Average UK property prices rose by 0.2% in January, taking the annual level of house price inflation to 11.7% and the average price to £93,231, according to the latest house price statistics issued today by the Nationwide Building Society.

Nationwide says that despite the recession in manufacturing and recent announcements of 80,000 job losses, homeowner confidence remains reasonably strong, due largely to the fact that real take home pay is rising at its fastest rate since the eighties, at a time when homeowners are paying the lowest mortgage rates for 40-years.

In addition, average UK house prices have increased by 85% since 1996 when the market began to recover. On average, this means prices have risen by around 1% a month for the last 6 years. Although price increases of this order are not sustainable they are sure to have helped boost confidence following the early nineties crash.

This confidence, coupled with low interest rates and buoyant economic conditions has pushed mortgage lending to record levels, though according to Nationwide, mortgage debt remains well within the means of most borrowers. Although debt as a proportion of disposable income is higher than in the eighties, it is also far more affordable. The average first year payment of a first-time buyer accounts for 26% of take home pay, compared with around 50% in the late eighties. For payments to go back to this level mortgage rates would have to increase to around 10% i.e. the Monetary Policy Committee would have to raise base rates by at least 6%, something that is highly unlikely given the current economic climate.

Homeowners are taking advantage of helpful economic conditions to increase their borrowing and not just when they are moving house. The amount of non-house purchase lending to existing homeowners increased by 46% to just over £41bn in 2001. The bulk - surveys suggest over 50% - is spent on home improvements, while the rest is split between spending on the high street and consolidating more expensive debt into mortgages.

A key influence has been the increase in equity available to homeowners. For example, 5 years ago an average property in the UK was valued at £54,656. Assuming a 10% deposit a homebuyer would have had to borrow £49,190. The same property is now worth £93,231, thus the current equity in the house would be close to £44,000 (for an interest only mortgage). In the past, homeowners tended to withdraw equity when they moved house or obtained a further advance from their lender. However, increasingly well informed borrowers are doing so at the same time as switching lenders to find the best deals in the marketplace. The number of remortgagors has increased by 40% in 2001, to a record level of around 800,000. With house price inflation of 6% anticipated in 2002, remortgaging is likely to remain a significant part of the mortgage market.

Commenting on the figures Alex Bannister, Nationwide's Group Economist said: "The housing market remains steady going into 2002 with a 0.2% rise in prices in January. Annual house price inflation slipped back to 11.7%, from 13.8% in December, reflecting the strength of the market a year ago. Despite pessimistic news from the global economy and the UK manufacturing sector, the housing market is holding up well. The reasons are straightforward, with strong real take home pay and the lowest mortgage rates for 40 years offsetting fears over increased job uncertainty. The number of house sales was 12% up in the year to December and this strength is likely to persist in the short run. This, combined with a surge in remortgaging, has pushed mortgage lending to record levels. Interest rates are close to their trough in this cycle and are set to rise during 2002 leading to higher mortgage rates. With prospects for pay and jobs deteriorating modestly, the housing market will slow during 2002. However, the market looks set to remain robust, with prices expected to rise by 6%"