Wednesday, July 02 13:51:52
Britain's house prices rose at their fastest rate in nine years and London prices showed their biggest jump in a generation, data showed today, as measures to curb mortgage lending have yet to have an impact.
Stricter checks on borrowers' ability to pay back mortgages were introduced in April and have weighed on the approval of home loans. Some fear these could become unaffordable when interest rates eventually rise from a record low.
But house prices picked up pace in June, growing by almost 12 percent on the year, helping to fuel construction. Separate data on Wednesday showed activity in that sector grew in June at its fastest annual pace in four months.
Further measures announced last week to cool lending and reduce the risk of a bubble were expected to have minimal impact, and analysts said homes were still not being built fast enough to contain price rises.
The BoE has opted for macroprudential measures to tackle the strength in the housing market and says interest rate rises from the 0.5 percent reached in March 2009 are only a last resort for fear that a premature move could derail the recovery.
But economists said the data only strengthened the case for a rate hike this year, after a strong manufacturing release this week also pointed to robust second-quarter growth, and sterling hit a fresh near 6-year high against the dollar.
"The strong growth of both sectors should help drive a further robust increase in gross domestic product of a similar magnitude to the 0.7-0.8 percent increase seen in previous quarters," said Chris Williamson, chief economist at Markit, which produced the manufacturing and construction surveys.
"Such persistent strong growth adds to the chance of interest rates starting to rise later this year."
House prices rose 1.0 percent in June after a 0.7 percent rise in May, taking the annual rate of increase to 11.8 percent - the biggest since January 2005, according to mortgage lender Nationwide.
More strikingly, in the three months to June London house prices were 25.8 percent higher than a year earlier - an annual increase not seen since 1987.
"The price of a typical property in London reached the 400,000 pound ($681,000) mark for the first time, with prices in the capital now around 30 percent above their 2007 highs and more than twice the level prevailing in the rest of the UK," said Nationwide's chief economist Robert Gardner.
Average house prices outside London are a fraction below their 2007 peak, Gardner said, while transaction levels nationally are still well below their historic average. (Reuters)