British Households Become More Confident About Residential Property Market

Confidence that U.K. home prices will rise climbed to the highest level since July 2010 after the Bank of England signaled that borrowing costs won’t increase soon, a gauge of sentiment showed.

The index of price expectations rose to 53.6 from 48.5 in August, according to a report by Markit Economics. A reading of more than 50 indicates respondents predict prices will increase in the next 12 months, according to the survey, which was published today by real-estate broker Knight Frank LLP.

With the economy faltering, every member of the Bank of England’s Monetary Policy Committee voted to leave the benchmark interest rate unchanged at a record low of 0.5 percent last month. Two members dropped their calls for higher interest rates to curb inflation. That suggests borrowing costs will stay unchanged for at least a year, said Grainne Gilmore, head of U.K. residential research at London-based Knight Frank.

“This is likely to have boosted confidence, especially among homeowners who have variable-rate mortgages and buyers with deposits who can clinch new mortgage deals at historically low rates,” Gilmore said in a statement.

A separate measure of current home-price sentiment improved to 44.7 from 41.5 in August, indicating that fewer respondents said prices were falling. This was also compiled by Markit Economics.

Stable Prices

The surveys “indicate that prices are likely to stay stable,” said Gilmore. Price gains may materialize “if the trend of the future house-price sentiment index is maintained in months to come.”

The U.K. housing market is being constrained by reduced mortgage lending as banks repair balance sheets and impose stricter loan terms, and by higher taxes and inflation squeezing household finances. Lloyds Banking Group Plc’s Halifax mortgage- lending unit said July 6 that home prices rose the most in eight months in June because of a shortage of properties for sale.

July mortgage approvals were 39 percent less than the average of the past decade, central bank data show.

U.K. homeowners shouldn’t count on making money from their property as the pace of price gains slows, Housing Minister Grant Shapps said in a Sept. 6 interview. Buyers are struggling to get mortgages because salaries have failed to keep pace with home-price increases.

Increased confidence in future home prices stemmed mainly from respondents located in southeast England and London, the survey showed. These regions are less affected by public employment cutbacks than other parts of the U.K. as the government seeks to reduce a record budget deficit. The East Midlands region, which includes the cities Derby, Leicester and Nottingham, was the most pessimistic, the survey showed.

The housing report, compiled from surveys of households by London-based research firm Ipsos-Mori since February 2009, was published for the first time today. It was based on responses from 1,500 adults surveyed Sept. 8-11 using quotas and weightings to match U.K. demographics.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.