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UK home market shows signs of rebound

Robert Barr
AP Writer

London — Loans for home purchases in the U.K. jumped by 16 percent in April, suggesting the property market may have bottomed out, although the construction sector remains mired in a slump, according to reports published Thursday.

The Council of Mortgage Lenders reported 35,600 home loans were taken out in April, still far below the seven-year average of 88,000 and 28 percent below year-ago levels.

Meanwhile, the Office for National Statistics reported construction orders fell 9 percent in the February-April quarter compared to the previous three months. Private housing orders were down 2 percent on the previous quarter and 42 percent on the year.

The Council of Mortgage Lenders reported 69 percent of borrowers took out fixed-rate mortgages with an average rate of 4.83 percent. That was the highest share since June last year and apparently reflected a belief that interest rates are due to rise again.

In fact, a major mortgage lender, Nationwide Building Society, on Thursday raised the price of all its fixed-rate mortgages by as much as 0.86 of a point. Other British lenders, including Barclays’ Woolwich unit, had raised their rates in recent days.

A survey by the Bank of England and GfK-NOP released Thursday showed 44 percent of respondents expected interest rates to rise during the next 12 months, compared with 33 percent in February. Only 10 percent expected rates to go lower in the next year.

The average expectation of inflation during the next year was 2.4 percent, up from 2.1 percent in the previous survey. The survey was based on interviews with 2,099 people aged 15 and over between May 7 and May 12, and had a margin of error of about 3 percentage points.

The Council of Mortgage Lender said the number of loans to first-time buyers was up 11 percent from March to 13,500. The number of remortgage loans was down 22 percent to 31,000.

“There are tentative signs of house purchase lending stabilizing, but we need to see considerably higher transaction levels to underpin house prices,” said Bob Pannell, the CML’s chief economist.

There were further indications of stabilization in the housing market from two major mortgage lenders that reported average house prices rose in Britain during May. However, analysts discounted the importance of one month’s figures, noting single-month rises had punctuated previous slumps.

Vicky Redwood, economist at Capital Economics, said public expectations of higher inflation in the months ahead contrasted with recent falls in the actual rate.

“However, we would be wary of assuming that this significantly reduces the deflationary threat facing the U.K.,” she said. “Rising inflation expectations could be a reflection of the increased optimism in the economic outlook, in response to the recent signs of green shoots.

“But this recovery in economic activity could soon peter out.”

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