Peter Jackson column

Nov 2 2006 By Peter Jackson, The Journal

Do you remember a couple of years ago, when the only debate about house prices was whether they were destined for a soft landing or a hard landing?

As things have turned out, there was the softest of soft landings and it was over so quickly that if you blinked, you would have missed it.

For, within very short order, prices began their seemingly inexorable upward progress again.

According to the Nationwide, UK prices cooled slightly last month, but the underlying trend still remains upwards.

In October, prices rose by just 0.7%, compared with 1.3% in September. But the latest quarterly trend showed prices up 2.6% against the previous quarter, which is the fastest rate of rise for two years.

Far from seeing a fall in prices, the annual rate of house price inflation now stands at 8% and at £169,623 the average home costs about £12,500 more than it did a year ago. And it looks as though there's still plenty of momentum behind prices. On Monday, the Bank of England released figures which showed that in September mortgage approvals, at 126,000, hit their highest level for two-and-a-half years.

In the South-East and London, one factor fuelling the price rises must be City bonuses, which we are told are also to soar this year.

It is forecast that more than 4,000 City workers will get £1m bonuses in the wake of a booming stock market and lots of takeover deals boosting profits at banks and other institutions.

The seven-figure bonuses make the headlines, but there are thousand of others who, while receiving less than that, will still be in receipt of sums many times greater than the average wage in the North-East.

In fact, it is forecast that the value of bonuses paid to City workers will be a staggering £8.8bn.

In the rest of the country I suspect that high house prices have almost become self-sustaining, with people now inheriting considerable sums of money from property, to invest in property.

Another aspect of this is that the Government has a disincentive to put the brakes on because it is now a considerable beneficiary of house price inflation through inheritance tax, which kicks in at £285,000 - not far from the price of an average house.