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U.K. house prices grew at their fastest annual pace for more than 17 years in June, adding to a growing wealth gap that's worrying policy makers.
Property prices rose 13.4% from a year earlier, the biggest gain since November 2004, Nationwide Building Society said Tuesday. It's the first major survey prices for this month, indicating the momentum registered by estate agents and mortgage lenders in May is continuing.
Buyers are snapping up homes with more space outside urban areas after 16 months of lockdowns to control the pandemic. The market also is benefiting from borrowing costs near a record low and a temporary tax break on purchases that will be phased out starting on Wednesday.
"Despite the increase in house prices to new all-time highs, the typical mortgage payment is not high by historic standards compared to take home pay, largely because mortgage rates remain close to all-time lows," said Robert Gardner, Nationwide's chief economist.
A separate report from the Bank of England showed mortgage approvals rose unexpectedly in May to 87,545, the highest in three months. Economists were expecting a slight decline to 85,800. The BOE also said
The value loans made surged more than expected to 6.6 billion pounds, double the level of the previous month. Approvals usually translate into loans after a few monthsUnsecured credit extended to consumers rose for the first time since Summer 2020
Nationwide said house prices rose 0.7% from May to 254,432 pounds ($353,000), their third consecutive monthly increase.
What Bloomberg Economics Says ...
"U.K. house prices, which accelerated in June at the fastest annual pace since 2004, are near their peak. The removal of a government tax break on purchases at the end of this month is likely to take some of the heat out of the market."
--Niraj Shah, Bloomberg Economics. Click for the full REACT.
Regional data shows all parts of the U.K. saw accelerating prices, the largest of which were in Northern Ireland and Wales with 14% and 13.4% respectively. Scotland and London were the weakest performing regions, though the capital still saw a pickup in growth to 7.3% from 4.8% in the previous quarter.
The findings were reinforced by a separate report from Zoopla, which painted a picture of surging demand, dwindling supply and properties selling in the shortest time in five years. Rochdale and Bolton in northern England and Hastings on the south coast recorded the biggest price gains of 65 towns and cities monitored.
"Prices are rising fastest in the most affordable markets as activity continues at elevated levels among first-time buyers and movers looking for more space or a lifestyle change," said Gráinne Gilmore, head of research at the property website.
The Treasury will phase out the tax holiday starting on June 30, and it will end altogether on Sept. 30. However, agents agents expect the market to remain buoyant as the economy reopens and millions of people move back into work.The boom, which has been partly fueled by cheap borrowing costs, is now raising concerns at the Bank of England. Chief Economist Andy Haldane, who steps down from his post this month, has warned of growing inequality between homeowners and younger people unable to afford to get onto the property ladder.
Jon Cunliffe and Dave Ramsden, who both serve as deputy governors for the central bank, said after Nationwide's report last month that policy makers were watching the house prices carefully as they weigh whether to pare back stimulus for the economy.
"Underlying demand is likely to remain solid in the near term as the economy unlocks," Gardner said. "Consumer confidence hasrebounded while borrowing costs remain low. This, combined with a lack of supply on the market, suggests further upward pressure on prices. But as we look toward the end of the year, the outlook is harder to foresee."
(Updates with BOE mortgate lending figures.)
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