Does the recent fall in CML lending figures mean the property market is finally stabilising?
Total mortgage lending by the nationís banks and building societies to aspiring homeowners dropped by a monumental 5% from £19.7 billion in July to £18.6 billion in August, according to the latest round of figures released by the Council of Mortgage Lenders (CML).
The CML ñ which represents over 97% of all the lending organisations in the country ñ identified that whilst mortgage lending was up by a staggering 13% in the 12 months to August this year, that nevertheless the property market had begun to slowdown after a year-long hot period.
The lending group also cited rising property prices and demand as the driving factors behind the rise in mortgage lending over the past 12 months, which has seen the collective value of secured loan distributions rise to its highest value since 2008 and considerably exceed the £16.4 billion exhibited in last yearís equivalent statistics.
However, the CML has argued that the latest lending figures are implicit that banks and building societies are beginning to apply tighter and more stringent standards to their mortgage lending conduct, suggesting that the current boom in the UK property market could be coming to a close after a year full of vigorous activity and renewed consumer demand.
"A gentle slowing of lending activity may now be in prospect, as a result of the continuing impact of tighter lending rules and a softening of the London market," said Bob Pannell, CML chief economist.
Mortgage Market Review legacy?
Generally regarded as a more subdued month in the property market, this August has witnessed a plethora of back-dated mortgages be approved, following the Bank of Englandís official implementation of their Mortgage Market Review (MMR) and stricter lending criteria at the end of April.
Introduced to a huge furore, the MMR has limited the scope of lenders when it comes to the provision of interest-only mortgages, as they have been obliged by the new regulations to go through the financial history of their applicants with a ëtooth and combí. The changes have meant that the bank statements and payslips of thousands of people applying for mortgages have been meticulously scrutinised by lenders, who have occasionally chosen to provide smaller mortgage sums to those with a history of lavish leisure spending and gambling.
Banks and building societies have also been confronted with getting to grips with the new ëstress checksí on their customerís incomes, which has necessitated that they test how an individualsí current salary copes with loan repayments under current interest rates, and then against potentially higher payments and forecasted rates in the future. The applicant must be able to clearly display that their salary holds up to both in order to attain approval from lenders under the terms and conditions of MMR, which has radically sought to end the practice of irresponsible lending and the provision of exceptionally high loan-value mortgages to marginal householdís ñ a key reason behind the last property cash.
The new rules meant that a number of applications made by prospective property owners during the latter stages of spring were put on hold, as lenders stalled making their final verdicts whilst they acclimatised themselves with the tighter lending criteria and new stress tests. As such, the unusually high levels of mortgage borrowing in the month in August is more of a circumstantial occurrence than one which provides any deeper insight into the property market, and it should also be noted that the August figure was propped up by the staggering rate of property price growth in the last year, particularly in the capital where prices rose by nearly 20% over this period.
Separate statistics released by the HMRC have illustrated that a sizeable 37% of all purchases made in the property market in the past year have been done so in cash-form as foreign investors, high rolling domestic purchasers and parental financial support has contributed to a lower number of people choosing to apply for larger mortgages for higher value properties ñ which in turn has sent prices soaring even higher.
Property price fall?
Private estate agent and market specialist, Henry Pryor, has argued that the latest round of figures could be a pre-cursor for imminent price drops in the value of properties in the market, as lower demand and a higher ratio of supply organically reduce the market pressures on the cost of housing.
"I've worked through three property recessions," Mr Pryor said.
"You can usually only see one in your rearview mirror but this feels very familiar. Prices are determined by availability of credit. This is going to get tighter."
Howard Archer, chief economist at IHS Global Insight, added: "More stretched house prices to earnings ratios, the prospect that interest rates will start to rise before long (albeit gradually) and tighter checking of prospective mortgage borrowers by lenders will likely have some limiting impact on buyer interest."
E.surv has argued that the current recovery in the property market has been average at best, and pointed out that much still needs to be done in order to ensure the long-term stability and sustainability of the homeowners within it.
"Some areas of the country are operating on fast forward, but other areas are still at a standstill," Richard Sexton, director of e.surv. ìThe capital may be coasting along, yet regions like the North West are still operating in first gear. To add another twist to the tale, the very top of the London market is starting to slow. Strong sterling has dissuaded some foreign buyers from investing in high end property, and is putting the brakes on the very top of the market."