The monthly lending figures reported a 3.3 per cent increase in June, which has caused the lender to revise its yearly forecast up to 18 per cent from 10 per cent in March.
House prices are now nearly 20 per cent higher than they were last summer, and the averag ehouse price is now £106,693.
Alex Bannister, group economist, finance and planning at Nationwide, said:
"The housing market continues to hold up because of current economic conditions, notably high employment levels and low mortgage rates but its strong growth in recent months is being driven by high levels of confidence and the expectation that prices will rise strongly over the next few years. In addition, the belief that mortgage rates will stay relatively low in the future is encouraging households to take on more debt. Nevertheless most borrowers are not over-stretching themselves. Mortgage payments are currently around 35 per cent of take home pay for a typical first-time buyer. The average deposit size is also healthy at around 15 per cent of the property value for first-time buyers but prospective first-time buyers, particularly those on average earnings, are finding it tough to get on the housing ladder. However, it does suggest that, barring a major economic shock, such as a sharp rise in unemployment or mortgage rates, the housing market is set for continued growth in prices.
We expect the pace of growth to moderate because of modestly higher mortgage rates later this year and a slowdown in employment and earnings growth. We are revising up our forecast for house price growth in 2002 to 18 per cent."
Bannister said that, regionally, affordability is likely to be the factor that begins to slow the market, although this may not happen for a while. "This might sound odd given that in real terms houses are now nearly 2 per cent above their level in 1989 - the peak of the eighties boom. What matters though is how much people are paid: and in real terms earnings are in excess of 25 per cent higher than in 1989. Even in London and parts of the South East where affordability is undoubtedly more stretched there are no obvious signs of the market slowing in response to affordability constraints. Although price growth in London is lower than in East Anglia the annual rise of 16 per cent in the first quarter represents the strongest growth seen in the capital since the summer of 2000. In addition, the number of first time buyers in London increased by 30 per cent in January compared with a year ago," said Bannister.
Nationwide has revised its forecast for the year, asthe continued high levels of growth in the first half of the year have taken everyone by surprise. Bannister said: "Although we will see higher mortgage rates over the next six months combined with slower earnings growth and weaker job creation, the economic backdrop remains positive for the housing market. This suggests house prices have further to rise particularly as the expected increase in base rates over the next 6 months is relatively modest. We do expect London price growth to continue to slow this year, with affordability and a reduction in demand for buy-to-let property both playing their part. The rest of the UK should continue to see strong price increases as affordability remains good. A sharper rise in interest rates, prompted, for example, by a sharp decline in the pound might cause a decline in growth. However, the key risk remains that unemployment rises more sharply than expected over the coming year denting confidence, undermining income growth and increasing arrears. Barring this sort of shock we now expect house prices to rise by 18 per cent this year."
