The UK's housing market is still driving ahead, a survey has shown, despite warnings that price growth is set to ease next year.

A fifth year of double-digit house price growth cannot be ruled out

Alex Bannister, Nationwide

Prices rose by a further 2% last month, the Nationwide building society said, pushing the annual rate of increase up to 25.5% - the fastest rate of increase for 13 years.

A separate report by the Council of Mortgage Lenders (CML) said house prices should continue to rise next year, but at a slower rate.

The CML expects house prices nationwide to rise by an average rate of 7% in 2003, but warned that any increase in unemployment could lead to a sharper correction in the market.

Moving on

The Nationwide said the average cost of a house was now �115,761, up from �93,544 at the start of the year.

November's rise reversed a slowing trend which had been seen over the previous couple of months.

Now is not the time to borrow on the assumption that house prices will continue rising at their current rate forever

Michael Coogan, CML

And the Nationwide said while the property market was set to cool slightly, there was little chance of a crash.

"Despite recent comments suggesting a gloomy outlook for 2003, we expect the market to slow modestly in response to deterioration in labour market conditions and some increase in mortgage rates," said Alex Bannister, Nationwide group economist.

"However, it will be affordability that increasingly provides a brake on the market - not just through difficulties for the first-time buyer, but also for existing homeowners.

"Nevertheless, given we expect only a modest weakening in conditions for homebuyers, a fifth year of double-digit house price growth cannot be ruled out."

Lending warning

The CML was slightly more pessimistic than the Nationwide over prospects for the market.

"We do not expect house prices generally to fall, but we do believe house price inflation will slow down markedly as affordability constraints kick in and interest rates rise modestly later in the year," said CML director general Michael Coogan.

However, the CML warned that a gradual slowdown was "less than certain" and that the market could see a "sharper correction" if the global economic slowdown led to rising unemployment .

"While we do not expect too many problems in the housing market, now is not the time to borrow on the assumption that house prices will continue rising at their current rate for ever," Mr Coogan warned.

Capital concern

The governor of the Bank of England, Sir Edward George, recently said the present rate of house price inflation was unlikely to last.

The Bank's Monetary Policy Committee is due to meet later this week to discuss whether or not to adjust interest rates, currently at a 40-year low.

Some recent housing surveys have found house prices beginning to fall in parts of London and the south east of England.

A recent study by housing analyst Hometrack found that prices in London fell last month, and forecast prices would fall by 5% in the city next year.

Estate agents FPD Savills recently forecast prices would rise by 12% during 2003, but by just 4% in central London.