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Reduction in activity for a second month suggests property market cooling

September 30th, 2014

For the second month in a row, the Bank of England (BOE) has revealed that mortgage approvals have fallen on the previous month’s activity. Property purchase levels dropped in August to 64,212, from 66,100 in July, and the data points to what many market experts feel is a sign that the unrestrained rise in property values may be coming to a halt.

The chief UK and European economist for IHS Global Insight, Howard Archer, said: “With housing market activity moderating from its early 2014 highs, we believe house prices are likely to generally rise at a more restrained rate over the coming months.”

Notably, the BOE data precedes by two days the regulators own alteration to rules on lending limits, within which the BOE have confirmed that any UK mortgage lender assessing and accepting more than 15% of new loans above four and a half times income would be heavily punished. The ruling has been proposed in an attempt to stem the tide of rising house prices, although the news those values are already slipping raises questions about the requirement for such a move.

Housing market analysts, Hometrack, reported last week that after a continuous 18 months of property value increases, prices have now begun to level off. The company base their analysis on monthly data pooled from estate agents, and the information suggested that the London market saw the largest decrease overall. Richard Donnell, the director of research for Hometrack, said: “This loss of momentum in price growth comes at the end of a very strong run of 18 months, in which the market was fuelled by pent-up demand, with Help to Buy fanning positive market sentiment. That surge of demand has now receded, bringing the latest cycle to an end.”


The analyst also noted that a potential cause for the lack of activity in recent months could be correlated with news of impending interest rate rises, the uncertainty over Scottish independence and the potential risks of a housing price bubble. While the issue of independence has now been settled, comments made last week by Mark Carney, the Governor of the BOE, will again fuel fears that the cost of borrowing is set to rise in the very near future.


The market view for mortgage borrowing costs has become rosier in recent weeks, as mortgage lenders have reduced rates in many areas. Steve Clements, Senior Mortgage Consultant at Contractor Mortgages Made Easy noted, “It could be argued that these reductions have been implemented to combat market malaise, as many lenders have reacted to their competitors in vying to offer the lowest fixed rates for lending.

“In recent weeks, five year fixed rates have once again dropped under the 3 per cent margin, with many of these options looking like good value when considering the chances of an interest rate hike is on the horizon. In addition, many lenders have again introduced incentive options for first time buyers, with free valuation and cashback options coming back onto the market. The expectation for an improved last quarter of the year will lie in how tempting these offers are for any potential borrowers.”

Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy

Media Contact: Raman Kaur, Public Relations Manager

Tel: 01489 555 080

Email: media@contractormortgagesuk.com

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