Mortgage advances on the rise again despite ‘property market slowdown’

11th December 2014

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In contrast to much of the latest news on the UK’s property market, new statistics from the Council of Mortgage Lenders’ (CML) show that home loan advances have picked-up.

The trade body reported that mortgage advances for house purchases rose 11.1% in October compared to September and were up 8.7% year-on-year. Advances to first time buyers and home movers both witnessed a rise, with the former up 11.6% month-on-month and 13.7% year-on-year. In regards to home movers, the amount lent rose 10.4% month-on-month and 4.5% on an annual basis.

However there has been much talk about a slowdown across the country where November’s Royal Institute of Chartered Surveyors (RICS) survey highlighted a further decline in buyer enquiries and house sales. The RICS house price balance also fell to an 18-month low of 13% in November from 20% in October and a 12-year high of 58% in March.

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Paul Smee, director general of the CML, commented: “This has been a year of change for our industry, but the market has shown remarkable stability with house purchase and buy-to-let lending showing steady, consistent growth throughout 2014 compared to 2013. There have been fluctuations month to month but overall the market appears to be showing a positive direction of travel going into the New Year.

“Stamp duty reform was long overdue and it is welcome that the tax has been changed. It will now be interesting to see how the market reacts; the new structure should be less of a barrier to mobility for those looking to get on the housing ladder or movers looking to switch homes.”

Howard Archer, chief UK and European economist at IHS Insight said: “At the very least, the CML data suggests that housing market activity is unlikely to fall away. Indeed, significant support to housing market activity will clearly come from the stamp duty reform introduced with immediate effect by Chancellor George Osborne in his Autumn Statement on 3 December.”

As a result of the recent overhaul of the system, the stamp duty paid by a house buyer now rises on a sliding scale of the house’s value rather than being set at a flat rate based on the property’s full value. Osborn said the shakeup will means that 98% of buyers will now pay less stamp duty. Only those purchasing a home worth more than £937,000 will pay more.

Archer believes that while the stamp duty reform should have a beneficial impact on the housing market, he doubts it will cause housing activity and prices to soar given likely significant constraints.

Looking ahead he anticipates that house prices will rise “by a solid but unspectacular 5% in 2015 after a likely modest overall increase in the fourth quarter of 2014”.

He added: “This compares with peak double-digit annual house price increases earlier in 2014.”

The latest data from the Nationwide show annual house price inflation moderated to an 11-month low of 8.5% in November from 9% in October and the peak of 11.8% in June, the highest since January 2005. House prices rose just 0.3% month-on-month in November. Meanwhile, latest Halifax data show the year-on-year increase in house prices easing back further to 8.2% in the three months to November from 8.8% in the three months to October, 9.6% in the three months to September and a peak of 10.2% in the three months to July.

“Looking ahead, significant restraint on house buyer interest and prices is expected to come from more stretched house prices to earnings ratios, tighter checking of prospective mortgage borrowers by lenders and the prospect that interest rates will eventually start to rise in 2015. Many people may also be deterred from buying houses because they look pricey in a number of areas after recent sharp rises,” said Archer.

But Archer also noted that stamp duty reform, continued buyer interest, better consumer confidence, high and rising employment as well as low mortgage interest rates should all still provide significant support for housing market activity

He said: “In addition, earnings growth is finally showing signs of improvement from very low levels and we expect it to gradually improve over the coming months. Meanwhile, although there are some signs that limited supply of houses is currently easing as an overall factor pushing up house prices, it is likely to remain a significant influence in some regions over the coming months. There is also the possibility that the markedly increased likelihood that the Bank of England will not lift interest rates before late-2015 will provide some limited near-term impetus to housing market activity.”

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