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Strict Mortgage Rules Curb the Market

Although still growing, the latest Nationwide Building Society figures show that the housing market is slowing.  House prices rose for the fifteenth consecutive month, but by just 0.1%, in July, with stricter mortgage rules thought to be the factor in growth slowdown.  However, a lack of availability of homes for sale has been spurring the market on over the last twelve months, during which time, house prices have gone up £18,000, an increase of 10.6%.  According to the building society, the average house price is now £188,949; a figure that is surely somewhat skewed by the capital.

The stark difference between the housing market in the capital and the rest of the country is borne out by the fact that it accounted for 42% of total stamp duty paid on residential properties, even though only 15% of house purchases were carried out there.  Nationwide’s chief economist Robert Gardner said that the slowdown in house prices was “not entirely unexpected” as there has been a 20% drop in mortgage approvals between January and May. 

This figure has bounced back slightly in June, prompting him to state that the fall could be a temporary situation, pointing towards a buoyant labour market and mortgage rates that are set to stay low.
The mortgage market review measures require lenders to apply ‘stress tests’ to potential borrowers, assessing their ability to keep up repayments if interest rates rise by at least 3% in the first five years of the mortgage term.  Lenders are also now required to look more closely at peoples’ outgoings. 

Recent legislation introduced by the Bank of England’s Financial Policy Committee also limits lenders on riskier borrowing.  Lenders now have to restrict mortgages that are 4.5 times the borrower’s income, or more, to just 15% of new mortgages issued.

The general consensus among property market commentators suggests that prices will continue to rise, albeit more slowly than recent months.  It is thought that simple supply and demand will continue to outstrip the market-dampening effects of stretched price to earnings ratios and tougher loan criteria.
Sources: thisismoney.co.uk, nationwide.co.uk (image courtesy of thetimes.co.uk)