U.K. House Prices Rise Twice as Much as Forecast

 U.K. house prices increased twice as much as economists forecast in October as record-low interest rates and a limited supply of homes buoyed the property market, a report by Halifax showed.

Home values climbed 1.2 percent to an average of 165,528 pounds ($270,000) after rising 1.5 percent in September, the division of Lloyds Banking Group Plc said in a statement today. The median of 11 forecasts in a Bloomberg News survey was for a 0.6 percent increase. Prices are now down 17 percent from the peak in August 2007.

“Demand for houses has risen in recent months due to the very low level of interest rates, the decline in property prices since the summer of 2007 and a pick-up in consumer confidence,” Martin Ellis, housing economist at Halifax, said in the statement. “Higher demand has combined with a low level of properties available for sale to result in rising house prices over the past few months.”

With the benchmark interest rate at 0.5 percent, the Bank of England will decide this week whether to extend its asset purchase program to bring Britain out of the longest recession since World War II. Lloyds, which is getting a quarter of 21 billion pounds in new funding from the government, said today that recent increases in property values are unsustainable as unemployment rises.

Annual Decline

Prices fell 1.5 percent from a year earlier, the Halifax report showed. They have risen 7.1 percent from their trough in April of this year.

U.K. housing demand will stay “depressed” and keep a lid on property prices as the recession causes more job losses, the European Commission said in a report today.

“Available evidence points towards the recent price recovery being in large part due to a shortage of properties for sale,” the commission said in forecasts published in Brussels today. “Housing demand is expected to remain depressed, as labor market conditions will affect disposable income.”

Today’s Halifax report still adds to signs of a housing revival. Prices rose for a third month in October after they had dropped as much as a fifth from 2007, Hometrack Ltd. said yesterday. Rightmove Plc said on Oct. 19 that asking prices in London have now surpassed the peak almost two years ago.

UKCIG News, November 2009