Warning that house prices will be hit

The outbreak of foot-and-mouth disease could shave 0.5 percentage points off the expected 7 per cent rise in house prices this year ­ equivalent to almost £500 for homeowners on average, the Nationwide building society said yesterday.

The outbreak of foot-and-mouth disease could shave 0.5 percentage points off the expected 7 per cent rise in house prices this year ­ equivalent to almost £500 for homeowners on average, the Nationwide building society said yesterday.

It said the forecast was a worst-case scenario and would happen only if the epidemic was prolonged and seriously affected the London housing market. The warning came as a City economist said falling share prices were a far greater danger to the housing market and could actually lead to London house prices tumbling by as much as 4 per cent this year.

Nationwide said there had already been signs of falling sales thanks to foot-and-mouth, as restricted mobility and the collective focus on tackling the outbreak had cut the number of visits by homebuyers.

Alex Bannister, the society's chief economist, said: "If it was prolonged, and if tourism was hit, and if the economy slowed down by a significant amount, then, at worst, we would see 0.5 per cent off our forecast.

"But that is not the central expectation, which is that there will be no impact at all for the UK as a whole, though rural areas may be affected."

Based on the Nationwide's estimate of 7 per cent growth from an average price of £83,976 at the end of 2000, the society expects homes on average to be worth £89,854 at the end of this year. Growth of 6.5 per cent would mean £420 off that value.

The society's latest monthly survey showed home-seekers had not been deterred by either plunging share prices or foot-and-mouth. House prices in the UK rose 1.4 per cent in March, and are now 7.2 per cent higher than a year ago. Annual house-price inflation in London slowed to 5.6 per cent in the first quarter, compared with a peak of 26 per cent a year earlier.

Weaker confidence among City workers, as stock market indices fell, was thought to be among the factors for the slowdown in the capital. Simon Rubinsohn, chief economist at the City fund manager Gerrard, said London would be worst hit by continued weakness on the stock market, and UK house-price inflation would be nearer 4 per cent for this year unless the stock market recovered.