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UK home prices rise most in three years

Funding for Lending Scheme improves credit conditions and leads to increased optimism

PUBLISHED : Wednesday, 27 March, 2013, 12:00am
UPDATED : Wednesday, 27 March, 2013, 6:06am

UK house prices rose the most in three years this month, led by a surge in London, as demand outstripped supply.

Average values in England and Wales increased 0.3 per cent, the biggest advance since March 2010, property researcher Hometrack said. In London, prices jumped 0.7 per cent, the most since February 2010.

The Bank of England's Funding for Lending Scheme (FLS) has helped ease credit conditions, while plans announced by the government last week to assist homebuyers will also support the market, Hometrack said.

It also said the weaker pound and turmoil in the euro area would continue to lure purchasers from abroad.

"Lower mortgage rates as a result of the FLS have supported increased activity," said Richard Donnell, director of research at Hometrack. "The weakening pound and concerns over Cyprus and the euro zone will only serve to further boost the flow of international funds into the capital."

The pound has fallen 5 per cent against the euro since the end of last year and is the second worst performer after the yen this year, based on Bloomberg Correlation-Weighted Indices.

Rightmove said London home sellers raised asking prices by 1.9 per cent this month as the weakness of sterling fuelled interest from overseas buyers.

Seven of 10 regions assessed by Hometrack showed price increases in March compared with the previous month. Two showed no change and one, the northeast, showed a 0.1 per cent drop.

While the stock of homes available for sale has risen 3.5 per cent over the past six months, and 13 per cent in the last two, demand in the past two months has surged 19 per cent.

The Royal Institution of Chartered Surveyors said earlier this month that its gauges on the outlook for the property market improved last month.

Chancellor of the Exchequer George Osborne announced two programmes in last week's budget to help Britons buy homes as the recovery of the broader market struggles to gain traction.

The government will extend a scheme to help with the purchase of new-build homes from next month, and starting next year will offer mortgage guarantees to help those with smaller deposits.

Minutes of the Bank of England's March policy decision published the same day showed officials saw a picture of "broadly flat" bank lending from the FLS since it started in August.

Still, the bank added the outlook "appeared more promising" and the housing market "had continued to show some signs of thawing".

"While scarcity of homes, support for lending and new housing will act as a support to pricing levels, the problems of affordability and deposit levels still remain serious impediments to a full-blown" recovery, Donnell said.