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Housing market in slowdown mode

Housing market in slowdown mode

Category: Mortgages

Updated: 16/04/2015
First Published: 16/04/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Activity in the housing market has been storming ahead in the last year or two, leading to fears of excessive price rises and the formation of a much-dreaded bubble. However, several reports published so far this year show that this pace of growth is beginning to moderate, and if this week's stats are anything to go by, the market is well and truly in slowdown mode.

Drop in mortgage lending

Figures from the CML have revealed that mortgage lending declined in February, as seasonal factors and political uncertainty took their toll. The number of mortgages advanced for house purchase in the month (40,600) fell by 1% from January and by 16% compared with February 2014, while the value of those mortgages (coming in at an impressive £6.8bn) fell by 3% and 13% respectively.

Remortgage lending also decreased, following a slight uptick at the beginning of the year – the number of remortgages advanced (21,500) posted a drop of 16% on a monthly basis and 14% over the year, while the value (£3.3bn) decreased by 20% and 11% respectively. In fact, the buy-to-let sector was the only area to display positive annual growth: 15,900 buy-to-let mortgages were advanced during February at a total of £2.2bn, up 11% by number and 16% by value.

Slower price growth

Meanwhile, additional figures from the Office for National Statistics (ONS) show that house price growth is moderating, too. The figures show that UK house prices rose by 7.2% in the year to February 2015, and although it's still a marked increase, it's a significant slowdown from the annual growth rate of 8.4% recorded in January. On a monthly basis, prices edged up by 0.6% between January and February, putting the price of a typical UK home at £268,000.

House price growth is showing signs of slowing across much of the UK, the report noted, and interestingly, it's no longer London that's displaying the strongest pace of growth. Prices in the capital still saw annual inflation of 9.4%, but this was outstripped by growth in the East of 10.7%. This suggests that the rapid price rises witnessed in London during the height of the recovery have petered out, with other areas now posting stronger performances.

Moderation rules

This period of moderation is expected to continue, with latest forecasts from the Centre for Economics and Business Research (Cebr) predicting that average UK house prices will rise by just 1.5% in 2015. This in itself is an upward revision from the forecast made in January, where the research body expected a 0.6% decline in prices.

This reversal in fortune is largely due to stamp duty changes having a sooner-than-expected impact, it said in the report, while an improving labour market has boosted consumer spending power. Expectations have been revised up for nearly all regions in the UK, but once again, London is the most notable exception – prices in the capital are expected to underperform those in the rest of the country, with a decline of 3.6% predicted for the year.

Some commentators expect slightly higher price growth – Halifax, for example, predicts that prices nationally will rise by 3-5% in the next year – however the message is still one of ongoing moderation. A slight uptick in mortgage lending is predicted in the spring and summer, says Paul Smee of the CML, but even so, it's not expected to charge ahead any time soon.

No bubble on the horizon!

Essentially, what this all means is that, while the market is still robust, thoughts of an imminent bubble arriving can be well and truly popped. Moderate growth is the order of the day, and that can only be a good thing for the market as a whole – price growth will be welcome news for homeowners seeking to take the next step up the ladder, but prices haven't risen so much so as to make that next move unattainable. Prospective buyers will breathe a sigh of relief, too, as slower price growth means the possibility of securing that first-time buyer mortgage could begin to edge closer, so take advantage of the market and take comfort in the fact that moderation is here to stay.

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