Property boom beginning to go bust in the UK, says Nationwide

The booming and combustible housing market – which has raged rampantly in London and the South-east over the past 18 months ñ is beginning to display signs of slowing down, according to the UKís second biggest provider of mortgages.

Nationwide identified that annual property price inflation had fallen to 9.0% during October, representing a narrow decline from the 9.4% figure in September. However, prices are still up 0.5% this month compared to the last, with the average cost of a home in the UK now standing at £189,333.

The building societyís chief economist, Robert Gardner, said that a variety of indicators had pointed to the housing market ëlosing momentumí, including the rapidly falling number of mortgage approvals being made by the countryís lenders in the past quarter and the contraction in property price growth.

Gardner also had positive sentiments for the embattled working class population in London and the South East, forecasting that housing prices will begin to stabilise in the ënear futureí on the basis of buyer enquiries falling in these areas. This notion appears to have found reinforcement from the latest round of survey results from RICS, which compellingly illustrated that the number of buyer enquiries for property in London had actually fallen steadily during every quarter this year, outstripping the rate of decline for the rest of the UK. 

In an intriguing statement, Gardner asserted: “A variety of indicators suggest that the market has lost momentum.
The number of mortgages approved for house purchase in September was almost 20% below the level prevailing at the start of the year.

Some forward looking indicators, such as new buyer enquiries, suggest that activity may soften further in the near term, especially in Londonî, he said.

Whilst the news will be welcomed by the low and middle income workers of the capital ñ who saw the average price of property rise by a staggering 21% between Q3 2013 and 2014 ñ questions will still be raised over whether the fall in buyer enquiries reflects an actual stabilisation in the market, or is simply an illustration of the new-found pessimism that Londonerís feel towards their chances of viably getting on the property ladder.

Many people in the capital ñ particularly those in employment aged under 30 ñ have been forced to leave their homes and move to cheaper living areas around the country, with the current ëcost of living crisisí and the stagnant growth in worker wages serving to promulgate the magnitude of this issue.

It is on the back of these contextual problems that people will question whether the London property market is truly beginning to slow down, or whether it has been left deformed and permanently changed by the last crash.

Certainly, the continued rise in house prices ñ despite the recent contraction in its rate ñ appears to suggest that Nationwideís remarks lack credence; it could be inferred that the falling level of buyer demand is a indicator of the broader economic problems that the UK is experiencing at present.

ëIndicators remain positiveí

However, Nationwide rejected that the recent fall in price growth and the current condition of the Labour market were damaging the health of the countryís economy. Gardner outlined that he expected demand would begin to pick up, as unemployment continues to fall, and the Labour market begins to feel the real effects of the economic upturn.

Gardner said: ìHowever, broader economic indicators remain positive. The labour market has continued to improve, with the unemployment rate falling to 6% in the three months to August and mortgage rates have fallen back towards all-time lows (see chart overleaf). Indicators of consumer confidence have also remained close to recent highs.
ìIf the economy and the labour market remain in good shape, activity is likely to pick up in the quarters ahead providing mortgage rates do not rise sharply. 

Nationwideís data is the third evidential release in the last 7 days which have suggested that the British housing market is beginning to cool down.

Yesterday, the Bank of England highlighted that the mortgage approval rate in the country had dropped to its lowest point since July 2013, whilst the Land Registry echoed Nationwideís sentiments and said that property prices had actually contracted in September ñ representing the first occasion of this trend happening since the end of 2013.

Nationwide argued that the harder and more stringent mortgage lending criteria that the countryís banks and building societies have been bound to since April, might have been a cause of the recent fall in approvals; another being an internal fear within the consumer contingent over their future mortgage rates with the Bank of England set to raise their base rate at some point next year. 

Jonathan Samuels, chief executive of Dragonfly Property Finance, argued that “irrational exuberance” in the market looks to have fallen away.

“The new lending rules introduced earlier in the year clearly triggered a slowdown, but since then I suspect some good old-fashioned common sense has also played a role,” he added.

Consumers lean towards quick fix

Nationwide also pointed out that a monumental 90% of prospective homeowners had chosen to take out a fixed rate deal when getting a mortgage – up by a hugely inflated 67% over the past two years.

Whilst a driving factor behind this is the resurgence of first time buyers in the property market ñ a trend incurred by the governmentís Help to Buy scheme and the availability of high LTV loans during 2013 ñ the imminent arrival of interest rate hikes has also played a big part in encouraging people to play it safe and fix their deals to a long-term rate, according to the building society.

ìAn increasing number of borrowers have been opting for fixed rate mortgage deals in recent times. Data from the Council of Mortgage Lenders suggests that around 90% of new mortgages were contracted on fixed rates in recent months, up from 67% two years ago.  Fixed rate deals are most popular amongst first time buyers for whom certainty over monthly payments is likely to be particularly importantî, Gardner said.
Despite the apparent apprehension of the population to use STV mortgages at present, Gardner argued households should be able to comfortably deal with the added demand on their finances when rates do eventually rise ñ however this eventuality should be secured through gradual rates rises, rather than rapidly bringing rates back to their pre-recession levels.

ìNevertheless, the housing market should be able to cope with higher interest rates, provided the increase is gradual and the economy and the labour market remain in good shape. Guidance from the Bank of England suggests that the increase in interest rates is likely to be gradual, and that they are expected to settle at a level somewhat below the average prevailing before the financial crisis, which should help ensure borrowing costs remain manageable.î

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