Overall the housing market outlook isn’t as good as it was before the vote to leave the EU, but that’s not all due to the referendum outcome. There was already some slowing in prices and transactions in the most expensive markets, particularly in the south and east of England, where affordability pressures have been greatest and fears about leaving the EU are highest. The ratio of asking to achieved prices have fallen – a good signal of increased resistance to prices at the higher end of the price scales, which in turn adds to the time it takes to sell a home. That inevitably leads into fewer transactions and mortgage deals. But with prices having risen at an average of 5.5% in the last three years while the average for wage growth was just 1.2% a correction in prices was always on the cards.
The paucity of available stock to sell is hindering potential buyers’ ability to transact. There is some sign that is improving in London, but stock is tight across most of the country. But its not just stock, there is also evidence of a slowing in viewings across the country suggesting some further weakening in demand too. With consumer confidence having hit its lowest levels for some years much of this must be due to uncertainty about the future economic situation.
A slower housing market inevitably means a weaker lending market, and that seems to be confirmed by the latest set of mortgage approvals data. Approvals for house purchase fell to 60,000 in August the lowest level since November 2014. Uncertainty in the economy and the housing market are likely to have stymied demand somewhat, but the effect on mortgage rates from the Bank of England’s TFS scheme has yet to show through in the pricing of loans.
This weakness seems to continue the trend in mortgage lending seen in the last set of CML data and in the data from the regulator. In July on a seasonally adjusted basis, lending to first-time buyers and home movers decreased by 13% and 7% respectively over the month. First time buyers activity had held up in the second quarter but is now catching up. Given the uncertainty and weaker housing market sentiment a reduction in activity shouldn’t really be a surprise.
Author: Fionnuala Earley - Countrywide's Chief Economist
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