Recent mortgage stimulus launched in the UK seems to have done the trick, with home prices now starting to lift.
According to Hometrack, UK house prices rose the most in three years in March, led by a big jump in London, where prices rose by 0.7% over the month. Hometrack’s results results have also been mirrored by Nationwide and Acadametrics (FT), where prices nationally rose by a combined 0.6% and 0.9% respectively in January and February 2013.
Readers might recall that the UK central bank, the Bank of England (BoE), in August launched the Funding for Lending (FFL) scheme, an £80 billion scheme permitting UK banks to borrow up to 5% of the value of their outstanding loans directly from the BoE at below market rates; the idea being that if the BoE can lower bank funding costs, then the banks will in turn lower rates for borrowers. The scheme has so far worked to stimulate mortgage lending, which has risen sharply over the past six months.
The FFL scheme has since been followed by generous budgetary measures introduced last week aimed at subsidising mortgages. Under these measures, the UK Government will effectively guarantee £130bn of mortgages where the borrowers have low (5%) deposits for any house worth up to £600,000, with the guarantee available to all buyers, not just first home buyers. The Government will also provide another £3.5 billion of interest free loans to top up the deposits of those buying newly built properties worth up to £600,000 who can only put up 5 per cent of the loan themselves.
With the central bank and Government jointly acting to stimulate housing borrowing, and supply in the UK remaining highly restricted, house prices in the short-term have nowhere to go but up.
