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House prices "bounce back"

UK house prices "bounced back" in June after climbing by 1.1 per cent, Nationwide revealed today.The latest property price survey by the building society showed the annual rate of house price inflation reached 11.1 per cent this month, its highest level since January 2005.Nationwide said that the annual rate of growth was more than twice as fast as that recorded at the same time last year, with property prices soaring by the equivalent of more than £50 per day.The average house in the UK is now worth £184,070 – a rise of over £18,000 on the typical price for the same period in 2006.Commenting on the figures, Nationwide chief economist Fionnuala Earley said news of the rise made it likely that Bank of England policy makers would opt for a further interest rate increase."The resilience of the housing market will be another component to add to the rate rise camp’s argument," Ms Earley said.Global Insight chief economist Howard Archer shared Nationwide's view, stressing that June's "marked spike up" in house prices raised the likelihood of interest rates climbing by 25 basis points to 5.75 per cent next week and would fuel speculation that the base rate of borrowing could hit six per cent by the end of the year.However Nationwide stressed that with the level of house sales already falling, higher interest rates would increase the "squeeze" on demand in the property market over the short term and reduce growth during the second half of the year.The building society said it was standing by its forecast that property prices will climb by between five and eight per cent in 2007.Meanwhile, amid Gordon Brown's announcement that he intends to make housing a priority in his government, Nationwide has urged the new prime minister that any policies he introduces to increase the availability of affordable property must be "carefully thought out and introduced in a measured fashion". Referring to concerns that first-time buyers are being priced out of the market by the growing buy-to-let market, Nationwide said: "An ill-thought out measure which flooded the market with property could do more to destabilise the market for all borrowers rather than just make it a more affordable prospect for new entrants."

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