LONDON (Reuters) - House prices rose in March for the first time since October 2007, a survey showed on Thursday, raising expectations the housing market downturn may be nearing an end.
The Nationwide Building Society said house prices rose 0.9 percent on the month in March after a 1.9 percent drop in February, and a separate survey by the Bank of England showed lenders were becoming more willing to extend credit.
The mortgage lender cautioned against jumping to conclusions about a housing market rebound. However, investors seized on the news as a sign that the Bank of England’s aggressive interest rate cuts may be helping conditions to perk up.
The pound has gained more than a cent against the dollar this session and hit a 3-1/2 week high against the euro, although the gains were driven partly by hopes that world leaders at the G20 summit would agree to more economic stimulus.
Construction activity fell at a slower pace in March though the sector still shed jobs at a record rate, CIPS/Markit purchasing managers data showed on Thursday.
Economists warned that it was far too early to call an end to the sharp price falls that have affected Britain’s housing market for well over a year, taking prices down by nearly 20 percent from their peak in late 2007.
“We would caution that we still have a long distance to travel before turnover in the housing market is close to average, and prices show genuine signs of stability,” said Malcolm Barr, economist at JP Morgan.
Britain’s housing market has taken a pounding as a result of the credit crunch, which has forced banks to clamp down on lending. People have also been reluctant to take on debt due to rising unemployment and uncertainty about the economic outlook as Britain suffers its first recession since the early 1990s.
But a survey by the Bank of England on Thursday showed lenders intended to make more credit available to consumers in the next few months, which should also provide a boost to the housing market.
In a further sign of easing credit markets, HSBC (HSBA.L), Britain’s biggest bank, on Thursday said customers who take out one of its tracker mortgages can borrow up to 75 percent of the value of their home, up from the previous ceiling of 60 percent.
The government has pumped billions of pounds of taxpayers’ money into shoring up Britain’s banks against collapse and has tried to extract promises from them to lend more to consumers and businesses in return.
And recent figures suggest such measures may be starting to take effect.
BoE data on Monday showed approvals for new mortgages rose to 38,000 in February, their highest in nearly a year, and the Royal Institution of Chartered Surveyors’ monthly survey has shown rising interest from prospective buyers for some months.
Nationwide said the annual rate of decline in house prices eased to 15.7 percent in March compared with a 17.6 percent fall in February. But it said the comparison was skewed by conditions last year, so no strong conclusions could be drawn from it.
And economists expect further price falls before any recovery begins, as it will take time for the effect to be fully felt from cuts in interest rates to a record low of 0.5 percent and the BoE’s quantitative easing plan.
“The current upturn in activity is therefore more likely to reflect the return of buyers who have delayed purchasing through the worst of the financial turbulence at the end of 2008 rather than the beginnings of a swift recovery,” Nationwide chief economist Fionnuala Earley said.
“Nevertheless, the willingness of borrowers to return to the market is encouraging and likely to in part reflect the falling cost of borrowing.”
(Additional reporting by David Milliken)
Editing by Ron Askew/Victoria Main