LONDON: The price of homes in Britain’s capital may start to fall this summer, UK lender Nationwide said yesterday, potentially reducing the need for new measures to cool London’s red-hot property market.
House prices have soared in London as the economic recovery, record-low interest rates and government schemes help home buyers tempt purchasers into one of the world’s most expensive property markets.
A housing bubble poses the biggest risk to the stability of Britain’s $2.5 trillion economy, Bank of England Governor Mark Carney warned on May 18, a view backed by UK Prime Minister David Cameron. Carney said the bank was looking at ways to control mortgage lending amid a shortage of home building.
Nationwide’s Chief Executive Graham Beale said officials should wait until the end of the summer before deciding on any action.
“My view is that in London we will see a natural correction through the summer months. That intense heat does seem to be dissipating a bit. We could be seeing the early signs of a natural correction,” Beale said.
If house prices were to fall in the capital, it would be seen as positive for Cameron, because it would make it less likely that the central bank would raise interest rates before the next election in 2015.
The BoE has so far kept interest rates at a record low. Carney said last week that the bank was only edging towards an increase in borrowing costs and most economists in a Reuters poll shared that view.
Beale’s forecast comes as the UK’s third-largest mortgage lender, which has a 10 percent share of the London market, said it more than doubled its underlying profit last year and hit a capital target set by Britain’s financial regulator a year early.
Mike Amey, a Managing Director at Pimco, which runs the world’s biggest bond fund, supported Beale’s view. “House prices look like they are peaking out at about 10 percent annualised which is not great but at least they are not going up further. I think it is going to ease back down,” he said.
The BoE’s Financial Policy Committee, whose main task is to identify and remove risks to Britain’s financial system, meets on June 17 and could apply further mortgage controls.
Reuters
