UK property market eases back as new borrowing rules start to bite

29th September 2014

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The UK’s buoyant property market appears to have turned a corner as the latest figures from the Bank of England show activity has eased from the peak levels seen earlier on in 2014.

The Bank of England (BoE) reported that mortgage approvals for house purchases eased back to 64,212 in August from 66,100 in July and 66.923 in June. But while the numbers are still above the 10-month low of 61,688 seen in May, they are markedly below the 74-month high of 76,377 seen in January.

Howard Archer, chief UK & European economist at research group IHS Global Insight believes the drop in approvals has been clearly influenced by the introduction of the new Mortgage Market Review (MMR) in late April, which put greater onus on mortgage lenders to assess the ability of potential borrowers to meet their initial and future – based on higher interest rates – mortgage payments.

He says: “It is likely that many lenders had to adapt their procedures, such as introducing more rigorous interviews with prospective borrowers and checking facts. This is likely to be delayed the processing of mortgages.”

“However, the fact that mortgage approvals currently remain limited compared to early-2014 after lenders have now likely got to grips with the new mortgage regulations suggest that there has been some underlying moderation in housing market activity.”

In addition, surveys from both Hometrack and the Royal Institute of Chartered Surveyors (RICS) have been reporting falling buyer enquiries in recent months. “Hometrack reported that buyer enquiries fell 2.1% month-on-month in September, which was a fourth successive drop and larger than the 0.9% decline seen in both August and July. RICS reported that agreed sales had fallen in August for the first time since September 2012,”said Archer.

He added: “Evidence of an overall moderation in mortgage approvals reinforces our view that the rise in house prices will be more generally more restrained over the coming months.”

Looking ahead, Archer noted that restraint on buyer interest is expected to be driven by more stretched house prices, the prospect of higher interest rates and tighter checking of prospective mortgage borrowers by lenders.

However he expects buyer interest to stay reasonably healthy, as it should be supported by elevated consumer confidence, markedly rising employment, and still low mortgage interest rates as even if they start to rise by early 2015, they will still be very low compared to past norms.

Archer said: “We expect house prices to increase by around 1.5% quarter-on-quarter in the fourth quarter of 2014 and we see house prices rising by around 6% overall in 2015.”

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