UK house prices surge on lack of new homes

British house prices rose strongly in August, pushed up by a lack of property coming onto the market, according to two surveys published yesterday, adding urgency to a push by the UK government to encourage more house-building.

Mortgage lender Halifax and a group representing British property valuers said house prices in August showed their biggest monthly increase since May last year.

Prices jumped by 2.7% from July, taking the year-on-year increase to 9% in the three months to August, Halifax said.

That was faster than the annual rate a month earlier but a touch below the pace reached in June.

Also yesterday, the Royal Institution of Chartered Surveyors (RICS) said it was doubling its forecast for house price gains this year to 6%, due in large part to a lack of new homes coming onto the market.

As Britain’s economy recovered strongly from the financial crisis, house prices were rising at a double-digit rate in the middle of last year, raising concerns at the Bank of England (BoE), before tighter mortgage regulation took some of the steam out of the market.

But with construction failing to keep pace with a growing population, house prices are still rising much faster than wages and the cost of other goods and services.

“There is good reason for this trend to be sustained into next year, however uncomfortable that may be for those looking to enter the market,” RICS chief economist Simon Rubinsohn said.

“So many of our members are telling us that they are struggling to replace the stock they have sold,” he said.

The UK government has created subsidies for the purchase of newly built homes and slightly eased planning requirements.

RICS has previously said these measures alone will not lead to enough construction of new housing.

A shortage of homes on the market helped push the RICS monthly house price balance to +53 in August from +44 in July, well above all forecasts in a Reuters poll.

RICS said stock levels were the lowest in more than 30 years, creating a vicious circle as existing home owners were unwilling to move because of the lack of choice for their next home.

Top officials at the Bank of England have recently said they do not see a cause for alarm in the renewed climb in house prices.

The BoE yesterday kept interest rates at a record low although economists expect an increase in borrowing costs early next year.