U.K. House-Price Growth Reaches 7-Year High Amid London Boom
The average value of a home increased 1.2 percent from March to 183,577 pounds ($310,000), the Swindon, England-based lender said in an e-mailed report today. That’s double the 0.6 percent median forecast in a Bloomberg survey of economists. Prices jumped 10.9 percent from a year earlier, the biggest annual gain since June 2007.
The property market, bolstered by a strengthening economy, record-low borrowing costs and a government incentive program, has prompted the Bank of England to warn it’s ready to take action should signs of overheating emerge. In London and the southeast, prices are being driven by sales in higher-priced locations, Nationwide said.
“Underlying demand is likely to remain robust,” Robert Gardner, Nationwide’s chief economist, said in the report. “A notable feature of the upturn in the housing market is that price growth has been significantly stronger in the south of England, especially in London.”
The pound rose 0.1 percent to $1.6887 at 8:26 a.m. in London. It reached $1.6901 yesterday, the strongest since 2009.
Prices in the capital were about 20 percent above their pre-crisis levels in the first quarter, while values in the U.K. as a whole were 2 percent below that level.
Affordability tests came into force in the U.K. last month, requiring borrowers to prove they can afford repayments even when interest rates rise in line with market expectations. A tool to make affordability testing more stringent will probably be available to the BOE as soon as June.
Nationwide said that while the review may hit activity levels, other factors, such as increasing confidence, will continue to support the property market.
“The June meeting will look very carefully at the housing market,” BOE Chief Economist Spencer Dale told lawmakers yesterday. “The question for us is whether developments in the housing market, even in terms of transactions or house prices, are causing threats to the stability of the financial system.”
Dale, who moves to a new role overseeing financial stability in June, said officials know from past experience that the housing market can overheat quickly.
“My experience of the financial crisis is that one can’t just sit back on the sidelines and wait until one’s certain that the market is out of control, because if you do that you’ll be too late,” he said. “We know we should be nervous about what’s going on in the housing market.”
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