U.K. Needs Low Rates for Homes Market, Minister Says (Correct)

Britain needs interest rates to stay low for as long as possible to help its property market become “steadier” without swings in prices that make homes unaffordable, Housing Minister Grant Shapps said.

“It’s really important that we keep interest rates low for as long as possible,” Shapps said at a conference for the homebuilding industry in London yesterday. “The biggest problem at the moment is that people can’t afford to buy your product because they can’t get the lending to get it.”

House prices plunged the most since at least 1983 in September after they tripled in the decade to 2007, according to Lloyds Banking Group Plc’s Halifax division. The International Monetary Fund said Oct. 6 that British home values are “still high” and policy measures may not be enough to prevent a further drop.

“We need a housing market that is best described as boring,” he said. “We can’t go on thinking that your home is your investment, your retirement plan, and your roof over your head. We have to live in a country where housing becomes over a long period of time more affordable, and that means steadier house prices without boom or bust.”

Shapps said while first-time and other buyers may struggle to buy property because they can’t get a mortgage, the government’s commitment to taming the record deficit has eased strains in the housing market by lowering borrowing costs. The average rate for a two-year fixed-rate mortgage with a 25 percent deposit was 3.79 percent in September, close to the lowest on record, Bank of England data show.

Budget Squeeze

“That’s all happening only because of the deficit reduction plans and that the market understands that this government is serious about reducing the deficit,” he said.

Mortgage approvals fell for a fourth month in August to 47,372, less than half the level at the peak of the housing boom in 2007, the Bank of England said Sept. 29. The average price of a home fell 3.6 percent in September from the previous month to $258,000, Halifax said Oct. 7.

The recovery in the U.K. mortgage market has “a long way to go,” John White, chairman of homebuilder Persimmon Plc, said at the conference. “My personal view is that we should only expect 50,000 a month for the foreseeable future. If we get more, that will be good.”

Shapps said the government will help promote homebuilding by cutting regulation, and an offer to local councils of a bonus for new homes built in their districts may help ease the sting of budget cuts. Chancellor of the Exchequer George Osborne will announce on Oct. 20 details of the biggest public spending squeeze since World War II.

“We have to have more homes built in this country,” Shapps said, speaking at the Housing Market Intelligence Conference. “You’ve seen that we’re serious and determined to cut the deficit. We’re just as serious about cutting all that unnecessary bureaucracy.”

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

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

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