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Bank of England's lending scheme fuels rise in Britain's house prices

Mortgage approvals hit 11-month high as central bank's credit-easing scheme begins to take effect

PUBLISHED : Wednesday, 06 February, 2013, 12:00am
UPDATED : Wednesday, 06 February, 2013, 4:59am

House prices in Britain rose last month as the Bank of England's credit-easing programme helped loosen the mortgage market, Nationwide Building Society said.

The average cost increased 0.5 per cent from December to £162,245 (HK$1.97 million), the customer-owned lender said yesterday. Prices were unchanged from a year earlier.

Separately, market-research agency GfK NOP said its index of consumer confidence also rose last month.

Data showed mortgage approvals rose to an 11-month high in December as the central bank's Funding for Lending Scheme eased conditions in the home-loan market. The bank is counting on the programme to encourage lending and provide a boost to an economy that is close to slipping back into a recession.

"The FLS has achieved some success in bringing down mortgage rates, with some signs of a pickup in lending activity," said Robert Gardner, chief economist at Nationwide. "Hopefully, the momentum will continue to build in the months ahead, though much will depend on whether the wider economic environment improves."

GfK's consumer-sentiment gauge rose to minus 26 from minus 29 in December. However, the survey was conducted before data were published last week showing the economy shrank 0.3 per cent in the fourth quarter, putting it on the brink of a triple-dip recession.

Barclays economists Chris Crowe and Blerina Uruci also noted that the improved sentiment was partly due to an increase in the major purchases component, "which has a significant positive seasonal factor … driven by price discounting".

"We do not expect a strong improvement in consumers' financial situation in the near term as slow earnings growth and persistent inflation will likely continue to depress real earnings," they said. "With economic and labour-market uncertainty driving precautionary savings to elevated levels in recent quarters, we think consumers will have little room to increase spending."

In its report, Nationwide said house-price growth slowed to 0.4 per cent in the three months to January from 0.7 per cent in the fourth quarter. A drop in first-time buyers to an average 20,000 a month from 32,000 before the financial crisis is a "cause for concern" on the outlook for residential property, it said.

Mortgage approvals are still less than half the level in the decade through 2007. Bank of England Governor Mervyn King said last week that credit conditions should improve further as the bank lending plan "kicks in".