CEBR Says U.K. Home Values May Rise 20% in Four Years (Update1)

Feb. 1 (Bloomberg) -- U.K. house prices will increase by about a fifth in the next four years as banks step up lending and interest rates remain low, the Centre for Economics and Business Research said.

Home values will rise 6.5 percent this year and gain about 20 percent by the end of 2013, the London-based research group said in a report today. The CEBR forecast in October that house prices would increase 2.6 percent this year.

Reports by Hometrack Ltd. and Nationwide Building Society in the past week showed house prices are rising again after the economy returned to growth. The recovery may prompt the Bank of England to pause its bond-purchase plan this week, while keeping the benchmark interest rate at a record low of 0.5 percent, according to a Bloomberg News survey of economists.

“The fact that house prices have already risen by almost 10 percent since the bottom of the cycle has surprised most commentators,” Benjamin Williamson, a CEBR economist, said in the report. “However, with the rate of mortgage lending more than doubling over this period of time, a shortage of new properties on the market, low interest rates and unemployment not rising nearly as fast as expected, it is easy to see how prices have moved so quickly.”

U.K. mortgage approvals unexpectedly dropped in December for the first time in more than a year, Bank of England data showed today. Lenders granted 59,023 loans to buy homes, compared with 60,045 in November. Approvals were up from 32,176 a year earlier.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net.

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net