Cooling house prices ease property bubble fears: Lenders and housebuilders dismiss talk of sharp house price correction
By Hugo Duncan for the Daily Mail
Britain's red-hot housing market is cooling and worries about yet another devastating boom and bust have given way to talk of a welcome slowdown.
The Council of Mortgage Lenders yesterday said that the number of home loans approved by banks and building societies fell for a second month in a row in September.
It followed a report by mortgage lender Halifax last week showing house prices fell in October having bounced back strongly since the Great Recession.
Bubble fears easing: Industry figures pointed to signs that the housing market is stabilising
Industry figures dismissed talk of a sharp correction – and instead pointed to signs that the housing market is stabilising.
‘We are encouraged that conditions have moderated but remained positive,’ said Pete Redfern, chief executive of FTSE 250 housebuilder Taylor Wimpey. ‘Today we are operating in a UK housing market which is growing steadily and sustainably.’
Such talk will be welcomed on Downing Street and at the Bank of England where ministers and officials have been desperate to stop the housing market spiralling out of control without killing it off altogether.
The Mortgage Market Review came into force in April this year to, in the words of Martin Wheatley, chief executive of the Financial Conduct Authority which polices the City, ‘hardwire common sense into mortgage lending’.
The new rules ensure that lenders conduct full affordability checks on mortgage applicants, delving into things like how much they spend on items such as pension contributions, childcare, haircuts and holidays.
'Stabilising': Taylor Wimpey chief executive Pete Redfern (left) said today's UK housing market was growing 'steadily and sustainably'
The MMR was followed by a clampdown on risky lending by the Bank of England this autumn.
The Financial Policy Committee, the central bank’s risk watchdog, said mortgages worth more than 4.5 times income must make up no more than 15 per cent of all new home loans offered by lenders.
Borrowers also face affordability stress tests to ensure they can repay their loans even if interest rates rise by 3 percentage points.
Early indications are that regulators have struck a sensible balance, although Britain’s history of property booms and busts means there is no room for complacency.
David Newnes, director of Reeds Rains estate agents, said: ‘It hasn’t been plain sailing for mortgage lending this year, but the market has successfully negotiated the rocky waters of regulatory change and appears to have reached a safe harbour.
'The government and Bank of England need to be careful that any future interventions do not sink consumer confidence too far, or cast new buyers adrift at the lower rungs of the ladder, as this demand is a key to continued activity and growth.’
Slowing growth: Both Halifax and Nationwide have reported falling house prices in recent months
The CML report showed 58,600 loans were approved for house purchase in September, down 7 per cent from August but up 13 per cent on September last year.
Lending to first-time buyers fell 3 per cent on the month, to 26,800, but was still 16 per cent year-on-year. The slowdown was not enough to stop total lending in the third quarter – July, August and September – hitting a record high with 188,000 home loans approved.
‘But any fears of overheating in the housing market are now dissipating as house purchase lending activity seems to be softening,’ said Paul Smee, director general of the CML.
Both Halifax and Nationwide have reported falling house prices in recent months and the pace of annual growth is back in single figures having been above 10 per cent earlier in the year.
Figures from the Office for National Statistics show huge regional variations, with house prices in London up around 20 per cent in the last 12 months compared with an increase of just 3.8 per cent in the North East, although even the capital is now cooling.
Howard Archer, chief UK economist at IHS Global Insight, said: ‘The latest data add to now pretty widespread evidence that the housing market has come off the boil. But it also suggests that activity is currently easing back rather than falling away.’
Taylor Wimpey is certainly putting on a brave face – and even raised its forecasts for profitability for the year as it welcomed moves to stop the market overheating.
Shares in the housebuilder rose 4 per cent or 4.9p to 122.2p yesterday after it said that its operating profit margin would increase by around 400 basis points from last year’s 13.6 per cent to 17.6 per cent, which is better than the 300 basis point initially expected.
The company said sales rates for the second half of the year are 5 per cent down on the same period of 2013.
But it expects to build 12,500 homes this year, which is up from a figure of 11,696 in 2013.
‘The UK housing market continues to show good signs of recovery and the pace of growth has moderated to a more healthy and sustainable level,’ said Redfern.
He added: ‘With a reduced risk of interest rate increases in the near term, but also with tighter but sensible regulation, we believe that UK house prices are most likely to closely reflect inflation and recovery in the underlying UK economy.
‘This stable but improving environment should be positive for both homebuyers and homebuilders.’