Analysis points to the UK property market slowing
Average house prices across the UK now exceed 2007 levels, however some indicators suggest that the pace of growth may be set to slow with new mortgage rules adding a dampener.
UK house prices rose by 1% in June, and are now 11.8% higher on an annual basis but the latest house price sentiment index from Knight Frank and Markit suggests there is an easing of expectations for future price growth.
The value of an average home has risen by £20,000 or 11.8% over the last year. Data from Nationwide shows that the value of an average property in the UK is now £188,903, above the pre-crisis peak levels seen in 2007.
However there are still large regional variations in the pace of growth, with London prices up 26% over the year while property in Yorkshire and Humberside has risen in value by 7% over the same period, Knight Frank says in its latest UK residential update report.
This rapid rise in prices has been identified by Sir John Cunliffe, deputy governor of the Bank of England, as the biggest threat to the UK economy. He said that prices rising faster than earnings led to the risk of rising consumer debt which the bank sees as a threat to stability.
His colleagues have been active around mortgage credit in recent weeks, with a much anticipated announcement by the central bank’s Financial Policy Committee that it would step in and apply curbs on new home loans. From October, lenders will have to limit the number of loans they advance where the value of the mortgage exceeds 4.5 times a borrower’s annual income.
Lenders will have to ensure than 85% of their loans are under this 4.5 limit. It added that lenders should apply stress testing to ensure that borrowers can still afford their monthly mortgage repayments if interest rates climbed by 3%.
The impact of the changes may be limited on a national level, coming shortly after the new MMR mortgage rules which had already tightened up the application process. In addition, many mortgage lenders already carry out ‘stress tests’ to check that new borrowers can still make repayments. However, the limiting of loans advanced at 4.5 times income could have an effect on the London market, which has seen a sharp rise in the number of loans advanced at this level.
The report also points out that the measure of the price growth anticipated by households across the UK fell by the biggest margin since 2011 in June this year. Londoners’ expectations for growth moderated for the second month in a row.
‘There is increasing expectation that interest rates will start to rise before the end of the year, and this, coupled with more downbeat economic news from Europe, has helped push sterling to near six year highs against a basket of currencies. Indeed, the UK’s economic growth is looking fairly solid on the global stage. The size of the UK economy will overtake that of France before…