U.K. House Prices Increased in July, Nationwide Says

By Brian Swint

July 30 (Bloomberg) -- U.K. house prices increased for a third month in July as a shortage of supply helped shield the property market from the economic slump, Nationwide Building Society said.

The average cost of a home climbed 1.3 percent to 158,871 pounds ($260,000) after rising 1 percent in June, the mortgage lender said in a statement today. Economists predicted a 0.2 percent increase, according to the median of 14 forecasts in a Bloomberg News survey. From a year earlier, prices fell 6.2 percent, the smallest annual drop since May 2008.

The report adds to signs that the U.K. housing market may be starting to recover as the economy emerges from the worst recession in at least three decades. The Bank of England will decide next week to pause its bond-buying program at 125 billion pounds ($206 billion), Investec Securities in London said today.

“We are surprised by the scale of this increase” in house prices, Investec Chief Economist Philip Shaw said. “There appears to be more confidence in economic prospects and interest rates are close to zero. The Monetary Policy Committee will play wait-and-see.”

Shaw had previously expected policy makers to increase spending on the easing program to the maximum 150 billion pounds authorized by Chancellor of the Exchequer Alistair Darling.

Pound Gains

The pound rose 0.7 percent against the dollar to $1.6493 as of 10:01 a.m. in London. The yield on the 10-year government bond was unchanged at 3.97 percent.

House prices rose 2.6 percent in the three months through July, the most since February 2007, compared with 1 percent growth in the period through June, Nationwide said.

In London, luxury-home prices gained for a fourth month in July, gaining 1.5 percent, brokers Knight Frank said today.

“House prices have been remarkably resilient this year, despite a recessionary economic background with sharply rising unemployment,” said Martin Gahbauer, chief economist at Nationwide. “It is unlikely that price increases can be sustained for long at the very strong rate observed over the past few months. One of the factors helping prices to stabilize in 2009 is the shortage of properties available for sale.”

Former Bank of England policy maker Stephen Nickell said today that Britain needs to build 3 percent more homes than he estimated last year because the recession has hit homebuilding.

Mortgage Approvals

U.K. mortgage approvals rose to a 14-month high in June, the central bank said yesterday. House prices rose 1.3 percent in the first seven months of 2009, suggesting values may rise “slightly” in 2009 after falling about 16 percent last year, Nationwide said.

The U.K. economy contracted 0.8 percent in the second quarter after it shrank 2.4 percent in the previous three months. Central bank policy maker Andrew Sentance said last week that there may be “some evidence of positive growth in the second half of the year,” and the bank may shift to a “watching” stance on their plan to ease credit strains in the economy.

The Bank of England kept its key interest rate at a record low of 0.5 percent in July and voted for no change in the asset- purchase arrangements. Policy makers make their next decision on the benchmark rate and so-called quantitative easing on Aug. 6.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.