London housing market slowing down

08 October 2014

The London housing market is looking wobbly. Moneyweek reports that Robert Gardener of Nationwide thinks that “the outlook for the housing market remains highly uncertain”.

top 10He notes the number of falling mortgage approvals and the fact that “new buyer enquiries have moderated somewhat in recent months”.

He also warns that “the prospect of interest rate increases together with subdued wage growth may temper demand in the quarters ahead”.

Cheap money and low interest rates – as well as an influx of foreign cash – have created a massive bubble (yet again). Valuation ratios such as prices to incomes are now at historic highs (yet again).

This can’t be maintained. Indeed, the downside from here could be huge – potentially even bigger than the 20% fall (excluding inflation) seen from the winter of 2007 to the first three months of 2009.

The international business times reports that

London’s housing market is in the middle of a “pronounced slowdown”, according to property researcher Hometrack.

And house price growth across England and Wales has flatlined, Hometrack’s monthly survey of estate agents found in September.

Policymakers in the UK have tightened the mortgage market, something that may be dampening housing activity.

They are concerned that some borrowers may take on excessive debt because interest rates are low, running the risk of a repayments shock when rates inevitably rise further down the line.

Hometrack said there had been zero growth on average in house prices in England and Wales in September, down from 0.1% in August. This is the first time growth has been zero in 19 months.

In London, house prices registered a 0.1% fall in September following no change in the month before.

The Financial Conduct Authority (FCA) has imposed stricter affordability tests on the mortgage market so lenders are more stringent in their assessments of the ability of borrowers to make repayments in a number of different scenarios, such as materially higher interest rates.

And the Bank of England will from October cap high loan-to-income lending. Banks will only be able to comprise 15% of their new mortgage lending with loans worth 4.5 times or more an applicant’s income.

Some lenders, including RBS and Lloyds, had already unveiled plans to curb high loan-to-income lending before the Bank of England said it would introduce a cap.

“There’s a distinct chill in the air this month,” said Richard Donnell, director of research at Hometrack.

“While this slowdown can be attributed partly to seasonal factors – including a slight hangover from a slow August – it’s clear that agents are wary about the direction of the market as a result of weaker demand and lower sales volumes.

“Buyer uncertainty is growing in the face of a possible interest rate rise, a general election on the horizon and recent warnings of a house price bubble.

“Played out against a backdrop of tougher mortgage affordability checks and limits on high loan to income lending, higher value postcodes of inner London are clearly being impacted.”

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