Riskier mortgages on the up, but property demand wanes

Fresh evidence that the housing market is cooling comes today from the latest survey by the Royal Institution of Chartered Surveyors.

Rics’ latest Residential Market Survey shows that new buyer demand for property in June rose at its slowest pace since early 2013. In London demand from buyers declined for the second consecutive month. The net balance of surveyors expecting house prices to rise, rather than fall, over the next three months declined to 26 per cent, down from 46 per cent in May.

Rics said that the slowdown was likely to be a consequence of tighter procedures introduced in April, known as the Mortgage Market Review (MMR). “Rhetoric from key officials at the Bank of England, including Mark Carney, alongside the consequences of the introduction of the MMR are already slowing momentum, particularly in London,” said Simon Rubinsohn, Rics’ chief economist.

Yesterday the Halifax index of house prices in the three months to June showed an 8.8 per cent rise, up from a previous figure of 8.7 per cent. But the index also showed that prices fell by 0.6 per cent between May and June. There have now been four month on month declines since December.

“The reduction in the mismatch between active buyers and sellers should help to moderate price gains in the coming months,” said Matthew Pointon of Capital Economics.

However, some analysts said that the market was more likely to be experiencing a pause than a price correction. “Tighter regulations introduced in April through the MMR are mainly an administrative problem for banks. It now takes much longer to process applications, which has slowed housing transactions without hurting prices much,” said Rob Wood of Berenberg.

The Bank of England’s Financial Policy Committee last month took action designed to prevent an explosion of household mortgage debt by rationing the number of high loan to income mortgages that lenders can underwrite each quarter.

The latest e.surv Mortgage Monitor today shows that high loan-to-value (LTV) lending rose again in June to the highest level since 2008, with 10,898 loans made to borrowers with a deposit of less than 15 per cent. But Richard Sexton of e.surv said that this might not last: “High LTV lending may start to tail off in the wake of new regulations. Saving for a deposit is not going to be made any easier by the introduction of loan-to-income caps,” he said.