Lenders warn property market set for ‘choppy’ period

Slowing or falling house prices, mortgage borrowing at 2008 levels, reduced rates for tracker deals and mortgages in general, paint a conflicting picture of the UK property sector.

Chief economists at Britain’s largest lenders have attributed the divergent data to uncertainty about the future of a market which has generated strong returns for a number of years.

They remain optimistic about properties’ prospects, but warned mortgage holders and property investors the rest of 2016 is likely to prove volatile.

“Uncertainty around the upcoming EU referendum is likely to reduce overseas investment, which may cause house price growth to fluctuate to some extent throughout the year,” Andrew McPhillips, Yorkshire Building Society’s chief economist, said.

Latest house price data from Halifax and Nationwide latest gave different readings - Halifax’s figures suggested a 0.8 per cent fall between March and April, which combined with February’s 1.5 per cent drop, effectively offset March’s 2.2 per cent gain.

By comparison, Nationwide’s data for April showed house prices edged up 0.2 per cent, though the annual rate of growth fell.

Martin Ellis, Halifax’s housing economist, said low interest rates, plus rising employment and real earnings should continue to push house prices up over the coming months.

But he added “weakening sentiment” regarding house price prospects and a dip in consumer confidence, suggested annual house price growth “may ease”.

Rival lender Nationwide’s chief economist Robert Gardner said overall the data showed a slowdown, with the annual pace of house price growth returning to the 3 and 5 per cent range in place since the summer of 2015.

The latest official numbers from the Office for National Statistics cover February pointed to a slowdown on the previous month, though house prices were still up 7.6 per cent year-on-year.

While house prices fluctuate, borrowing to buy property has hit record levels.

The Council of Mortgage Lenders put lending at £25.7bn in March, up 43 per cent on the £18bn recorded in February, a surge driven by buyers trying to beat the second property stamp duty surcharge deadline, according to their economist Mohammad Jamei.

However, Equifax Touchstone analysis, covering 92 per cent of the intermediated lending market, found a 26.2 per cent (-£1.04bn) buy-to-let sales slump from February to March, with suggestions most portfolio landlords got deals done well ahead of April.

As for the deals on offer, Mortgage Brain’s quarterly product data showed the majority of mainstream and buy-to-let mortgages have come down in cost, along with significantly reduced rates for tracker deals.

Mr McPhillips suggested now the landlord rush has subsided, market activity is likely to be relatively choppy throughout the remainder of 2016.

But he added: “Although the EU vote is likely to cause a drop in demand for some properties, it is likely that there will still be more prospective buyers than there are houses, meaning prices may continue to increase beyond inflation and wage-growth at least in the short-term, regardless of market uncertainty.”

Charlotte Nelson, a spokeswoman for Moneyfacts, said there has recently been a period of growing house prices and lower mortgage rates, although rises have now begun to flatten, which could have a knock-on effect on lending levels.

“But so far, this has not happened, in fact, the opposite has occurred and lending has surged,” she said, adding the lending increase can be explained in part by the boom in remortgaging activity and the increase in buy-to-let demand.

Although a base rate rise may seem like a distant concern, one day the Bank of England will move it from historic lows, stated Ms Nelson. “Many providers are therefore choosing to be competitive now, so that when base rate does rise and borrowers are incentivised to move, they will see their current lender as a competitive option.”

peter.walker@ft.com