House prices soar by 19.1% but fears of crash intensify

There is no sign of a slowdown in Britain's red-hot housing market, Halifax bank said yesterday as it reported another surge in prices last month.

The admission will fuel fears of a property crash and came as independent analysts warned that prices could fall as much as 16 per cent unless the Bank of England raises interests rates to puncture the bubble.

The UK's largest mortgage lender said the price of the average home rose 1.8 per cent in April to take the annual rate to 19.1 per cent, the fastest pace since last August.

The rise will add to the weight of evidence pointing to a hike in interest rates today when the Bank's Monetary Policy Committee finishes its two-day meeting. The average price rose £2,975 on the month, equivalent to £93 a day. If this rate of increase continued over a year, the gain would be £33,540 - well above the £28,065 that the average British worker makes in salary per year.

There was further evidence of the strength of the market yesterday from a separate survey showing activity in the private housebuilding sector rose strongly in April.

But Halifax insisted there would not be a repeat of the property crash of the early 1990s, pointing to the strength of the economy, historically low interest rates and the huge build-up in household wealth over the last few years.

"The market remains underpinned by sound fundamental factors with high levels of employment, low interest rates and low levels of debt servicing costs driving high housing demand," said Martin Ellis, its chief economist. "The fundamentals will remain supportive during the remainder of 2004 with little prospect of either a turnaround in the labour market or a sharp rise in interest rates."

He said a combination of today's expected rise in interest rates and the growing shortage of first-time buyers would result in a "gradual easing" in house price inflation during the second half of the year.

Research by Halifax showed the ratio of the value of private sector housing assets to debt - at more than threefold - was higher than either five or 10 years ago. The bank also said that, despite record levels of debt, the costs of servicing the debt were manageable, echoing recent comments from the Chancellor, Gordon Brown.

The Institute of Directors agreed yesterday, saying the housing market was "more likely to go hiss than pop in 2005".

But Fathom, a consultancy set up by some former City economists, said house prices were overvalued and could fall by 16 per cent over the next four years. It said the Bank should act pre-emptively by raising rates to minimise the size of the eventual crash.