* House prices rise 2.0% in October
* Terraced properties top growth league in most regions
* Forecast for 2003 increased to 15% from 13%
Commenting on the figures Alex Bannister, Nationwide's Group Economist, said:
"The price of a typical house rose by a seasonally adjusted 2.0% in October. This meant the annual rate of house price inflation rose to 16.1%, up from 15.5% in September. This latest, relatively rapid, rise in prices combined with a record level of house purchase approvals in September (£17.3bn) indicates that some strength has returned to the housing market. Although most regions continue to see price growth reducing, prospects for London are improving. This turnaround appears to have been led by rising equity markets and a recovering corporate sector. If this trend persisted into 2004 it is likely that London and the South East would suffer less of a slowdown than has been the case this year. In contrast, Northern regions are likely to see a more significant reduction in house price inflation as affordability constraints begin to bite. However, given the relative importance of the Southern regions the outlook for price growth in 2004 is reasonably positive.
"Given renewed strength in the market, 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. Homebuyers also remain willing to take on extra debt and some lenders appear to be relaxing lending criteria to allow this to occur. The increase in income multiples has been most significant for existing homeowners - the typical multiple is now 2.9 times income compared with 2.6 times a year earlier. There has also been a sharp increase in the number of homeowners taking new mortgages in excess of 3.5 times income. It is not surprising, therefore, that it is existing homeowners who continue to drive the market. First-time buyer numbers remain depressed, with only 34,000 getting their foot on the ladder in September (9,000 fewer than a year earlier). In contrast, existing homeowners are able to use their accumulated equity and ability to borrow more to continue to buy and sell (75,000 in September versus 71,000 a year earlier).
"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%. Clearly interest rates could rise before the end of the year and if this occurs it is likely to play an important role in changing purchasers expectations (both of interest rates and house prices). However, for most borrowers, in cash terms (as the analysis below shows), a plausible increase in rates (e.g. to 5%) is unlikely to eat too far into disposable income. What happens to rates is not likely to be pivotal for the housing market. Rate rises will increase payments and cause the market to slow but lessons from the last cycle show that price slumps are more related to labour market developments and policy changes. Decisions on taxation (both general and housing market related) in next year's budget could prove considerably more influential."
