The Nationwide has sharply increased its house price inflation prediction for 2004 to 15% after property prices rose strongly in the first quarter of the year.

The UK’s biggest building society had earlier forecast 9% increase in house prices for this year but the strength of growth in all regions has promoted the company to revise the figure for 2004.

The news released today comes just days after Hometrack increased its forecast from 4% to 8%

Today’s announcement, which contains quarterly and monthly figures, said the price of the average house rose 1.4% (seasonally adjusted) in March taking the increase in property prices over the first three months of the year to more than 5%.

The average property now costs £142,584, 16.7% more than at this time last year.

The latter half of 2004 is likely to see slower growth in prices, says the company, although a slump remains unlikely.

Commenting on the figures Alex Bannister, Nationwide's Group Economist said: "The strength of house price growth over the first quarter has been widespread with most regions experiencing a pick up in growth compared to the fourth quarter of last year.”

“London, which was worst affected by the fall in confidence at the time of major combat operations in Iraq, saw prices rise by less than one per cent over the second and third quarters of last year. However, with the economy currently growing strongly and private sector bonuses bouncing higher, the pick up in the market which began in the last quarter of 2003 continued into the first quarter of this year.”

“Price increases in London, though a little stronger, remain constrained by tight affordability and the Capital remains at the foot of the growth league table with prices rising 6.3% year-on-year.”

Wales sees 36% growth in prices over last year

“Topping the table are some of the relatively more affordable UK areas. Prices rose by more than 36% in Wales over the last year and by more than 33% in the North. The increase in the North took the typical house price there above the £100,000 mark for the first time,” continued Alex Bannister.

“At a more local level Liverpool, the 2008 Capital of Culture, experienced the biggest price rise in the country. Halton, in the North West, and the Welsh Carmarthenshire and Powys regions were also in the top 10. Once again it is the more expensive areas (including Camden, Islington, Kingston upon Thames and Cambridge) located in London and the South East that have seen prices rise the least.”

"We remain confident that price growth will moderate during 2004 in response to higher interest rates - we expect base rates to reach 4.75% by the end of the year. In addition, a downgrading of expectations for future house price growth will also weigh on the market. However, the stronger than expected start to the year has led us to revise up our forecast for house price growth to 15% from 9%.”

Most of UK set to see 15% growth

“London property prices are now expected to grow at around 10%,” said Alex Bannister, “with increases of over 20% foreseen in the North, Wales and North West. The rest of the UK will be clustered around 15%.”

Alex Bannister continued, "While the latter half of 2004 is likely to see slower growth in prices a slump remains unlikely. Despite a rise in interest rates, there is little chance of a significant economic downturn this year.”

“Some commentators fear a collapse in the buy-to-let market will undermine property price growth. However, while rental yields are low (suggesting demand for new buy-to-let will reduce significantly) most recent buyers have made reasonable gains and view property as a relatively long-term investment.”

“Indeed, the recent Barker review into housing supply will have done little to dampen enthusiasm for buy-to-let given the findings that the lack of new build is a crucial factor behind the surge in prices over the last few years.”