Safe as housing markets?

The housing market might still be chugging along the road to recovery, b ut recently, there have also been signs the chugging is getting a little slower.

There have been signs that sentiment towards the market among potential buyers is cooling.
There have been signs that sentiment towards the market among potential buyers is cooling.

Maybe it’s because of stricter mortgage lending rules, sharp increases in house prices in some areas, speculation over when interest rates may edge upwards, or any combination of these factors, either way, it’s happening.

A new report from Halifax found consumer confidence about the coming months being a good time to buy a home has slipped back to a three-year low. There was also a “sharp rise” in people saying increasing prices are a barrier to buying.

Conversely though, confidence that the next 12 months will be a good time to sell a house lifted to its strongest levels since Halifax’s regular survey of around 2,000 people started in 2011 - it’s a “tipping point”, where the mismatch in buyers’ and sellers’ expectations can only lead to disappointment for some.

UK house prices did reach a new all-time high of £188,949 in July on average, according to Nationwide Building Society, but the pace of price increases is winding down compared with stronger uplifts seen earlier this year.

Similarly, another recent report from property analyst Hometrack found the momentum of price rises in London has “slowed dramatically”.

Richard Donnell, director of research at Hometrack, says the market often runs in “mini cycles”, lasting between 18 months and two years. These tend to be strongly influenced by buyer sentiment. He explains that the latest cycle started around spring 2013, when the Government’s flagship Help to Buy scheme, enabling people with only low deposits saved to make the jump onto the housing ladder was launched in England.

A second version of the scheme was introduced UK-wide last autumn, b ut there have been signs the wave of “pent-up” demand unleashed by Help to Buy over the last year has started to moderate.

Meanwhile, there’s the speculation over when the Bank of England base rate, which has been at an historic 0.5% low for over five years, will start to increase, bringing concerns that home owners should be preparing now for the potential impact on their mortgage payments.

Toughened mortgage lending rules also came into force at the end of April, and these appear to have had an impact on the market as lenders and borrowers get to grips with the changes. The Mortgage Market Review (MMR) rules force lenders to ask mortgage applicants for more detail about their spending habits, to make sure they can afford their mortgage. Those applying for a deal also have to produce more paperwork to back up what they say.

It’s not all doom and gloom though.

Matthew Pointon, a property economist at Capital Economics, says: “As the new lending systems bed in, mortgage lending should recover. Indeed, surveyors are still reporting that the number of new buyers is increasing, albeit at a slower pace.”

And Hometrack also says house price growth across the country generally, in places where increases in values had been less pronounced in London, “could well be sustained into the autumn”.

Another sign that the market is still gaining a firmer footing has just come from the Council of Mortgage Lenders (CML), which predicts gross mortgage lending is set to top £200 million this year, marking the first time this has happened since 2008.

The CML previously thought lending would reach around £195 billion this year, but it’s revised this forecast upwards to £208 billion, amid some stronger-than-expected market activity.

The CML says that economic growth “continues to underpin housing market sentiment and demand”.