British house prices jumped the highest in 11 years this month, adding to signs that parts of the economy are rebounding rapidly as coronavirus restrictions are eased.
Mortgage lender Nationwide said average house prices leapt by 1.7% in July, above all forecasts in a Reuters poll of economists and the biggest monthly increase since August 2009, when the market was recovering from the financial crisis.
“The bounce back in prices reflects the unexpectedly rapid recovery in housing market activity since the easing of lockdown restrictions,” Nationwide chief economist Robert Gardner said.
The Bank of England reported that mortgage approvals – a first step to house purchases – quadrupled in June after hitting a record low in May, though they remained more than 40% below pre-pandemic levels.
Prices are now 1.5% higher than they were a year ago, though Nationwide said that on a seasonally adjusted basis, they were 1.6% below a peak reached in April.
The mortgage lender said it expected price gains to continue in the short term, helped by a temporary cut in property purchase tax which finance minister Rishi Sunak announced this month to help what he saw as an ailing market.
But these price increases risked proving a “false dawn” if unemployment surged later this year when temporary job support measures end, Nationwide’s Gardner warned.
Britain’s economy shrank by a quarter over March and April due to the unprecedented hit from the coronavirus lockdown.
Some Bank of England officials fear that while there might be an initial rapid bounceback, this will rapidly slow and it could take years for the economy to regain its former size.
Retail sales are almost back at pre-pandemic levels, for example, but many pubs, restaurants and entertainment venues are closed or operating below capacity due to social distancing restrictions and public concern about the coronavirus.