U.K. Nationwide House Prices Post First Annual Gain Since 2008

By Svenja O’Donnell

Oct. 30 (Bloomberg) -- U.K. home prices posted their first annual gain in 19 months in October as low interest rates and improved confidence encouraged buyers, Nationwide Building Society said.

The average cost of a home increased 0.4 percent to 162,038 pounds ($268,334), the sixth consecutive monthly increase, the mortgage lender said in a statement today. It rose 2 percent from a year earlier, the first annual gain since March 2008.

The report adds to evidence that the property market is recovering after house prices dropped as much as a fifth from their peak in 2007. Rising unemployment and an economy mired in recession may curb future price increases, economists say.

“The strong upward momentum in property values seen over the summer is showing some signs of moderating as we head into the autumn months,” Martin Gahbauer, Nationwide’s chief economist, said in the statement. Record low interest rates may “cushion the negative impact of labor market weakness on housing demand,” he said.

Economists are divided over whether the Bank of England will expand its 175 billion-pound bond-buying program next week after the economy unexpectedly shrank between July and September.

The slump extended the recession to six quarters, the longest since records began in 1955, and economists expect unemployment to keep rising well into 2010 as job losses mount.

“Given the poor labour market situation implied by the economy’s ongoing weakness, it is difficult to imagine the housing market returning to the buoyant levels of activity and price inflation that prevailed earlier in the decade,” Gahbauer said.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net.