House prices will rise by more than £1,000 a month this year, despite recent interest rate hikes, according to a report by a respected economics consultancy today.

The Centre for Economics and Business Research (CEBR) predicted that the value of the average house would jump by nearly 8 per cent from £179,500 to £193,000 in 2007.

This is despite the fact that the Bank of England lifted interest rates to 5.25 per cent earlier this month, their highest level for nearly six years. This followed quarter-point hikes in August and November.

The CEBR thinks rate rises will be offset by the flood of money heading for the property market following the bumper City bonus season. Workers in the Square Mile are expected to take home a record £9 billion this year, which they are splashing on prime homes in central London and the home counties, keeping house price growth afloat.

Jaspreet Sehmi, an economist at the CEBR, said: “Despite the recent interest rate rises, we expect to see no immediate impact on house prices because other factors, such as the continued strength of the financial services sectors, remain more important.”

Later in the year, however, higher mortgage costs are expected to bite as the impact of big bonuses tails off.

Sehmi said: “By the end of the year, prices will begin to slow and, although we continue to expect growth in 2008, it will be much more limited.”

The consultancy is forecasting house price growth of just 1.5 per cent in 2008, which is well below the general level of inflation, followed by a 3.9 per cent gain in 2009 and 7.1 per cent in 2010.

“House prices will barely rise in 2008 with a general economic downturn and somewhat weaker financial markets taking the steam out of growth. However, 2009 and 2010 will see a recovery, with prices rising back up to trend growth with the economic cycle and the build up to the Olympics,” Sehmi said.

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