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U.K. Home Prices Rise 0.1%, Failing to Recover From April Drop

U.K. Home Prices Rise 0.1%, Failing to Recover April Drop
The average cost of a home in May was 160,519 pounds ($262,914). Photographer: Chris Ratcliffe/Bloomberg

June 7 (Bloomberg) -- U.K. house prices rose 0.1 percent in May, failing to bounce back from the biggest drop in seven months in April, according to Halifax.

The increase follows a 1.4 percent decline in April, Halifax, the mortgage unit of Lloyds Banking Group Plc, said in a statement in London today. In the three months through May, values fell 1.2 percent from the previous three months. The average cost of a home in May was 160,519 pounds ($262,914).

“House prices continue to drift modestly downwards as measured by the underlying trend,” Martin Ellis, a Halifax economist, said in the statement. “Low earnings growth, higher taxes and relatively high inflation are all putting pressure on household finances.”

The International Monetary Fund said yesterday that the housing market remains “soft” and is one of the risks to the U.K. recovery. It also said that any interest-rate increases by the Bank of England should be “gradual.” The central bank will probably keep its key rate at a record low of 0.5 percent this week, according to all 55 economists in a Bloomberg News survey.

In the three months through May, house prices were 4.2 percent lower compared with a year earlier, Halifax said.

“We expect a moderate improvement in the economy during the remainder of 2011, which combined with continuing low interest rates, is likely to support housing demand,” Ellis said. “This should prevent a further marked fall in prices and help to stabilize property values later in the year.”

Hometrack Ltd. said on May 30 that U.K. house prices fell 0.1 percent last month as demand dropped. Separate data from Nationwide Building Society showed a 0.3 percent increase. Nationwide Chief Economist Robert Gardner said a deterioration in consumer spending “argues against a strong bounce in property prices.”

Bank of England data on June 1 showed that lenders granted 45,166 loans to buy homes in April, compared with 47,145 the previous month. That’s about half the monthly average over the last decade.

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

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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