U.K. House Prices Surge as BOE’s Dale Sees Benefits
Nationwide Building Society said home values increased 0.6 percent in February, a 14th monthly increase, to an average 177,846 pounds ($296,700). From a year earlier, prices were up 9.4 percent. The report, adding to evidence of strengthening housing activity, came as Bank of England Chief Economist Spencer Dale said the rebound is benefiting the economy and doesn’t yet pose a risk.
“I think a healthy housing market is good for the U.K. economy,” Dale said in an Bloomberg News interview yesterday. “What we’ve seen in the housing market is one which has moved from dormant to one which is functioning more like a normal market, which I think has been good for our recovery.”
Demand for property has surged in the past year, and reports from lenders, the government and the BOE have shown a revival in prices, sales and mortgage lending. While the pace of growth has fueled concern that a bubble is forming, Dale said the increase hasn’t got to unsustainable levels as transactions are still “well below” normal.
Barratt Developments Plc (BDEV), the U.K.’s second-largest homebuilder by market value, said yesterday that first-half profit almost tripled as the improving economy fueled demand for homes. Persimmon Plc (PSN), the biggest homebuilder, this month reported a 54 percent surge in full-year profit.
Bank of England Governor Mark Carney has said he plans to keep the benchmark interest rate at a record-low 0.5 percent for some time and that if action is needed to cool housing, the Financial Policy Committee will take the lead. It showed a willingness to act last year, when it announced it was ending some incentives for mortgage lending.
“Any of us who have lived through any sort of economic history will know you can go from a healthy housing market to an overheating housing market very quickly, and so our job is to worry about those types of things and be alert to it,” Dale said. “We’re fully alert to that risk and we’re worrying about it.”
Gross mortgage lending rose 33 percent in January from a year earlier, according to the Council of Mortgage Lenders. It also said monthly approvals for house purchase averaged 70,000 in the fourth quarter, the strongest rate for six years.
“Demand continues to be supported by record low interest rates, improved credit availability and rising consumer confidence thanks to the healthy gains in employment,” said Robert Gardner, Nationwide’s chief economist.
BOE data show the most popular mortgage -- a two-year fixed-rate loan covering 75 percent of the cost of a home -- fell to 2.37 percent in January, the lowest since records began in 1995.
Nationwide responded to reports that cash buyers have been a large driver of the property market. It said that while the share of such transactions has increased, that’s partly due to a decline in sales backed by mortgages.
“This reflects the impact of adverse labor market conditions and the tightening of credit conditions after 2008, which limited the number of people able to buy with a mortgage,” it said.
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