U.K. House Prices Surpass 2007 Peak to Hit New RecordScott Hamilton
U.K. house prices rose to a record last month and recent indications of a slowdown in the market may prove short lived, according to Nationwide Building Society.
Values increased 0.7 percent from April to an average 186,512 pounds ($312,000), the lender said today. That’s just above the previous peak of 186,044 pounds reached in October 2007, a month after the near-collapse of Northern Rock. Prices plunged about 15 percent over the following 12 months.
Britain’s strengthening economic recovery has helped boost property demand, creating an issue for Bank of England policy makers as surging prices raise concerns that a bubble may be building. While banks have tightened mortgage-lending criteria, Nationwide said low interest rates and falling unemployment are likely to underpin demand.
The European Commission said the U.K. needs to do more to boost homebuilding. “Although the supply of new properties has risen, it remains low and has fallen short of demand by a considerable margin,” it said in a report.
While Nationwide’s index shows house prices at a new record, adjusted for inflation they are about 20 percent below the previous peak, according to Capital Economics Ltd.
“But we wouldn’t take too much comfort from that,” said Matthew Pointon, property economist at Capital Economics in London. “After all it is widely accepted that house prices had risen far above any measure of fundamental value during the previous boom.”
Some data indicate the housing market may be slowing, with figures from the BOE yesterday showing mortgage approvals fell to the lowest in nine months in April. That’s the third monthly decline after they reached a six-year high in January.
The Mortgage Market Review came into force in the U.K. in April, requiring borrowers to prove they can afford repayments even when interest rates rise. A tool to make affordability testing more stringent will probably be available to the BOE as soon as this month.
While Nationwide house-price growth slowed in May from the 1.2 percent pace recorded in April, that’s still a 13th straight increase. From a year earlier, values were up 11.1 percent.
“The underlying pace of activity should become more evident as we move through the summer months and the impact of MMR becomes clearer,” said Robert Gardner, Nationwide’s chief economist. “However, with mortgage rates close to all-time lows and labor-market conditions continuing to improve, underlying demand for homes is likely to remain strong.”