UK mortgage credit hits new pre-recession high

UK mortgage lending hit another pre-crisis high in September, adding to the signs the British property market is being boosted by a cocktail of low interest rates, higher earnings and a shortage of housing. 

Credit secured on dwellings increased £3.6 billion ($US5.5 billion) during the month, according to data unveiled on Thursday by the Bank of England, the fastest increase since April 2008. This drove overall lending to Britons to a seven-year record as well. 

Strong mortgage lending is underpinning faster gains in house prices, which raced during the first half of 2014 -- growing at the fastest pace in a decade during the second quarter. Even though the market cooled in the second half of the year due to stricter regulations imposed on lenders, it has since recovered, as data by British lender Nationwide confirmed Thursday. 

The price of a typical home in Britain increased 0.6 per cent in September, Nationwide said, compared with an 0.5 per cent increase in August. Year-over-year, house prices rose 3.9 per cent. 

Nationwide chief economist Robert Gardner underscored on Thursday that historically low interest rates are an incentive for households to take on mortgage debt. "Even though house prices are at an all-time high, the cost of servicing a typical mortgage is still close to the long term average as a share of take home pay," he said. 

This heightens concerns that British families will struggle once the Bank of England jacks up its short-term interest rate from its current 0.5 per cent record-low. Policymakers have signaled borrowing costs could go up as soon as early next year, even though markets expect the rate rise to happen much later -- even 2017. 

Last year, BoE Governor Mark Carney called the property market -- which has long rallied on the back of an endemic shortage of housing supply -- a potential risk for financial stability in the UK, but officials have since put less stress on the issue. Economists say the dangers of a squeeze for households once interest rates go up is lessened by families increasingly taking on fixed-rate mortgages instead of floating rate ones, which were prevalent before the downturn.