Jan. 29 (Bloomberg) -- U.K. house prices rose for a 13th month in January to their highest level in almost six years as the economy gained momentum, Nationwide Building Society said.
The average cost of a home advanced 0.7 percent from December to 176,491 pounds ($293,000), the most since April 2008, the Swindon, England-based lender said in a report today. That’s more than the 0.6 percent increase forecast by economists in a Bloomberg survey. From a year earlier, prices climbed 8.8 percent, the biggest annual increase since May 2010.
“It is evident that the strength in house prices is spreading,” said Howard Archer, an economist at IHS Global Insight in London. “This can only fuel concern that a new housing bubble could really develop in 2014.” He forecasts home values will increase about 8 percent this year.
Surging prices prompted the Bank of England to end support for home loans under its Funding for Lending Scheme in November. BOE Markets Director Paul Fisher said last week that sharply rising values are a potential source of financial instability and officials “should not risk adding policy oil to that particular fire.”
Concern that prices may spiral comes as official data yesterday showed the U.K. economy grew 0.7 percent in the fourth quarter, capping the best year since 2007. While home values are increasing, they are still about 4 percent below their 2007 peak, Nationwide said.
“The pickup in activity appears to be fairly broad-based,” said Robert Gardner, chief economist at Nationwide. “The housing market is continuing to gather momentum on the back of further solid gains in employment, record-low mortgage rates and rising confidence.”
Demand has been partly fueled by a government incentive program known as Help to Buy, which guarantees loans to those who can only afford a small down payment. Nationwide said that first-time home buyers are “a key driving factor” in the market. U.K. mortgage approvals rose to 72,900 in December from 70,758 a month earlier, according to the median of forecasts in a Bloomberg survey. The BOE is due to publish the data tomorrow.
BOE Governor Mark Carney said last week there’s “no immediate need” to increase borrowing costs from a record-low 0.5 percent, after data showed unemployment fell to 7.1 percent, just above the 7 percent level that policy makers set as a threshold for reviewing interest rates.
The labor-market data “raises the prospect of higher interest rates ahead,” Nationwide’s Gardner said. “While we do not expect interest rates to rise until mid-2015, borrowers should be prepared for the prospect of interest rates increasing back toward more normal levels.”
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