MMR: Rule changes will hit house prices
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The Mortgage Market Review proposals would hit house prices hard over the course of the next decade, the Financial Services Authority predicts.
In its paper published today the FSA claims house prices would be at least 11% less in 2022 because of the changes.
It says house price growth between 2014 and 2022 would slow from 34% to 23% because of reduced access to home loans.
The paper states: “In the short to medium term, up to about eight years after implementation of the MMR, house price growth will be lower relative to house price growth without the MMR.
“House price growth decreases by a maximum of about 2% per annum about four years after implementation. Overall, if house price growth would have been 34% over the years 2014 to 2022 without the MMR, we estimate that it would be 23% with the MMR.”
The paper predicts that mortgage lending will be 8.7% less over the economic cycle and that GDP could be 0.2% lower than without the MMR after seven years.
The FSA predicts the MMR will also lead to banks diverting funds away from mortgage lending and into corporate loans.
Reduced investment returns will lead to more saving and less consumer spending which has a knock-on economic impact such as having a dampening effect on inflation and subsequently keep bank base rate lower than without the MMR.
The projections are based on post-2013 economic growth of 2.5%, inflation of 2% and by 2018 lending growth of 4.5%.
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