House Prices expected to drop in London, says Royal Institution of Chartered Surveyors
House Prices are expected to fall over the next three months, a poll conducted by the Royal Institution of Charted Surveyors (RICS) has shown.
By a 10% margin, the majority of London surveyors have said prices are more likely to fall than rise. This development marks the first time in over two years that this depressed verdict has been reached.
Stricter rules imposed in Aprilís Mortgage Market Review (MMR) are said to be at the heart of slowing house price increases ìparticularly in Londonî. Lenders were compelled to apply ëstress testsí to ensure prospective borrowers could afford their mortgage in the face of interest rate rises. In certain cases, this meant having to show that you would be capable of paying a mortgage with a 7% rate.
Despite falling mortgage approvals due to the aforementioned sanctions imposed by the Bank of England, Nationwide reported earlier this month that house prices had risen by 25.8 in London this year.
Rics noted that buyers were making fewer inquiries concerning the availability of houses in London. This, according to the institution, is due to ëan increased air of cautioní amongst buyers. By a majority of 30%, London surveyors identified a fall in demand over the past year.
"Buyer enquiries in the capital are now slipping back, which suggests that the very sharp upward move in prices will flatten over the coming months," said Simon Rubinsohn, RICS chief economist.
Nonetheless, the survey showed that prices were still escalating in other parts of the country, with the steepest increases occurring in the South East of England and Northern Island. Additionally, prices in London are expected to rise yet again over the next year.
Bank of England impact
The Bank of England flexed its monetary muscles last month, dampening the housing market through new regulations foisted on borrowers and lenders alike.
From October, borrowers will have to prove that they are able to cope with a 3% rise in mortgage rates from their present level. Lenders are also feeling the force, as no more than 15% of their dealings can be with borrowers who are seeking access to loans 4.5 times the size of their incomes. These measures are intended to crack down on the number of risky loans that have adversely affected the housing market for too long now.
However, the RICS dismissed these measures as somewhat effectual, stating that they were ìunlikely on their own to have an immediate effect on the market.î
Rather, the institute is putting more stock in recent comments made by Mark Carney, governor of the BoE, regarding impending rate rises. Citing the significance of this potential development, coupled with the introduction of the MMR, as key to taking the heat of the housing market, Rubinsohn said:
"Rhetoric from key officials at the Bank, including Mark Carney, alongside the consequences of the introduction of the MMR are already slowing momentum particularly in London."
Alternatively, the Council of Mortgage Lenders, which speaks for many banks and building societies, offered a varying perspective describing the effect of the MMR on lenders as ìsubtle, rather than dramaticî.
Howard Archer, chief UK at Global Insight recently said: "While the 0.6% drop may be a sign that house prices are starting to lose momentum in reaction to the recent moderation in activity, June's drop must be treated with a high degree of caution as it followed a jump of 4.0% month-month in May. In fact, the Halifax house price index has been particularly volatile in recent months."
He added: "At the moment, house prices still look more likely than not to see clear increases over the coming months, although it is looking increasingly probable that there will be some easing back in house price gains from the recent strong increases."
Global Insight expects house prices to increase by around 4% over the second half of 2014 and by around 6-7% overall in 2015.