Policymakers’ view of the property market obscured by ‘statistical fog’

The housing market may not be slowing after all, the Council of Mortgage Lenders warned yesterday.

The CML said month-on-month gross mortgage lending was flat in May at £16.5bn, although its chief economist, Bob Pannell, cautioned that the recent tightening of lending criteria in the Mortgage Market Review (MMR) had blurred the picture.

“Market indicators point to a slowdown in activity levels but it is unclear how lasting this will be,” he said. “Implementation of the new regulatory regime is likely to have disrupted the normal patterns of activity, creating statistical ‘fog’ around the published figures. As this lifts over the coming months, a clearer picture as to any lasting impact of the MMR rules on lending activity should emerge”.

The MMR was introduced in April and requires banks and building societies to ask more searching questions about borrowers’ finances.

The uncertainty over the direction of housing is a complication for regulators. The Bank of England’s Financial Policy Committee met this week to decide on whether to take more robust action to stop a house-price bubble forming. Its decision will be announced next Thursday.

Elsewhere, another member of the Bank’s Monetary Policy Committee yesterday indicated that he is inclined to raise interest rates sooner rather than later. Ian McCafferty said in a speech that an early increase would allow for a more gradual set of rises in the coming years. He added that his research had led him to conclude that productivity was unlikely to bounce back rapidly: “Some of the weakness may well be more persistent, and a more rapid recovery than currently expected over the next couple of years is perhaps hoping for too much.”

The Bank’s Governor, Mark Carney, caught markets off-guard last week when he said rates could rise “sooner than the markets currently expect”, prompting traders to bet on an increase later this year.

But inflation has undershot the Bank’s expectations, which could delay a rate rise. The Office for National Statistics reported this week that annual consumer prices inflation dipped to 1.5 per cent in May, and that was reinforced yesterday as it said high street prices fell at their fastest annual rate in almost five years in May. The volume of retail sales rose 3.9 per cent but the amount spent rose just 3.2 per cent, indicating widespread discounting.