UK House Price Sentiment Up

LONDON--U.K. house price expectations hit a fresh record high in May, but the cost of a residence in London may begin to shrink a little from its current exorbitant levels as fewer home-owners in the capital thought the value of their property rose in the past month or that it would do so over the next year.
The sign of caution among those living in London suggests a reluctance to push prices much higher, which could potentially cause a property bubble in the capital to burst.
A monthly survey by estate agency Knight Frank and data firm Markit showed the balance of home-owners who expect the value of their home rose in May to hit a record 63.2. And the balance of respondents who expect their home to be worth more in 12 months from now also hit a high.
The balance is calculated by subtracting the number of respondents who expect house prices fell from those who said they rose.
"The future price sentiment index only just crept to a new record high this month, with the scale of price increases expected by Londoners and households in the South East falling back," said Grianne Gilmore, head of U.K. residential research at Knight Frank.
"The widespread discussion about policy intervention in the housing market is likely to have reined in price expectations in some areas, although there was still a strong rise in price growth expectations among households in the North East and East Midlands," Ms. Gilmore said.
Those expectations that house prices will rise further have done nothing to damp demand to buy them, the report shows, with 1.72 million or 6.5% of the population planning to purchase a home in the next year.
However, following the full introduction of the Mortgage Market Review's new rules in April, there is some expectations that the pace of home-buying could slow down in the coming months as prospective home-owners could fall foul of new tougher rules for securing a mortgage.
But overall, demand--which has been pent-up after around four years of banks repairing their balance sheets and preferring to lend mortgages to those with larger deposits--will likely remain strong, which suggests house prices will continue to be supported around current levels at least.
-write to Ilona Billington at ilona.billington@wsj.com

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(END) Dow Jones Newswires

May 22, 2014 21:40 ET (01:40 GMT)