UK house prices rose to a 11-month high in May as the recovering economy fuelled demand for property by consumers, reported mortgage firm Halifax on Thursday.
Housing prices rose 3.9 percent, the strongest monthly growth since October 2002. This exceeded economists’ expectations of an increase of 0.7 percent. The figures were released just before the Bank of England retained the main interest rates at 0.5 percent, a record low. The figures also follow recent reports that showed that mortgage approvals declined.
The Bank of England’s Financial Policy Committee has been in favor of tightening mortgage lending criteria as opposed to raising interest rates in order to curb an asset bubble from forming.
“Expectations of house price gains are still elevated, and the FPC should act to prevent any further loosening of mortgage terms,” Matthew Pointon, a property economist at Capital Economics told Reuters.
Halifax reported that property prices rose 8.7 percent in the three months through May from a year ago. This was in line with March’s growth rate, which was the strongest since September 2007. Halifax’s rival Nationwide recently reported that house prices grew by 11.1 percent.
Halifax also reported that property prices stood at nearly five times the average earnings of a male employee working full-time. A report released on Wednesday indicated that an average individual took out a mortgage on a property valued at least four times his or her annual income.
The demand for housing, despite falling sales, is expected to remain propped up by the resurgent economy, as declining unemployment and low interest rates boost consumer morale.
However, new regulations that came into force in April require banks to verify if a borrower can still be able to service repayments should interest rates rise before being awarded the loan. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
To contact the reporter of this story; Jonathan Millet at email@example.com