Housing market is softening, says CML

The Council of Mortgage Lenders says that housing and mortgage market activity is softening in response to rising interest rates.

The trade body says the level of property transactions has been very strong in the early months of this year which reflects the strength of demand late last year.

Buyer interest has since softened and the number of mortgage approvals for house purchase is now running 15% below the high levels of last autumn and at the lowest level since April last year.

The fall in buyer interest has been greatest amongst first-time buyers, where numbers are down 4% on a year ago.

A spokesman for the CML says: “Making the first step onto the housing ladder has become increasing difficult and a typical first-time buyer is now borrowing more than 3.3 x their income and faces levels of mortgage interest payments relative to income last seen in the early 1990s.

“But it not just first-time buyers who have been affected and March was the first month in which the number of loans to home movers fell below that of a year earlier.”

The number of approvals for further advances has fallen to the lowest level since 2001 which suggests that higher interest rates are reducing the attractiveness of extracting equity to finance home improvements and general spending.

The CML says the impact of interest rates on activity has not been evenly distributed across the UK.

Activity remains strong in London and the South East, Scotland and Northern Ireland where a number of special factors are supporting demand and the supply of property is heavily constrained in London and the South East.

Annual house price growth remains close to 10% and it is 50% in Northern Ireland and close to 14% in Scotland and London, but around 7% to 8% in the Midlands and northern regions.

The annual rate of house price growth typically moderates six to nine months after a peak in mortgage approvals for house purchase, so the market should expect it to start slowing during the second half of this year.

The underlying level of mortgage lending probably peaked in March and gross lending then was £31.8 bn, but it fell to £30.1 bn in April which was 9% up on a year earlier, although the lowest monthly figure since last October.

Similarly, the underlying level of net lending has moderated to the levels of last autumn, although the value of mortgages outstanding continues to grow at an annual rate of close to 11.5%.

The spokesman adds: “The lower value of mortgage approvals seen in the last couple of months almost certainly means that the underlying levels of gross mortgage lending will soften a little in the months ahead.

“The underlying level of mortgage approvals for house purchase is likely to continue to moderate until it becomes clear that the level of interest rates has peaked. We are not yet at that point.

“Indeed, interest rates of all maturities have risen further over the past month as the Bank of England raised base rate by 0.25% to 5.5% in early May and longer maturity rates built in the prospect of rates rising to 5.75% within the next month or two and to 6% by the end of the year.

“The health of the housing and mortgage markets are not solely related to interest rates.

“Employment and household income prospects are also important, and these are expected to remain positive.”