Indications are beginning to emerge to the effect that the UK property market may have entered a cooling-off phase.House price rises in May were less significant than they have been in past months.
The Nationwide,UK’s largest building society,noted that house prices rose by just 0.7 percent in May,compared to a rise of 1.2 percent in the month before.Property analysts Hometrack corroborated this viewpoint by reporting a rise of 0.5 percent in prices in May,as against the 0.6 percent rise recorded in April.It was the weakest rate of growth recorded since January.
House price increases were reported in 42 percent of UK districts,down from 50 percent in April,according to Hometrack.However,increase in house prices on a yearly basis was the highest in seven years.
If the reports by Nationwide and Hometrack are indeed anything to go by,the cooling off of the UK property market would come as good news and welcome relief to many.There have been concerns that elevated prices could lead to a housing bubble,leading to Bank of England’s consideration of a hike in interest rates.Nationwide puts the current average price of UK property at £186,512.This is the highest level ever seen since the inception of records in 1991.
Hometrack director of research Richard Donnell pointed out that talk of a likely housing bubble has contributed in discouraging buyers.However,Nationwide chief economist Robert Gardner thinks it is rather too early to be certain whether the cooling off affects the wider national market.
It is thought that the toughening of the mortgage application process may have contributed to the cooling off noticed in May.New and tougher questions were introduced to test buyers’ eligibility for mortgages.For instance,buyers are required to disclose how they intend paying back their mortgages in situations where interest rates rise steadily.The result is a drop in the number of mortgages approved by banks.
It was recently revealed that the number of mortgages approved by British banks in May was the lowest since August. This indicates that the new measures for mortgage applications may have already started to pay off.
It is thought in some quarters that the UK government’s Help to Buy scheme may be contributing to the rise in prices,possibly pushing the housing sector to the brink of a bubble.But the government has said that its mortgage guarantee scheme was only responsible for a small proportion of lending to home buyers.Help to Buy accounted for just about nine percent of mortgage completions in the first quarter of 2014.Nationwide said it was connected with just around four percent of total mortgage completions in London during the quarter. Clearly, it has been a contributing factor, but not the major one. Still available, if you are looking to buy, it’s an option worth investigating (get advice on whether you are eligible for the scheme).
Concerns about a housing bubble as a result of soaring prices had made the European Commission to call on the UK government to make changes to the Help to Buy scheme.It also requested for consideration of higher taxes on primeproperties and construction of more houses to curtail a bubble.
