Published June 6, 2009

UK home prices rise at fastest rate since '02

But mortgage lender warns market conditions still tough

BRITISH house prices unexpectedly rose at their fastest monthly rate in 61/2 years last month, the Halifax house price survey showed on Thursday, but the mortgage lender cautioned market conditions remained difficult.

The figures offered another sign Britain may have come through the worst of the recession, just hours before the Bank of England announces its latest monetary policy decision.

But policymakers will want much more information on how the economy is faring and are expected to hold interest rates at a record low of 0.5 per cent this month and maintain the pace of its 125 billion (S$292.57 billion) quantitative easing programme.

Halifax said that house prices rose 2.6 per cent in May, the biggest increase since October 2002, while the annual rate of decline eased to 13.6 per cent from 17.7 per cent in April.

The figures confounded analysts' forecasts for a monthly fall of one per cent and propelled the pound around half a cent higher against the US dollar.

But analysts cautioned against reading too much into one month's data, warning price moves tended to be volatile during a downturn and that broader economic conditions are weak.

'Despite markedly rising buyer interest, we believe that the pick up in actual house purchases is likely to be gradual and fitful for some time to come given ongoing tight credit conditions and still relatively poor economic fundamentals,' said Howard Archer, economist at Global Insight.

Still, Thursday's figures were the latest in a clutch of recent data suggesting Britain may be starting to emerge from the downturn and the closely-watched purchasing managers' surveys this week signalled growth may even have resumed last month.

However, soaring unemployment and still-tight lending conditions are likely to hamper any swift recovery.

Figures from the Society of Motor Manufacturers and Traders released on Thursday showed new car registrations fell 24.8 per cent on the year last month, a faster decline than in April.

BoE policymakers have stressed great uncertainty about the outlook for the economy and many analysts are sceptical about the prospects for a strong recovery. Halifax said that house prices in the three months to May fell 16.3 per cent from a year ago, the slowest rate of decline since December, and that the average price of a home stood at 158,565. But it warned the underlying trend for the housing market remained weak, despite tentative signs of a stabilisation. 'House sales remain substantially below their long term average and market conditions are expected to remain difficult, with housing activity continuing at low levels over the coming months,' said Halifax economist Nitesh Patel. -- Reuters