U.K. House Prices Unexpectedly Increased in March

U.K. House Prices Unexpectedly Increased in March

April 2 (Bloomberg) -- U.K. house prices unexpectedly rose for the first time since October 2007 after the Bank of England’s interest-rate cuts attracted buyers to the property market, Nationwide Building Society said.

The average cost of a home jumped 0.9 percent in March from the previous month to 150,946 pounds ($218,000), the mortgage lender said in a statement today. All 13 economists in a Bloomberg News survey predicted a decline.

Mortgage approvals rose to a nine-month high in February, evidence the slump in housing transactions may be starting to ease after a 15.7 percent drop in prices during the past year. The Bank of England reduced the benchmark interest rate to a record low of 0.5 percent last month and started buying assets with newly created money to fight Britain’s recession.

“It is far too soon to see this as evidence that the trough of the market has been reached,” Fionnuala Earley, chief economist at Nationwide, said in the statement. “The willingness of borrowers to return to the market is encouraging and likely to in part reflect the falling cost of borrowing.”

U.K. banks may start lending more to consumers and companies in the next quarter after interest rates fell and funding loans became easier, the Bank of England said in a separate report today. An index of construction activity rose, while still showing contraction in the industry, the Chartered Institute of Purchasing and Supply said.

Pound Climbs

The pound climbed as much as 0.9 percent against the dollar today. The currency traded at $1.4572 as of 9:39 a.m. in London. Economists predicted a 1.5 percent drop in house prices, according to the median survey estimate.

U.K. homebuilder Bellway Plc plans to “step on the gas” in land purchases as house prices may not fall much further, Chief Executive Officer John Watson said March 31. “There may well be further falls, but it’s not going to be another 25 percent, so you’re getting nearer to a bottom,” he said.

Central bank policy maker Spencer Dale said last week that there are signs the U.K. housing market has stabilized, though it still looks in a “bad state.” Economists at UBS AG and Goldman Sachs Group Inc. said last month that there may be evidence of “green shoots” as mortgage approvals pick up.

Banks granted 38,000 home loans in February, up from a trough of just 27,000 in November, Bank of England data showed this week. Lenders have hoarded cash after racking up more than $1.2 trillion in losses worldwide.

Luxury Homes

Prices for London’s most expensive homes are still falling, a separate report showed today. The average value of houses costing more than 1 million pounds dropped 6.7 percent in the first quarter, a fourth consecutive drop, Knight Frank LLP said.

The central bank has started to buy 75 billion pounds of corporate and government bonds to stimulate spending and revive growth by lowering borrowing costs. Prime Minister Gordon Brown has also offered banks including Royal Bank of Scotland Group Plc billions of pounds in credit guarantees.

The U.K. economy shrank 1.6 percent in the fourth quarter, the most since 1980, and the Organization for Economic Cooperation and Development forecasts British gross domestic product will fall 3.7 percent this year.

A separate report showed labor unions clinched annual pay raises at a median 3.4 percent in the three months through February, down from 3.5 percent in the same period a year earlier, researcher Incomes Data Services said.

BLOOMBERG