British house prices jumped 2.2 per cent in May to push annual housing inflation above 20 per cent for the first time since June 2003, a key survey showed this morning.
The seasonally adjusted Halifax House Price Index showed prices ignoring three interest rate rises since November to pick up pace from the 1.8 per cent monthly increase and the 19.1 per cent year-on-year increase reported in April.
The Bank of England has consistently denied targeting house prices but some economists believe it should raise rates to check rampant housing inflation to avoid a crash that could unsettle the economy.
Strong housing demand, together with supply shortages, have maintained house price inflation at a high level this year, Halifax said.
Economists believe interest rates that are still low by historical comparisons are also boosting the market.
Halifax expects the housing market to begin to slow later in the year and into 2005, as interest rate rises begin to bite.
However, for the time being many first-time buyers have been priced out of the market, a factor some commentators predict could prompt a hard landing in the market.