UK Housing Market Slows

October 15, 2014

After an extended period of strong expansion, growth in the UK’s housing market is showing signs of moderating. According to the Royal Institution of Chartered Surveyors, the number of agreed house sales dropped for the first time in almost two years during August; meanwhile, sales are taking longer to complete and enquiries from new buyers have slackened over recent months Mortgage lender Halifax calculated that UK house prices rose at an annualised rate of 9.7% during August to reach an average of £186,270.

However, quarterly and annualised increases were lower in August than in July, lending additional substance to the suggestion house price growth might be moderating. The Mortgage Market Review, which came into force in April 2014, has been cited as a reason for the slowdown. Although low mortgage rates have provided support for the housing market, this has been constrained to some degree by sluggish wage growth that has been significantly outstripped by surging property values. Meanwhile, mounting expectations of the first rise in interest rates since July 2007 have dampened the enthusiasm of potential buyers amid renewed concerns about the affordability of housing.

Halifax calculates the number of enquiries from prospective buyers fell during July, registering their first drop for 18 months. Nevertheless, demand for property continues to be broadly underpinned by an increasingly firm economic recovery, rising consumer confidence and a strengthening labour market. The Royal Institution of Chartered Surveyors believes activity in London’s housing market is becoming less feverish and more sustainable, which should help to improve the balance between demand and supply, and should also take the edge off price rises. Elsewhere, Halifax has identified “tentative” signs the supply of property is improving, which should also provide some relief for the pace of growth in house prices. However, Nationwide believes that supply in the housing market will remain “constrained”, which should help to shore up property values. Gross mortgage lending fell by 5% during August compared with July, according to the Council of Mortgage Lenders, although lending rose at an annualised rate of 13%.

Looking ahead, mortgage lender Nationwide has warned that the outlook for the UK’s housing market remains “highly uncertain” while, for its part, the Council of Mortgage Lenders expects a “gentle” slowdown, exacerbated by the continuing impact of tighter lending rules and a softening of the London market.

Steve Martin is a partner and head of conveyancing at Watsons Solicitors.

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