U.K. Mortgages Soar With House Prices as Economy Recovers

U.K. mortgage approvals and house-price growth increased to the most since 2007, as the property market continued to accelerate at the start of the year.

Manufacturing expanded at a faster pace in February, with a gauge of job creation soaring to a 33-month high, a separate survey showed. The data, which underscore the strength of Britain’s economy, come before the Bank of England’s March 6 meeting. Chief Economist Spencer Dale said in an interview last week that the revival in the property market is good for the economy, while officials are alert to the risk of overheating.

“Today’s data confirm the positive momentum for the economy,” Annalisa Piazza, an analyst at Newedge Strategy in London, said in an e-mailed note. The mortgage data “clearly confirmed that the benefits of improved credit conditions and falling bank funding costs over the past six-to-eight quarters are filtering through.”

Britain’s recovery broadened in the fourth quarter, as net exports contributed to growth and helped drive the fastest annual expansion since 2007. Bank of England policy makers meeting this week will probably keep their key interest rate at a record-low 0.5 percent.

House Values

Lenders granted 76,947 loans for house purchase, the most since November 2007, compared with a revised 72,798 in December, the Bank of England said in a report in London today. The median forecast of 22 economists in a Bloomberg News survey was for 74,500 approvals. House prices in England and Wales rose 0.7 percent in February from the previous month -- the most since April 2007, property researcher Hometrack Ltd. said today.

A Purchasing Managers’ Index climbed to 56.9 from a revised 56.6 in January, Markit Economics said in an e-mailed statement in London today. The median estimate of 30 economists in a Bloomberg News survey was for a reading of 56.8. A level above 50 indicates expansion.

“The survey suggests we should expect another quarter of robust economic growth in the opening quarter of the year,” Rob Dobson, senior economist at Markit, said in the statement. “Maintaining this positive performance will be a key factor in achieving the long-awaited rebalancing of U.K. growth away from the consumer and financial sector and toward investment and exports.”

Glasgow, Scotland-based Weir Group Plc, Britain’s biggest supplier of pressure pumps, said last week better prospects in its energy business will drive a return to underlying growth.

Forward Guidance

With the recovery continuing, the BOE last month published its plan for forward guidance once unemployment, now at 7.2 percent, falls to the 7 percent threshold at which it plans to review borrowing costs. Officials said they will look for indications that spare capacity has been used up before considering a rate increase.

Factories coped with storms and flooding last month, Markit said in its report. England and Wales had the wettest winter since at least 1766, the Met Office, the government forecaster, estimates. A total of 435 millimeters (17 inches) of rain was recorded. More than 1,700 properties have been flooded, according to the Environment Agency.

“There was little sign of an impact from bad weather on U.K. manufacturing which is growing very strongly, helped by a rapidly recovering domestic economy and improvements in major trading partners,” Rob Wood, an economist at Berenberg Bank in London and a former central bank official, said in an e-mailed statement. “The BOE will probably have to raise interest rates sooner than it is currently planning.”

Increasing Prices

House-prices grew in 51 percent of postcodes, the biggest share in almost a decade, Hometrack said, while values in London climbed 1.1 percent. Rising values prompted the BOE to end support for home loans under its Funding for Lending Scheme this year.

“While the strength of house prices is not yet a serious concern outside of London, it is something that needs to be closely monitored,” Howard Archer, an economist at IHS Global Insight in London, said before the data were released. “There is rising buyer interest and strengthening market activity across regions.”

The pound pared its decline against the dollar and was little changed at $1.6733 at 10:28 a.m. London time. The 10-year gilt yield fell six basis points to 2.66 percent.

Net mortgage lending was 1.4 billion pounds in January, compared with 1.7 billion pounds in December, the BOE said. Consumer credit rose 660 million pounds, including 308 million pounds on credit cards.

Business Lending

Business loans fell 623 million pounds, down 3.9 percent from a year earlier, underlining the growing gulf between corporate and mortgage lending. Lending to small and medium-sized companies fell 261 million pounds, a decline of 2.5 percent from a year earlier.

Demand for housing increased the fastest in two years in February, according to today’s report from property researcher Hometrack. Property listings rose 11.2 percent, the biggest supply increase in since June 2007. Still, the company said supply is rising from a low base.

Property 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.

In a separate report, the BOE said lending through its credit-boosting Funding for Lending Scheme rose 5.8 billion pounds in the fourth quarter.

Foreign investors sold a net 5.86 billion pounds of gilts in January, the central bank said. That followed a net purchase of 10.2 billion pounds in December.

M4, a broad measure of money supply, rose 0.3 percent and was down 0.3 percent on the year. An underlying measure of growth in M4 slowed to 1.6 percent on a annualized basis in the three months through January from 3.6 percent in the fourth quarter. The gauge excludes financial companies that specialize in intermediating between banks.

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