June 12th, 2014
Since the turn of the year, activity in London has driven the housing market forward, at what has been for many, an alarming pace. But over the past couple of months there has been a steady reduction in the levels of new property coming to market, which has in turn resulted in lower than expected levels of purchasing activity.
In May, Nationwide Building Society released its annual housing price index, which confirmed that the purchase value of a home in the UK had now risen to a record high for the country. While this news was fully welcomed for anyone looking to sell, the knock-on effect means that the cost to purchase has consistently increased month by month in recent times.
When assessing the first quarter of purchasing activity in 2014, the Royal Institute of Chartered Surveyors (RICS) confirmed that the level of interest and movement in the market was at the highest level seen in six years, since the credit crunch induced depression in the economy. However, the latest outlook on the market from RICS concurs with the evidence that there has been a significant decrease in property sales since the Easter period, and the surveying body believes that the effects can be attributed to fears on the part of buyers to secure finance, as much as escalating house prices.
As the Nationwide study shows, house prices in May rose to a record average of £186,512, but enquiries for new purchases fell for the first time since the turn of the year. Surveyors asked to respond to business levels by RICS confirmed that this was the first month in the past two years where levels of activity had dropped, rather than continuing to rise. Those canvassed for their opinion on the likely-hood of increasing purchasing activity over the historically busy summer period dropped to 29%, from the more positive 66% respondents from six months ago who felt that levels could only increase.
While house prices have certainly had an impact, the RICS report attributed part of the change to be linked to the Financial Conduct Authorities Mortgage Market Review, launched in April to re-define the processes utilised by mortgage lenders in assessing the validity of an application to borrow.
Steven Clements from Contractor Mortgages Made Easy, a contractor specialist broker, said: “The MMR changes were expected to have some impact on the timescales for a mortgage application to be processed, and this has certainly been the case since early April.”
He continued: “Over the first three months of the year, a new mortgage application was on average being processed to mortgage offer within 3-4 weeks. Now, that has crept up to 4-6 weeks, and this is also being affected by the timescales for a valuation to be completed in some parts of the country.
“A similar situation arose last year, when surveying firms were forced to admit that they could not cope with rising demand, although this may now change if the reduction in purchasing continues.”
From RICS, the chief economist Simon Rubinsohn said: “What we are really seeing is some of the very strong upward momentum starting to come off the housing market, as a lack of supply, higher prices, more prudent lending measures and some of the talk from the Bank of England are creating a level of caution among sellers and buyers.
“The most visible indicators of this are the revised downwards price expectations for the next 12 months and the flatter picture regarding new buyer enquiries. In particular, we’re seeing the London market level off.”
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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