UK average property prices reach new high in May as mortgage approvals start to retreat

3rd June 2014

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Despite the recent retreat in home loan approvals the UK’s property market appears to be still firing on all cylinders as prices accelerated at an annual pace of 11.1% in May according to the latest figures from Nationwide.

The building society found that the average house price on its widely observed measure was £186,512 during the month, surpassing the previous record of £186,044 seen in October 2007.

The month of May represented the thirteenth successive monthly increase, where property prices rose by 0.7%. This followed an increase of 1.2% month-on-month in April and 0.5% month-on-month in March.

However there are signs that activity in the housing market maybe beginning to ease-back, with mortgage approvals in April around 17% below January’s high, quite possibly a result of the arrival of the Mortgage Market Review (MMR) at the end of April, which introduced tougher affordability checks for borrowers.

The Bank of England reported that mortgage approvals for house purchases fell for a third month running in April to a nine-month low of 62,918, down from 66,568 in March, 69,145 in February and a 74-month high of 75,838 in January.

Howard Archer
, chief UK & European economist
 at IHS Global Insight points out that in stark contrast, mortgage approvals had previously risen for 11 successive months to January’s peak level from a low of 51,755 in February 2013.

He adds: “It is notable that even January’s peak level was clearly below the long-term average of 84,189 a month since 1993.

“This strongly suggested that the introduction of new regulations under the MMR has at least temporarily taken some of the steam out of housing market activity. While the MMR only came into effect on 26 April, it is evident that some banks raised their mortgage lending standards before the new regulations kicked in.”

Robert Gardner, Nationwide’s chief economist, says: “It is too early to say whether nationally this is indicative of a cooling trend in the wider market. The slowdown may partly be the result of the introduction of MMR measures, which may take a few months to bed down. 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.”

Archer believes that house prices still look more likely than not to see pretty robust increases over the coming months as underlying buyer interest still appears robust according to most survey evidence and it is likely to continue to be supported by substantially improved consumer confidence, markedly rising employment, improving earnings growth and extended low mortgage interest rates.

Archer says: “Limited supply of houses is a significant factor pushing up prices in many areas. Indeed, the latest RICS survey indicated that the headline sales-to-stock ratio rose to 38.0% in April from 37.0% in March, which was the second highest reading recorded post-2008 and marked the seventh consecutive month above its long run average of 32%. We expect house prices to increase by around 5-6% over the rest of 2014 with gains across the country.”

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