London House prices soaring faster than ever

Article by Toby Serter

Wednesday 4th July 2007, 11:52

The London property market is experiencing it’s fastest gain since last August say experts and figures are set to climb further throughout the rest of the summer.

The  house price growth acceleration in June, is said to be the largest in recent months  supporting Bank of England Governor Mervyn King's call last month to raise interest rates for the fifth time since August, a report from HBOS Plc showed.

The average cost of a home in Britain rose 0.4 percent last month to 197,461 pounds ($399,000), compared with 0.3 percent in May, the U.K.'s biggest mortgage lender said in a statement on the Regulatory News Service. In the three months through June, prices rose at the slowest pace since the third quarter.

However prices in London are more than 10 times that figure rising to 4.9 percent since May pushing the average London price up from £357,000 to £365,000.

Bank of England policy maker Kate Barker told lawmakers last month that the U.K. property market is being fueled by  “relatively low” rates and a shortage of supply.

“London is the countries power-house and we are seeing a natural surge in prices since the last 6 months have seen higher rises across the country, London is now moving ahead once again – the property market is as boyant as ever”

Economists expect the bank to raise its benchmark by a quarter point to a six-year high of 5.75 percent when they meet tomorrow but some say that this is never enough to curb the rate of the housing market price inflation.

“The general level of inflation is somewhat distorted by the value of property in the UK” Said Paul McGowan, chief property advisor for the government inflationary panel. “Property is the only commodity that is rising at this pace and while the Bank Of England are obligated to monitor interest rates, it is unlikely that they will really want to stop the housing market from booming.” He said.

“Solid economic fundamentals and a shortage of housing supply will continue to support house price inflation,” said Martin Ellis, chief economist at HBOS Plc, in the report. Higher rates may not do much to slow the house market over the coming months.

“The panic in the wake of HIP’s has completely subsided now and we are seeing a sudden shortage of properties and an increase of activity” said Jemma Horton, head of London Property News.

The average price in the north of England rose above 150,000 pounds for the first time in the second quarter, climbing to 155,188 pounds.

The Bank of England, which announces its decision at noon tomorrow, will increase its main rate after the consumer-price index held above its 2 percent target for a 13th month in May, according to 53 of 60 economists in a Bloomberg News survey.

Investors have raised bets on a further move to 6 percent later this year after minutes to the June meeting showed King favored tightening policy last month. He was outvoted 5-4 by colleagues on the nine-member board.

HBOS said prices rose 10.7 percent in the three months through June from a year earlier, up from 10.6 percent in May.

Barker said last week that “what's continuing to drive the housing market is the fact that on the whole interest rates remain relatively low.”

Barker, who wrote two reviews of the property market for the Treasury, said separately in June that the government hasn't done enough to alleviate a shortage of homes that has fueled a tripling of prices in the past decade. The boom has fueled a spending spree that's supported uninterrupted economic growth since 1997.

 

Comments
Be THE first to comment on this article.
Post Comment Title Comment Name Email