Action by regulators to curb the housing market is looming after latest data showed continued acceleration in price inflation in May despite the introduction of the Mortgage Market Review and a further fall in mortgage approvals.
House prices are continuing their upward climb, recording their 13th successive monthly increase in May and rising by 0.7 per cent, data published by Nationwide today (3 June) reveal. As a result the annual pace of growth has edged up slightly to 11.1 per cent from 10.9 per cent.
This is despite “tentative signs” that activity in the housing market may be starting to moderate, with mortgage approvals in April around 17 per cent below January’s high.
Data published by the Bank of England yesterday showed that mortgage approvals fell for the third consecutive month in April. The data showed a drop to a nine-month low of 62,918, down 3,645 on the previous month.
While attention is focused on the controversial Help to Buy support scheme, Nationwide said it is unlikely to be the main factor in the property price boom as it only accounted for 9 per cent of total mortgage completions in the first three months of the year, echoing recent Treasury claims.
Mr Gardner said that the slowdown in approvals may be “partly” the result of the introduction of Mortgage Market Review measures, “which may take a few months to bed down”.
However, he added that underlying demand for housing - and therefore price inflation - was likely to continue despite the MMR, as a result of the improving economy.
The latest revelations will increase pressure on the Bank of England to act to curb house price inflation, after it had earlier said it would step in if the MMR failed to halt inflation. Governor Mark Carney also recently warned about increases in high income multiples.
Following his intervention, Lloyds announced it is applying a strict four times income multiple on Londoners applying for a mortgage over £500,000, describing the limitation as “a targeted policy change primarily designed to address specific inflationary pressures in the London... market”.
Mr Gardner said: “The underlying pace of activity should become more evident as we move through the summer months and the impact of MMR becomes clearer.
“However, with mortgage rates close to all-time lows and labour market conditions continuing to improve, underlying demand for homes is likely to remain strong.”
According to Mr Gardner, first-time buyers are playing an increasingly important role in the housing market recovery.
First-time buyers accounted for 48 per cent of house purchase activity in March, a record high well above the long run average of 38 per cent, Nationwide said.
On Help to Buy, Mr Gardner said: “The modest numbers involved so far suggest that Help to Buy is unlikely to be the main factor behind the recent pickup in the wider housing market.
“For example, 12,853 Help to Buy mortgages were completed in Q1 (6,327 under the mortgage guarantee scheme and 6,526 under the shared equity scheme), equivalent to around 9 per cent of total mortgage completions over the period.
He said that Help to Buy appears to be playing less of a role in areas which have seen the strongest recovery in house prices. For example, Nationwide estimates that Help to Buy accounted for around 4 per cent of mortgage completions in London in Q1, the lowest proportion amongst the UK regions.
Nationwide’s analysis echoes that of the Treasury. According to the Treasury, just 5 per cent of purchases using Help to Buy 2 were located in London.
The data raised questions as to why some lenders are applying strict criteria to high value properties in London.
The scheme has come under criticism by the Bank of England, think-tanks and former chancellors of the Exchequer. In fact, Sir Jon Cunliffe, deputy governor, warned that if the MMR did not cool the housing market, the bank would be forced to step in.
The European Commission has also waded into the debate, and has published a report, recommending that the UK “deploy appropriate measures to respond to the rapid increases in property prices, notably in London, for example by adjusting the Help to Buy 2 scheme and mitigating risks related to high mortgage indebtedness”.
The Coalition must take “action” to increase housing supply, it added.
