UK house prices to keep rising even as activity cools

Bloomberg

U.K. housing activity may cool in the coming months after the rush to beat a tax increase boosted the market in the first quarter, though prices should continue to rise, Nationwide Building Society said.
The average price of a home rose 0.2 percent to 204,368 pounds ($296,000) in May, matching the pace in April, the lender said on Wednesday. From a year earlier, values gained 4.7 percent. Separate data from the Bank of England data showed mortgage lending increased the least in three years in April.
Chancellor of the Exchequer George Osborne introduced a tax surcharge on buy-to-let properties and second homes in April and the resulting volatility is making it difficult to gauge the underlying strength of the housing market, according to Nationwide. Looking ahead, fundamental drivers such as record-low interest rates and an improving economy may mean further increases in values in the coming months, it said.
“House-purchase activity is likely to fall in the months ahead given the number of purchasers that brought forward transactions,” Nationwide Chief Economist Robert Gardner said. “However, it is possible that the recent pattern of strong employment growth, rising real earnings, low borrowing costs and constrained supply will tilt the demand/supply balance in favor of sellers and exert upward pressure on price growth once again.”

Supply Squeeze
In a possible sign of future price pressures, Gardner cited survey data showing the number of properties on estate agents’ books is close to the lowest since the late 1970s. Separately, the BOE said the 281 million-pound increase in net mortgage lending in April was the smallest since August in 2012. Monthly mortgage approvals fell to 66,250 from 70,305, the least in almost a year.
The BOE report also showed that net lending to consumers rose 1.3 billion pounds in April. On a three-month annualized basis, credit is growing in excess of 10 percent. The central bank’s Financial Policy Committee, which holds its quarterly meeting this month, has said that it’s monitoring the pace of borrowing.