London Home Prices Rise to Record Amid Focus on Stimulus

Sunlight illuminates a terrace of residential properties in the Blackheath district of London.
Sunlight illuminates a terrace of residential properties in the Blackheath district of London.

Asking prices for homes in Londonsurged to a record this month, as the buoyant outlook spread to other parts of the country, according to Rightmove Plc.

Prices climbed 2.1 percent from February to 552,530 pounds ($919,000), taking the annual appreciation to more than 11 percent, the website operator said today. Nationally,values rose 1.6 percent to 255,962 pounds, also an all-time high.

Britain’s property-market revival has been encouraged by a strengthening recovery and a government stimulus plan known as Help to Buy, which allows people to buy a home with a down payment of as little as 5 percent. Chancellor of the Exchequer George Osborne said yesterday he will extend the program for new homes to 2020 to spur construction.

“Spring is in the air and the country is finally on the move,” said Miles Shipside, a director at Rightmove. “The mass property market is starting to unlock after years of being handcuffed by fragile consumer confidence and a lack of low-deposit mortgages.”

Price growth in London last month was led by the outer boroughs, including Haringey and Barnet in the north, Rightmove said. The most expensive district, Kensington & Chelsea, saw values drop 2.4 percent, while Westminster recorded a 2.3 percent decline.

The report also showed a 10 percent annual increase in the number of properties coming onto realtors’ books this month. While that will ease some price pressure, “structural shortages remain” in London’s housing supply, Shipside said.

Stimulus Expansion

The Treasury said the U.K. will invest a further 6 billion pounds ($10 billion) in Help to Buy and that the additional funding will help support the construction of 120,000 properties.

With house prices rising, more than 80 percent of economists in a Bloomberg survey published on March 14 said Osborne should curtail Help to Buy in the budget this week. The plan was first introduced in April 2013 and a second version began in October.

Morgan Stanley analysts including Huw Van Steenis have argued the opposite, saying in a March 10 note that the U.K. is building too few homes and HTB is a “key catalyst” for construction.

“We think the market still underestimates how critical HTB 1 and 2 are proving for construction, credit and broader recovery,” they said. “Side effects are less than critics feared.”

Nationally, asking prices for residential property rose 6.8 percent in March from a year earlier, Rightmove said. Values are now above the 250,000-pound threshold that increases the stamp-duty tax on property sales to 3 percent from 1 percent, and Rightmove said a more incremental scale may be “opportune and fair.” Osborne is due to make his budget speech in Parliament in London at 12:30 p.m. on March 19.

“Depending on the chancellor’s need to balance the books versus the desire to please target voters, he may be tempted to make some further tax changes,” Shipside said. “Stamp duty has unfair thresholds, and a buoyant market could withstand some tinkering.”