Further evidence points to a cooling property market as mortgage lending falls flat in May

19th June 2014

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Evidence pointing to a cooling off in the UK’s property market is mounting as new figures highlight that home loans in May showed no gains on the previous month.

According to data from trade body, the Council of Mortgage Lenders (CML) gross mortgage lending amounted to £16.5m in May, in line with April’s figures while on a yearly basis, the numbers showed a more modest 11.5% rise.

In contrast, gross mortgage lending had been up some 35% year-on-year in April and by 36% year-on-year in the first quarter.

Recent market numbers have all suggested that the introduction of tougher affordability checks at the end of April via the City regulator’s Mortgage Market Review have resulted in an easing back of activity.

CML chief economist Bob Pannell said: “Market indicators point to a slowdown in activity levels, in part associated with new mortgage rules, but it is unclear how lasting this will be.

“Implementation of the new regulatory regime is likely to have disrupted the normal patterns of activity, creating statistical ‘fog’ around the published figures. As this lifts over the coming months, a clearer picture as to any lasting impact of the MMR rules on lending activity should emerge.”

Property boom off?

Property boom off?

Howard Archer, chief UK and European economist at IHS Global Insight added: “The CML gross mortgage lending data for May adds to the evidence that housing market activity has –  at least temporarily – lost momentum recently; this looks to be at least partly due to the introduction of new regulations under the MMR. While the MMR only came into effect on 26 April, it is evident that some banks raised their mortgage lending standards before the new regulations kicked in.”

There are also some signs, including May’s Royal Institute of Chartered Surveyors survey that buyer interest has recently come off its highs.

However the jury is still out on whether this loss of momentum in housing market activity is lasting, and whether it significantly dilutes the recent marked upward pressure on house prices.

 But following significant increases since the start of 2014, June has witnessed property costs hit a standstill with London now seeing a drop in asking prices. According to property portal Rightmove the average rise in new seller asking prices is a mere 0.1% and while demand typically eases over the summer, this marginal increase is well below June’s 0.6% average over the past decade.

The group’s research found while all regions have seen an increase in supply on the back of more people trying to sell, especially in London, the survey suggests that the tougher borrowing criteria introduced as part of the City regulator’s Mortgage Market Review (MMR) has taken some of the momentum out of the market.

“At the moment, house prices still look more likely than not to see solid increases over the coming month, although there will probably be some easing back from recent very strong increases. We expect house prices to increase by around 5-6% over the rest of 2014 with gains spread across the country,” added Archer.

In addition, it is now looking increasingly likely that the Bank of England will edge interest rates up before the end of 2014. While interest rates are likely to rise only gradually and by a limited amount, this may well also have some dampening impact on the housing market.

While the latest house price monitor from Halifax reported that home prices rocketed by 3.9% month-on-month and 8.7% year-on-year in May, the strong rise came despite a slowdown in mortgage activity. Specifically, the Bank of England reported that mortgage approvals for house purchases fell for a third month running in April, and markedly, to be at a 9-month low of 62,918.

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