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The Bank of England said working from home is helping lift house prices in the U.K. by making consumers willing to pay more for space.

Deputy Governor Ben Broadbent said the recent surge in property prices reflects a shift in preferences for bigger houses, since more consumers expect to need office space at home. Governor Andrew Bailey said a proliferation of high loan-to-value mortgages also is helping consumers afford to pay more.

The remarks suggest longer-term forces propping up Britain’s red-hot property market as the U.K. economy recovers from its worst recession in three centuries. Much of the strength in the market has been attributed to a tax break on purchases that’s now started to unwind, but the BOE officials see structural factors as providing firmer support.

“People have worked more at home and expect to work more from home,” Broadbent said in a web event with the BOE’s regional agents on Friday. “Space at home becomes more valuable, and in particular, space at home outside city centers becomes more valuable.”

Broadbent said the BOE has seen a similar trend in other countries after pandemic lockdowns forced millions of office staff to work remotely for much of the past two years.

Bailey noted that banks have also become more open to offering riskier mortgages, with supply ramping up and interest rates on loans falling as fears about household finances eased. The average quoted price for a mortgage with a 90% LTV has fallen by 85 basis points since the beginning of the year, according to the Bank of England’s Monetary Policy report released on Thursday.

Some of the moment may be coming out of the housing market as the Treasury phases out the stamp-duty break on purchases. The value of homes rose 7.6% from a year ago in July, slower than the 8.7% pace recorded the previous month, mortgage lender Halifax said in a report on Friday.

“We expect the housing market to remain solid over the next few months, with annual price growth continuing to slow but remaining well into positive territory by the end of the year,” said Russell Galley, managing director of Halifax.

Underlying demand is expected to remain solid in the near term driven by elevated consumer confidence, a shortage of homes for sale and continued low borrowing costs, a separate report by Nationwide said on July 28. That lender said the annual pace of price growth dropped to 10.5% in July from a 17-year high of 13.4%.

Halifax’s data offers tentative evidence that elevated prices will persist after the total expiration of the Stamp Duty holiday in September, said Martin Beck, senior economic advisor to the EY item club.

“Overall, the odds of a significant correction in house prices anytime soon looks small.”

Wales saw the strongest gains since 2005 in the Halifax report while London lagged all other regions with 2.5% annual growth. Eastern England and the South East also had some of the slowest growth in the U.K.

A drop in the inventory of properties available to sell and historically low borrowing costs will probably support prices in the coming months, Halifax said.

“We are seeing much higher demand than supply, with owners nervous about putting their properties up for sale in case they can’t find the right home to buy, leading to low stock for estate agents,” said Jan Crosby, head of U.K. building and construction at KPMG. “This vicious cycle is going to be hard to overcome.”

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