Property prices soar

The lowest mortgage rates for more than 30 years and rising consumer confidence have triggered a surge in house prices with evidence that would-be buyers are chasing a dwindling pool of good-quality properties.

UK house prices jumped by 1.2% in May, lifting the average cost of a home by more than ?1,000, according to figures released yesterday the Nationwide, the biggest building society in the UK. The average home now sells for ?69,933 - 7.4% up on this time last year when the figure was ?65,131.

Meanwhile, mortgage lending by Britain's major banks climbed to ?5.17bn last month, the highest figure since July last year and around 20% up on April 1998.The new figures have raised fears of a repeat of the boom-and-bust cycle of a decade ago.

The latest mortgage lending figures reinforce suggestions that the housing market is enjoying a stronger-than-expected upturn. Lending surged by almost 40% to ?4.97bn in March. The British Bankers' Association had thought this was a temporary blip, but the new figures put paid to that theory.

April's figures indicate activity "in excess of the usual seasonal upturn", said the BBA's director general, Tim Sweeney.

The feverish demand in some areas, particularly the most desirable locations in London and the south-east, has resulted in gazumping making an unwelcome comeback, with some estate agents resorting to asking for sealed bids.

Official Land Registry data for England and Wales, issued this week, showed that the average price of a house during the first quarter of this year was up 6.6% on the same period in 1998, but this figure masks dramatic regional variations.

Prices in Greater London as a whole were up by 8.8%, but while Tower Hamlets and Southwark have seen growth of 20% and 17.8% respectively, Ealing and Enfield managed just 2.5% and 1.9%.

In Hampstead, north London, prices have risen by 10% and maybe even 15% since the start of the year, said Saul Empson at local estate agent John D Wood & Company.

"I think we are going to see a 15%-20% year in terms of Hampstead. I think that will probably hold true for the prime areas of London, and maybe even the South-east as well."

In Chelsea, prices have moved up by 5%-10%, said Kevin Ryan at estate agents Egerton.

Cambridgeshire, Buckinghamshire and Oxfordshire are among the areas notching up above-average rises, but prices have fallen in several parts of Wales, including Swansea, Gwynedd and Blaenau Gwent.

Back in Hampstead, Saul Empson is having to deal with the dark side of the current market buoyancy. "We are seeing gazumping, we are seeing gazundering [reducing a previous offer at the last moment], we are seeing some very bad tempers."

He describes how recently, a "completely unmodernised" five-bedroom, semi-detached Victorian house in the centre of Hampstead Village went for ?1.25m. The firm had quoted a guide price of ?1m.

"We rang the best dozen or so people on our books and we had to put it out to competitive tender because things got so heated."

He described the buyers as "a standard professional English couple not Sting or anybody like that".

Renewed interest from first-time buyers is playing a key part in the renewed buoyancy in the market, said Philip Williamson at Nationwide.

"It is estimated that the number of first-time buyers increased by nearly 5% in the first quarter of the year, the largest increase since the summer of 1997."

With the wider economy looking set for a soft landing and consumer confidence surging, housing market activity should improve further this year, he added.

However, Nationwide was keen to play down suggestions of a booming market, saying that prices are relatively subdued compared to where they have been in the past.

A series of interest rate cuts has resulted in a stampede for variable rate mortgage deals. Eleven months ago fixed rate mortgages accounted for 60% of new home loans being taken out, but their share of the market fell to just 36% in April.

However, the tide may be turning again, with fixed rates now starting to come back into favour, according to the Halifax, the UK's largest mortgage lender

"There is a view that maybe we have reached the bottom of the rate cycle and perhaps the fixed rates that are around today will not be around for much longer at these sorts of prices," said David Nicholson, head of mortgage marketing at the bank.