Housing market shows first signs of revival

Mixed economy: Hopeful signals for mortgage lenders, but an improvement in Britain's trade balance is expected to prove short-lived
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The Independent Online

Economics Correspondent

Mortgage lenders yesterday reported what they saw as the first positive signs in the housing market for many months. House prices jumped 1.5 per cent in November, their biggest monthly rise for more than a year, according to Nationwide Building Society. Halifax's price index, due out on Monday, is expected to continue its recent pattern of modest monthly increases.

The news on prices was supported by separate Bank of England figures showing a significant rise in the number of new mortgages approved in October.

Adrian Coles, director-general of the Council of Mortgage Lenders, said: "The housing market is not yet out of the woods of recession, but there are some positive signs." The cuts in mortgage rates announced earlier this week would help confidence, he said.

Philip Williamson, a Nationwide spokesman, said the absence of any Budget measures for housing was disappointing, but there was evidence of a firmer trend since the summer. Halifax believes the market has stabilised and should recover next year.

Without any special Budget measures for housing, the fortunes of mortgage lenders rest on a recovery. But hopes rose yesterday that Kenneth Clarke, the Chancellor, might be able to deliver another fall in the cost of home loans by reducing base rates at the next opportunity. The FT-SE 100 index closed at a new high, up just over 16 points at 3,680.4.

Evidence that manufacturing industry is in decline for the first time in three years boosted hopes of a base rate reduction. Separate figures showing a record rise in consumer credit in October did nothing to dampen them.

The November survey of purchasing managers in manufacturing showed a drop in the activity index below 50, the threshold between expansion and contraction.

Output, one of five components of the index, edged up last month. But new orders fell sharply. The price index fell to its lowest level since August 1992, suggesting that cost pressures are no longer an issue in manufacturing.

Stocks of raw materials fell in response to weaker demand. However, stocks of finished goods rose slightly as production exceeded sales. Helen MacFarlane, an economist at the City brokers Hoare Govett, said: ''It is clear that stocks have increased to uncomfortable levels.'' Most City economists expect official figures for manufacturing output in October, out on Wednesday, to remain weak after a drop in September.

News of a record increase of pounds 872m in consumer credit in October did not affect the City view that a cut in base rates could come as soon as 13 December, after the next monetary meeting. The increase took the annual growth in consumer credit to 13.7 per cent - puzzlingly high given the weakness of recent retail sales figures.