27 Aug 2009
Aug. 27 (Bloomberg) -- U.K. house prices rose at their fastest pace in more than 2 1/2 years in August as low interest rates spurred demand and a lack of property for sale underpinned values, Nationwide Building Society said.The average cost of a home climbed 1.6 percent, the most since December 2006, to 160,224 pounds ($260,000), the mortgage lender said in a statement today. Economists predicted an increase of 0.5 percent, according to the median of 17 forecasts in a Bloomberg News survey. From a year earlier, prices fell 2.7 percent.
The Bank of England this month kept the benchmark interest rate at 0.5 percent and extended its asset-purchase program to pull Britain out of its worst recession in a generation. Today's report adds to evidence the housing market may be stabilizing.
"Even though house prices remain high relative to earnings, the fall in interest rates has improved the affordability of mortgages for those looking to buy a home," Martin Gahbauer, Nationwide's chief economist, said in the statement. "The fall in debt servicing costs has meant that fewer homeowners are under immediate financial pressure to sell."
The August increase in house prices was the fourth in succession, leaving them 3.2 percent higher than at the end of 2008, according to Nationwide. In the three months through August, they rose an average of 3.3 percent from the previous period, the most since February 2007.
House prices are still down 14.4 percent from their peak in October 2007, the mortgage lender said.
Mortgage Approvals
Britain's six biggest banks approved more home loans in July, a sample from the Bank of England's lending panel showed on Aug. 20. U.K. mortgage approvals rose in July to the highest level since February 2008, the British Bankers' Association said this week.
Recent house price increases may "become difficult to sustain" if efforts to spur economic growth are successful and lead the U.K. central bank to raise interest rates in the future, Nationwide said.
"At the moment, a rise in interest rates is probably still some way off," Gahbauer said. "However, the eventual exit from exceptionally loose monetary policy could make the recovery in the housing market bumpier than some might expect after the last few months of price increases."
The economic slump is also keeping a lid on workers' pay. The median pay award in the country was for a 1 percent increase in the three months to July, Incomes Data Services said in a separate report today. The report was based on a survey of 75 settlements covering more than 500,000 employees.
