House price growth hits two-year low as Bank warns on debt levels


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The Independent Online

House prices registered a surprise fall in June, according to the latest figures from the Nationwide building society, raising doubts about the property market’s momentum.

The closely watched Nationwide house price index declined by 0.2 per cent over the month, defying City analysts’ expectations that it would show a 0.4 per cent rise. That took the annual rate of growth in property prices down to just 3.3 per cent, the slowest in two years.

“The upside for housing market activity is expected to be constrained by more stretched ratios for house prices to earnings, tighter checking of borrowers by lenders, and the likelihood that interest rates will start rising from the first quarter of 2016,” Howard Archer, the UK chief economist at IHS Global Insight, said.

However, other analysts said the slowdown was a blip. “We are not convinced that this is evidence of a gradually cooling market,” Matthew Pointon at Capital Economics said.

“For the country as a whole, the conditions are in place for a period of firmer house price gains. Active housing demand has finally started to pick up, as record low mortgage rates tempt more people into the market,” he added.

Despite the slowdown, Sir Jon Cunliffe, a deputy governor of the Bank of England, warned that household mortgage debt levels, relative to incomes, still represent a potential threat to financial stability.

“Our concern is not so much about house prices, it is the chain between high house prices, prices growing faster than people’s incomes, and people having to take out bigger and bigger mortgages and the debt that families then have relative to their income growth,” Sir Jon told the BBC. “It is that debt-to-income [ratio] of British households that creates the risk.”

The Bank of England’s Financial Policy Committee took action last year to limit the number of mortgages with high income multiples that can be underwritten by banks in each quarter. In its Financial Stability Report, published on Wednesday, the Bank of England said this may have contributed to the moderation in price growth and mortgage approvals over the past 12 months, although it also pointed to the Financial Conduct Authority’s Mortgage Market Review tests from last April.

Another potential hazard identified by the Bank of England is buy-to-let mortgage borrowing, which has increased to 20 per cent of all new mortgages and is less rigorously stress-tested than owner-occupier lending.

New figures from the estate agents Your Move and Reeds Rains also showed that the number of first-time buyer transactions hit its lowest level in three years in May. There were 22,200 transactions over the month, down 18 per cent on the same month a year earlier.