U.K. House Prices Fall as Supply of Properties Surges Most in Three Years

U.K. house prices fell for an eighth month in February as the supply of homes for sale increased the most in three years, Hometrack Ltd. said.

The average cost of a home fell 0.2 percent from January, the London-based property researcher said in an e-mailed report today. Prices in London were unchanged, according to Hometrack, which no longer publishes an average property price. The supply of homes for sale jumped 7.5 percent.

“With supply likely to remain in check, it is the outlook for demand that will have the greatest impact on pricing levels and market activity in the coming months,” Hometrack director of research Richard Donnell said in the report. “We expect a continued modest pick-up in demand over March but the timing of interest rate rises is critical.”

Bank of England policy makers will meet next week after three of the nine-member panel voted to increase the benchmark interest rate last month to tame inflation. The Institute of Directors said in a separate report today that the central bank should hold its key rate at a record low of 0.5 percent or risk derailing the economic recovery.

Demand for homes rose 14.7 percent in February from January, the first increase in eight months, Hometrack said. Real-estate agents reported a 25 percent increase in sales last month, it said.

The decline in prices in February was the smallest in six months. O’Donnell said smaller drops “will be sustained if demand for housing continues to grow in the coming months and February’s increase proves to be more than a seasonal blip.”

As well as leaving its benchmark rate on hold, the Bank of England should consider extending its 200-billion pound ($326 billion) emergency bond-purchase program, the Institute of Directors said. It sees the U.K. economy growing 1.2 percent this year and said house prices will be “weak” and transactions levels “low.”

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

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net