Friday, August 01, 2014

Is the Housing Bubble Beginning to Burst?

A bubble.
image credit: freedigitalphotos.net

The smallest monthly rise in Uk house prices was recorded in July with a miniscule 0.1 per cent month on month increase, as more stringent lending rules fuelled a significant drop in the pace of activity, according to recent reports from building society Nationwide.

Year on year, growth in values remained in double digits for the fourth consecutive month, however the pace of the annual increase dropped from 11.8 per cent in June to a significantly smaller 10.6 per cent in July.

Across the United Kingdom, the average property price currently stands at £188,949, according to Nationwide.

Chief economist of the building society, Robert Gardner, explained that they see the slowdown in price growth as “not entirely unexpected, given mounting evidence of a moderation in activity in recent months.”

Alternate reports from different sources have proved that there was a dip in the number of mortgage approvals following the introduction of tightened mortgage lending rules due to the results of the Mortgage Market Review (MMR) at the end of April, which requires lenders to query people applying for a home loan significantly more detail oriented questions regarding their spending habits, in order to correctly come to a conclusion upon whether they can afford their mortgage repayments, both now and in the future when mortgage rates eventually rise as they inevitably will.

More recently, there has been a recovery in the rate of mortgage approvals as the banks and lenders become more accustomed to the new MMR rules.

Mr Gardner stated: “At least part of the slowdown in activity relates to the introduction of Mortgage Market Review measures”

“The modest rebound in mortgage approvals in June adds weight to the notion that the slowdown will prove temporary, though the underlying pace of demand remains unclear”.

“With the labour market strengthening, mortgage rates expected to remain low and consumer confidence rising, activity is likely to recover in the coming months.”

Mr Gardner said that he believes in the longer term, that house price movement will begin to depend on the  volume of houses coming on to the market. A lack of available homes has helped to put an upward pressure on the price of properties over the last 12 months as the economic recovery has begun to pick up speed.

He continued: “While there have been some encouraging signs that construction activity is picking up, the pace of home building continues to run far below most estimates of what would be required to keep up with household formation in the years ahead.

“A modest recovery in the number of housing transactions, a pick-up in house price growth and the introduction of higher stamp duty rates on more expensive properties have all contributed to a sharp increase in stamp duty revenues in recent quarters, the majority of which is paid on residential property transactions.

“Indeed, stamp duty revenues are near the all time highs recorded in 2007/08, reaching over £10 billion in the 12 months to June 2014,” he continued.

“We estimate that London contributed around 42 per cent of the total stamp duty paid on residential properties in 2013/14, even though the capital only accounted for (around) 15 per cent of house transactions.

“This largely reflects the substantial and growing gap between house prices in the capital and the rest of the UK, where the typical London home now costs more than twice the national average.

“By contrast, the North West, where the price of a house is well below the national average, accounted for 3 per cent of the total stamp duty paid, markedly less than it’s 10 per cent share of property transactions.”


Author Bio: Bradley Shore is an experienced property and investment author, he writes to keep his readers up to date with the latest property market information. You can see him express this in his recent work for Innovo Property UK.