/www.bloomberg.com/ By Reed V. Landberg
London, Dec. 6 (Bloomberg) -- U.K. house prices rose in November as the lowest borrowing costs in almost four decades encouraged consumers to borrow.
Prices surged 29 percent from a year ago last month, near the 31 percent pace in October, according to HBOS Plc, the nation's biggest mortgage lender. October and November's gains were the strongest since house price growth last peaked in 1989.
``Low interest rates and low unemployment and a persistent shortage of properties available for sale has maintained the upward pressure on prices,'' said Martin Ellis, chief economist for Halifax, the lending unit of HBOS. ``Prices are expected to continue increasing.''
The figures may prevent another interest rate reduction and may persuade policy makers to increase borrowing costs next year, analysts said. Bank of England Governor Sir Edward George and the man who will succeed him, Mervyn King, have said the surge means inflation will probably exceed the government's 2.5 percent target for most of next year.
Futures markets suggest policy makers will move rates higher by the middle of 2003. The yield on the three-month Libor contract maturing in June rose to 4.15 percent yesterday from 3.97 percent a month ago.
The U.K. central bank helped stimulate that surge by cutting interest rates seven times last year to 4 percent, the lowest since 1964. The bank left that rate unchanged yesterday, failing to match half-point reductions by the European Central Bank and the U.S. Federal Reserve.
Inflation Accelerates
Inflation in the U.K. housing market accelerated from an annual pace of 1 percent at the beginning of last year as the central bank lowered rates. Today's figures dent perceptions that price growth will slow, suggesting consumers still have scope to afford to pay more for houses.
The number of house sales will reach 1.6 million this year, the highest since 1988. Mortgage payments represent about 15 percent of house buyers' gross earnings today, below the average of 22 percent during the past few decades, HBOS said.
Policy makers are keen to avoid repeating what Chancellor of the Exchequer Gordon Brown has termed a ``boom-and-bust'' cycle in the housing market. House price growth last peaked at an annual 34 percent in 1989. Prices then fell for five years through 1995 after the government doubled interest rates to cope with inflation.
``This survey confirms the message that U.K. house price inflation is still rising at unsustainable levels,'' said Danny Gabay, an economist at J.P. Morgan Chase & Co.
A separate survey released earlier this week by Nationwide Building Society, the fifth-biggest mortgage lender in Britain, showed prices gaining 26 percent from a year ago last month, also the quickest since 1989.