UK house prices up for fifth month

UK house prices rose for a fifth month in September as a lack of homes for sale helped the property market to erase its losses of the past year, Nationwide Building Society said.

The average cost of a home increased 0.9 per cent to £161,816 (S$363,463), the mortgage lender said in a statement yesterday. That took prices to a level last seen at the time of Lehman Brothers Holdings Inc’s collapse. It was the first time they haven’t shown an annual drop since March 2008.

The report adds to signs that Britain is pulling out of its worst economic slump in at least a generation as consumer confidence improves and mortgage approvals pick up. The International Monetary Fund on Thursday raised its forecast for UK economic growth next year, saying the housing market is now stabilising.

‘The most intense phase of the recession and financial crisis has probably passed,’ Martin Gahbauer, chief economist at Nationwide, said in a statement. ‘The further increase in house prices is very much consistent with improvements in a broad range of economic and financial indicators.’ The number of houses being sold is still below normal and will probably take another 18 months to return to the level before the financial crisis, the report said. Rising unemployment and banks’ reluctance to lend money are still ‘headwinds’, Nationwide said.

‘It would be surprising to see house prices continuing to increase at the very strong rate seen in recent months,’ Mr Gahbauer said.

Prices in all the 13 regions of the UK rose in the third quarter, led by the southwest and Northern Ireland, Nationwide said. Home values in greater London increased 3.8 per cent from the second quarter.

Consumers added £7 billion of equity to their homes in the three months through June, the fifth consecutive quarter when new investment in housing exceeded borrowings extended on mortgages, the Bank of England said yesterday. That suggests consumer spending may be slow to recover from the recession.

The construction industry slump unexpectedly intensified in September, a separate report by Markit and the Chartered Institute of Purchasing & Supply showed. Its index of building activity fell to 46.7 from 47.7 in August. Economists predicted 48.1, according to the median of eight forecasts in a Bloomberg News survey. Results below 50 indicate contraction.

The IMF says the UK economy will expand 0.9 per cent in 2010 after previously forecasting growth of 0.2 per cent. Consumer confidence jumped the most since 1995 last month, GfK NOP says, and the Bank of England reported on Thursday that lenders expect mortgage supply to rise in the fourth quarter.

At their Sept 10 decision, policy makers said rising asset prices could create a ‘virtuous upward spiral’ for the economy. Chief economist Spencer Dale said last week that he favoured limiting the increase in the bank’s bond purchase plan to £175 billion because of the risk spending more might stoke asset prices too much.

The benchmark interest rate is at a record low of 0.5 per cent. The next policy decision is due on Oct 8.

Source: Business Times, 3 Oct 2009