Oct. 31 (Bloomberg) -- U.K. house-price growth picked up this month as demand for new homes outstripped the supply available for sale, boosted by low interest rates and government incentives.
Prices rose 1 percent from the previous month to an average 173,678 pounds ($279,000), Swindon, England-based Nationwide Building Society said in a statement today. Prices are up 5.8 percent from a year earlier.
House-price gains across the country have raised concerns that Britain is facing a potential bubble after Prime Minister David Cameron bought forward a plan to help more people onto the housing ladder. Nationwide said prices are still 7 percent below their peak in 2007, and the risks from the property market will depend on the balance between demand and supply.
“The U.K. housing market appears to be following the more resilient upward trend evident in the wider economy in recent quarters,” Robert Gardner, chief economist at Nationwide, said in the statement. “The risk is that if demand continues to strengthen while the supply of property remains constrained affordability could become stretched.”
On a three-month basis, prices are up 2.5 percent from the previous period, Nationwide said.
Former Financial Services Authority Chairman Adair Turner said last week that Britain’s housing policy risks a repeat of the debt-fueled binge that lead to the credit crisis. The International Monetary Fund said the government’s Help to Buy program could fuel another property bubble.
The government has asked the Bank of England to conduct an annual review of its housing plans, and Barclays Plc Chief Executive Officer Antony Jenkins said yesterday he’s confident they will act to prevent risk building.
“We’re supportive of Help to Buy initiatives,” he said. “I have said in the past that we want to be careful in the U.K. about creating some sort of housing bubble but I’m reassured by fact that regulators are very much on that and will actively work to prevent that from happening.”
Other house-price indicators are also showing a pickup in values. Hometrack Ltd. said this week prices in England and Wales rose 3.1 percent from a year earlier, the biggest gain since 2007.
Mortgage lending has risen to a 5 1/2-year high after access to home loans was helped by the BOE’s Funding for Lending program and interest rates at a record low.
“Typical mortgage servicing costs remain modest by historic standards thanks to the ultra-low level of interest rates,” Gardner said. “A typical mortgage payment for a first-time buyer is currently equal to around 29 percent of take-home pay, in line with the long-term average.”
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