britain faces a housing crisis unless the Government takes action to encourage more building.

A BBC Panorama programme will tonight examine the difficulties faced by key workers such as nurses and teachers in buying homes. Geoff Ball, president of the House Builders Federation, will tell Panorama that unless the Government finds ways to encourage the building of more low-cost housing the crisis will get worse.

'Over the next five to 10 years we will see housing become the crisis that we now have with the health service and with the railways.'

Martin Ellis, chief economist at HBOS, said he expected the HBOS index to show that the average annual rise in the year to the end of June was similar to the annual rate recorded a month earlier, at 18.5 per cent.

HBOS's index reported a record monthly rise in prices during May of 4.2 per cent on average. Ellis said he did not expect as large an increase in June. 'Our feeling is that it's not likely to be quite as strong although the market is still buoyant. There are no concrete signs the market is slowing.' A spokesman for Nation wide agreed that prices had continued to push ahead. Nationwide's index recorded a monthly rise of 2.1 per cent in May and an annual rise of just under 18 per cent.

The strength of house price inflation is fuelling nervousness about a collapse in prices. Bets being placed with City Index, the spread betting firm that offers a property futures contract, are indicating a loss of confidence.

The pattern of bets is a clue to how investors think prices will perform in future. Ashley Tatham, a trader at City Index, said: 'There's relentless selling. We are now thinking that prices will probably peak in December and start to come down after that, albeit gradually.'

He added: 'There's very little buying. Nine out of 10 trades this week are on the selling side. People are getting more confident and putting bigger bets on [a fall].'