UK house price update – May 2014
UK house prices have continued to surge over recent months, fuelling well-documented concerns that the market might be overheating. House prices in the UK posted an annualised increase of 8% during March, having risen by 9.2% in February. In comparison, prices in London rose by 17% over the 12-month period. However, excluding south-east England and London, prices rose at a rather more moderate annualised rate of 4.7%. The average UK home is valued at £252,000, according to the Office for National Statistics (ONS).
Activity in the construction sector increased during April for a 12th consecutive month, although the rate of growth decelerated to its slowest pace for six months. Mortgage lender Nationwide reported a 10.9% annualised increase in UK house prices during April. Nationwide warned that the recently introduced Mortgage Market Review (MMR) rules could dampen activity during the coming months, but believes that underlying demand is likely to remain “robust”, underpinned by strengthening consumer confidence and low mortgage rates. Meanwhile, mortgage lender Halifax reported an annualised increase of 8.5% in house
prices during April. Although prices registered a marginal monthly decline, Halifax believes that demand will continue to be supported by a strengthening economic recovery and limited supply.
Amid concerns the UK’s housing market might be showing signs of overheating, the Organisation for Economic Co-operation & Development has urged the government to consider “further prudent regulation measures” – in particular, scaling back its ‘Help
to Buy’ scheme. Bank of England governor Mark Carney has suggested surging house prices poses a substantial risk to the UK’s economic stability. For his part, deputy governor Sir Jon Cunliffe warned that soaring prices could lead to a “sharp correction with negative equity and an overhang of debt for many households” and added the Bank of England’s Financial Policy Committee might have to take action in the coming months to curb growth by placing restrictions on mortgage lending.
UK mortgage lending rose at an annualised rate of 36% during April, according to the Council of Mortgage Lenders (CML), although this data is likely to be skewed by the recent implementation of the MMR rules, which took place in late April. In a move designed to combat “specific inflationary pressures in the London housing market”, Lloyds Banking Group announced it will restrict mortgage lending for loans over £500,000 to four times income.
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