UK house prices rise for eighth month as BOE sees risks

London / Bloomberg

U.K. house prices rose for an eighth month in February as rental investors rushed to purchase homes before a tax increase, Nationwide Building Society said.
The average price of a home climbed 0.3 percent from January to 196,930 pounds ($277,000), the lender said in a statement on Thursday. The annual rate of growth accelerated to 4.8 percent in February from 4.4 percent the previous month.
Values are being boosted as a chronic shortage of homes for sale is aggravated by buy-to-let landlords trying to beat the rise in stamp duty in April, Nationwide said. With demand also being boosted by falling unemployment and low borrowing costs, the Bank of England has warned that risks in the property market are rising.
“Much of the increase is likely to be related to the impending increase in stamp duty on second homes,” Nationwide Chief Economist Robert Gardner said in a statement. “This is likely to have brought forward a significant number of purchases, which in turn will probably result in a fall back in approvals during the spring/summer.”
Stability Risks
U.K. Chancellor of the Exchequer George Osborne is raising the sales tax by three percentage points for landlords and purchasers of second homes in April, saying they may be pricing first-time buyers out of homes. The BOE has raised concerns that the mortgages may pose risks to financial stability because it’s unclear how landlords will behave if prices fall or costs of repayment increase, Deputy Governor Jon Cunliffe said on Wednesday.
Once the short-term factor of the rise in stamp duty has faded, the fundamental forces driving demand will continue to bolster future transactions, Nationwide said.
In a separate release on Thursday, mortgage lender Halifax said house prices fell 1.4 percent in February after a 1.7 percent gain the previous month. That’s the biggest drop in almost four years.
Still, on a less-volatile quarterly basis, prices rose 3 percent from the previous three months, it said. From a year earlier, values increased 8.6 percent last month.
“Prices continue to rise at a robust pace driven by a significant imbalance between supply and demand,” said Martin Ellis, an economist at Halifax. “While this position is likely to continue over the coming months, there are some tentative signs that the supply situation may be beginning to improve. Further ahead, increasing affordability issues, as house-price increases continue to exceed wage growth, are likely to curb housing demand and cause price growth to ease.”