UK Home Prices Rise in January as Buyers Get Cheaper Loans

Home prices in the UK have increased in January as mortgage approvals rose on the back of the government's Funding for Lending Scheme (FLS), which significantly reduced interest rates.

Mortgage lender Nationwide Building Society said that January house prices improved 0.5 percent after a slightly upwardly revised flat reading in December. Nevertheless, house prices in January were 4.6 percent below their June 2010 peak and 12.8 percent below their October 2007 record high.

House prices remained unchanged on a year-on-year basis and resisted decline for the first time since last February.

"While activity in the housing market remains muted by historic standards, there have been tentative signs of a pick-up in activity in recent months," said Nationwide's chief economist Robert Gardner.

"The Funding for Lending Scheme has achieved some success in bringing down mortgage rates, with some signs of a pick-up in lending activity."

Introduced in August, the FLS allows banks and building societies to access more than £80bn ($127bn, €93bn) in cheap finance in order to lend more to households and businesses.

Earlier, the Bank of England said the number of mortgage approvals rose to an 11-month high of 55,785 in December, while net mortgage lending saw its biggest increase since April.

However the number of first-time buyers, who are the "lifeblood" of the housing market, were not enough to move home prices significantly, according to Nationwide.

Nationwide noted that there are 20,000 first-time buyers a month now, compared with 32,000 before the financial crisis.

"Recent signs of modestly improving housing market activity, supported by the Funding for Lending Scheme, and the firming of prices in January reported by Nationwide suggest a growing prospect that 2013 could be a slightly better year for the housing market," said Howard Archer, chief European and UK economist at IHS Global Insight, commenting on the data.

IHS, however, continues to project flat house prices over 2013, given the current uncertain and limited economic outlook.

"We believe that house prices are likely to essentially flat-line over 2013 as extended low interest rates and the likely increasing beneficial impact of the Funding for Lending Scheme in supporting mortgage lending are countered by still difficult economic conditions," Archer added.

IHS noted that the housing market remains fragile due to limited activity, weak consumer confidence and muted earnings growth.