U.K. house prices were little changed in September and “downside risks” to the property market have increased as economic prospects weaken, Nationwide Building Society said.
The average cost of a home rose 0.1 percent from August to 166,256 pounds ($260,000), the Swindon, England-based customer-owned lender said in an e-mailed report today. From a year earlier, values were down 0.3 percent.
The outlook for the property market has darkened as the euro-area debt crisis weighs on the economy and pushes up banks’ funding costs. While data today showed U.K. mortgage approvals rose in August to the highest in 20 months as record low borrowing costs supported housing demand, they’re still only about half the monthly average in the decade to 2007, before the financial crisis struck.
“Downside risks have increased as U.K. and global growth prospects have weakened,” Nationwide Chief Economist Robert Gardner said in the report. “There is also a risk that, if the euro-zone situation continues to deteriorate, it could affect the cost and availability of credit.”
Lenders granted 52,410 loans to buy U.K. homes, the most since December 2009, compared with 49,644 in July, the Bank of England said. Economists had forecast approvals would rise to 49,700, based on the median forecast of 18 estimates in Bloomberg News survey.
The pound was trading at $1.5673 as of 11:02 a.m. in London, up 0.6 percent on the day.
The British property market has struggled to gain momentum as the cooling recovery, accelerating inflation and government budget cuts weaken consumer confidence. Average monthly approvals amounted to 103,000 in the decade to 2007.
The Bank of England held its key interest rate at a record low of 0.5 percent this month. The Bank of England’s Credit Conditions survey published yesterday showed that the availability of secured lending to households increased in the three months to early September, as did demand for mortgages. Nationwide’s Gardner said today that low borrowing costs “should continue to provide support for housing demand, providing the strains in the banking system do not intensify.”
Lenders should use “any opportunity” to raise capital and liquidity amid “severe strains” in markets, the central bank’s Financial Policy Committee said yesterday. In the event of a shock, it “would be natural for banks’ capital and liquidity ratios to be run down to ensure that lending” isn’t constrained, it said.
“The outlook for the global economy has darkened,” Gardner said. “The main channel through which these market gyrations are likely to impact the housing market is by further denting sentiment.”