UK house prices will continue to grow in 2002, but at a slower rate than last year, according to a survey from mortgage lender Nationwide.

Average UK house prices grew by 0.2% in January compared to the previous month, and by 11.7% from January 2001, the company said on Thursday.

But rising unemployment is expected to dent consumer confidence in the coming months, slowing house price inflation for the year as a whole to just 6%.

House price growth has already slowed from an annual rate of 13.8% in the year to December, Nationwide said.

Price crash unlikely

Nationwide's forecast is in line with those issued by other major mortgage lenders.

Nationwide Group Economist Alex Bannister said that house prices are still "holding up well" despite a slowing economy and rising fears over job losses.

"The reasons are straightforward, with strong real take-home pay and the lowest mortgage rates for 40 years offsetting fears over increased job uncertainty."

Although unemployment edged slightly higher late 2001, reflecting large-scale manufacturing lay-offs, the jobless rate remains historically low.

The survey suggests that a property market crash on a par with the late 1980s slump, when many homeowners were left paying off mortgages worth more than the value of their houses, is unlikely.

Nationwide said that lower borrowing costs and higher real incomes have made mortgages more affordable, with repayments for first time buyers swallowing up just 26% of take-home pay, down from 50% in the 1980s.

The average house in the UK is now worth �93,231, Nationwide said, an 85% increase from 1996.

Lender caution

The survey added that caution among lenders, many of whom refuse to lend more than 95% of the value of the house, should slow price growth in London, the country's main property hotspot.

Earlier this month, Nat West and Alliance & Leicester both introduced curbs on mortgage lending in areas where prices have risen steeply due to fears that buyers may be overextending themselves.

Natwest said that about one in four London postcodes would be affected.

On Wednesday, Nationwide's rival Halifax lost an appeal against a ruling that it was wrong to keep some mortgage holders on higher rates while offering cut-price loans to new customers.