There are further signs housing market is finally beginning to cool, with new data revealing that lending restrictions introduced under new mortgage market rules are beginning to reduce the number of approvals and could even begin to stem price inflation.
Data released today (12 June) by the Royal Institution of Chartered Surveyors revealed that the national supply of new homes coming onto the market declined for the fifth consecutive month in May and in London, where fears of an overheating market have been particularly expressed, demand for new homes fell for the first time since June 2012.
Respondents to the latest Rics’ residential market survey also reported that banks are lending less, with the average loan to value ratios among first time buyers dropped to 85.3 per cent, from 86 per cent in April.
Respondents’ expectations for house prices over the next 12 months dropped from 3.9 per cent to 3.6 per cent - the lowest since December 2013.
Data published by the Bank of England earlier this month 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.
Despite this, Nationwide figures had continued to show price rises continuing and concern has been growing that the market is in an inflationary bubble that could undermine financial stability as and when it bursts.
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.
Robert Gardner, Nationwide’s chief economist, previously 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.
Simon Rubinsohn, Rics’ chief economist, agreed, adding: “There is some evidence to suggest that the MMR has contributed to a tightening of the funding market, although it is hard to disentangle this from other factors which are now impacting on the sector and to know whether it will simply be a temporary influence as lenders adjust to the new environment.”
Although more modest expectations for growth in activity are visible in the capital, Rics’ data reveal there are some “early signs that concerns over both supply and finance could be influencing prospects elsewhere in the country”.
For example, sales expectations over the next three months in the south-east show a net balance of 29 per cent of chartered surveyors expect greater market activity and a net balance of 48 per cent in the south-west, down from 66 per cent and 93 per cent respectively six months ago.
Rics said the tightening in lending conditions facing some parts of the housing market even led to a modest pick-up in demand in the rental sector and rent prices are now projected to grow at around 2.5 per cent over the next twelve months, and at an average annual rate of 4 per cent over the next five years.
Mr Rubinsohn said: “What we are really seeing is some of the very strong upward momentum starting to come off the housing market, as a lack of supply, higher prices, more prudent lending measures and some of the talk from the Bank of England are creating a level of caution among sellers and buyers.
“The most visible indicators of this are the revised downwards price expectations for the next 12 months and the flatter picture regarding new buyer enquiries. In particular, we’re seeing the London market level off.”
