New mortgage rules already putting the brakes on the UK’s housing market – even before they go live

25th April 2014

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The new mortgage affordability rules being introduced by the City watchdog have already put the brakes on the UK’s housing market even before they come into force writes Philip Scott.

According to research from chartered surveyors Connells Survey & Valuation, in the run up to the enforcement of the new regulations entitled the Mortgage Market Review (MMR) which go live on 26 April, the total number of property valuations for all purposes has plummeted by 10% between February and March.

Notably activity on behalf of first time buyers fell rapidly compared to February; down by 7% month-on-month, equating  to an 11% fall in new buyer valuations since last March.

John Bagshaw, corporate services director of Connells Survey & Valuation, says: “March is usually a strong month for valuations, as the spring property market begins to heat up.  But that just doesn’t apply this year.”

As a result of the imminent arrival of the new rules, lenders have had to overhaul their systems in a bid to prepare for the radically different way of assessing mortgage applications.

“This has rapidly fed through into the valuations industry, resulting in a sharp dip in the number of completed valuations,” adds Bagshaw, who is hoping the recent slowdown is merely a one-off.

He says: “There remains a significant backlog of demand from all sections of the property market, and we expect to see steady growth in the number of valuations for all purposes over the rest of 2014.”

According to the group’s figures, valuations on behalf of established homeowners appeared to endure only a slight dip in activity – down by just 2% in March compared to February, leaving home mover activity 6% lower than in March last year.

Bagshaw adds: “When the final figures come in from the CML, there will probably have been slightly fewer first time buyers in March than might have been expected otherwise. But that doesn’t change the long-term trend.

“As a proportion, house purchase activity on behalf of new buyers and established homeowners both made up 31% of all valuations activity in March. This is broadly the same as in February. However, remortgage activity has dropped off rapidly as a proportion of all activity, from 35% of all valuations in February to just 23% of activity in March.”

Bagshaw says that this is due to a much sharper drop off in remortgaging in absolute terms, as the level of valuations for remortgaging fell by 22% between February and March, causing remortgaging activity to fall 16% compared to March 2013.

Buy to let was the only sector to see more valuations in March than April, up 2% month-on-month. However, this growth is slower than the seasonal increase seen at the same point last year, and buy to let activity in March remains 7% lower than in March 2013.

Bagshaw says: “After MMR, remortgaging will need to be done in a very different way – remortgage applications will often need to be treated with almost as much scrutiny as fresh loans. That shakeup for lenders is having a temporary but sharp effect on valuation volumes for remortgaging.”

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