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Further signs of a slowing housing market

Further signs of a slowing housing market

Category: Mortgages

Updated: 30/09/2014
First Published: 30/09/2014

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Given the rampant pace of house price growth over the last year, it's always encouraging to see signs of things slowing down. Well, Nationwide has provided the latest proof – even though house prices are still heading upwards, the annual rate of growth has slowed considerably from last month.

The stats

Nationwide's September House Price Index has revealed that average prices grew by 9.4% on an annual basis, putting the typical UK home at £188,374.
However, this is a clear slowdown from the previous month when annual price growth of 11% was recorded, while on a monthly basis the price of a typical UK home has actually fallen by 0.2%.

This is the first time that prices have declined in over a year, having previously recorded 16 consecutive monthly price increases. Even London hasn't escaped the trend – in the last quarter it saw annual price growth of 25.8%, but this has now dropped to 21%. Of course, this is still exceptional and puts the typical London home at a record £401,072, but the fact that things are beginning to moderate should allay any fears of a bubble approaching.

There are still distinct regional variations too, with some areas barely registering annual growth rates of 5%, so rapid price increases certainly aren't a national concern. There are even signs that the pace of growth could soften further in the coming months, said Nationwide's Robert Gardner, despite the outlook remaining uncertain: "There have been tentative signs from surveyors and estate agents that buyer demand may be starting to moderate, but the low level of interest rates and strong labour market suggest that underlying demand is likely to remain robust."

Fewer approvals

House price growth isn't the only thing to show signs of slowing down – the number of mortgage approvals has taken a dip, too. Official figures from the Bank of England show that house purchase approvals fell in August, totalling 64,212 over the month, representing a drop of almost 3% from the 66,100 recorded in July.

Not only does this mark the second consecutive monthly fall, but it's the sixth so far this year, which could potentially signify an ongoing trend. The value of those approvals also fell, totalling £10.4bn in August, a clear drop from the £10.7bn of July.

While much of this could be down to usual seasonal factors – approvals tend to slow in the summer – analysis would suggest that the ongoing effects of the Mortgage Market Review (MMR) are also having an impact.

The MMR introduced strict new lending criteria which put affordability at the heart of the mortgage application process. This not only lengthened processing times, but meant a lot of people were concerned about being accepted for a mortgage. While this shouldn't be a long-term issue, it was still a lot for the industry to adjust to, and lending volumes are yet to fully recover.

What does it all mean?

Really, this is good news for anyone who was worried about being able to get on (or move up) the housing ladder. House price growth is slowing, a trend which will hopefully continue and will ultimately lead to a more stable market, and in even better news, it means first-time buyers won't need to constantly worry about increasing their deposit requirements.

It could make it far easier to save for that deposit, and it could mean buyers won't need to seek such a high mortgage amount, either. This can only be a good thing, particularly with the prospect of an increase in base rate on the horizon, as a bigger mortgage will lead to higher repayments – and those repayments will only get higher when rates start to rise.

This all means it could be a great time to get on the ladder. Mortgage rates are still relatively low, and with house prices showing signs of moderating, it could be worth considering your options before rates start to creep up (check out our pick of the best mortgage deals to get started).

Even the drop in house purchase approvals shouldn't give too much cause for concern. Yes, the stricter regulations following the MMR could be having an impact, but it shouldn't stop those who can comfortably afford a home from being able to buy one. The process may take slightly longer, but it's all for a good cause – the whole point of these new rules is to ensure that the market doesn't return to pre-crisis ways, which saw affordability become a serious issue and a lot of people lose their homes.

It's anticipated that, while the overall pace of lending activity could remain more subdued than previously, approval volumes are likely to recover once the market fully adjusts and processing times quicken. It could end up being a more sedate market than previous norms, but that equates to stability, and is therefore good for everyone concerned.

What next?

Have a look at our mortgage calculator

Read some of our mortgage guides

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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