U.K. House Prices Increase Most in Two Years

By Brian Swint

Sept. 28 (Bloomberg) -- U.K. house prices increased the most in two years during September as confidence in the property market improved, Hometrack Ltd. said.

The average cost of a home in England and Wales rose 0.2 percent from August to 156,100 pounds ($248,000), the London- based property-research company said in an e-mailed statement today. The increase, the biggest since June 2007, left house prices 5.6 percent lower than a year earlier, the smallest annual decline in a year.

The report adds to evidence that the housing market may be starting to level off after the credit squeeze ended a decade- long boom. There still is a risk that the recovery from recession will falter as unemployment continues to rise, Bank of England policy maker Kate Barker said last week.

“While a lack of housing for sale is providing a support to prices, talk of a general improvement in property and equities is leading to increased market confidence,” said Richard Donnell, director of research at Hometrack. “Constrained mortgage availability and expected increases in unemployment are set to act as a drag on demand across large parts of the market.”

In August, house prices fell 0.1 percent from the previous month, the government Land Registry said in a separate report today. From a year earlier, prices dropped 9.4 percent.

London, Southeast

This month’s price gains were concentrated in London and the southeast of England, Hometrack said. Prices rose in 15 percent of postcodes, were unchanged in 84 percent of them and fell in 1 percent of districts, according to the report.

The report was based on 6,237 responses from 1,814 real- estate agents and surveyors, Hometrack said.

Other surveys also suggest that a lack of homes for sale is supporting prices. Luxury-home prices in central London rose 4 percent in the third quarter from the previous three months as buyers competed for fewer properties, Savills Plc said Sept. 25.

Demand for rental properties is also picking up. The Association of Residential Lettings Agents said today that 83 percent of its members were able to set up 10 or more tenancies during the past quarter, compared with 79 percent in the previous three months.

The central bank this month maintained a program to buy 175 billion pounds of bonds with newly created money to bolster the economy. Barker said on Sept. 23 that “premature” increases in the benchmark interest rate, now at a record low of 0.5 percent, should be avoided.

“Monetary policy needs over the coming quarters to continue to be set in order to sustain confidence, and to support lending and borrowing,” Barker said.

Other policy makers are concerned that the money-creating program risks stoking asset prices too much. Spencer Dale, chief economist at the Bank of England, said on Sept. 24 that “substantial” purchases by the bank might result in “unwarranted increases in some asset prices that could prove costly to rectify.”

The next interest-rate decision is on Oct. 8.

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