Housing market starts to slow

The housing market appeared to shrug off the turmoil in global credit markets during September but continues to show signs of cooling, according to figures released this week.

Reports from the Nationwide Building Society and the British Bankers' Association indicate prices are remaining stable despite the tightening of bank credit.

House prices rose by 0.7pc during the month, their strongest gain since April this year, to leave the average UK property costing £184,723, Nationwide Building Society said.

But the underlying trend in growth continued to be that of a slowing market, with annual house price inflation dropping to 9pc, its lowest level for nearly a year.

At the same time the three-month growth rate eased to just 1.6pc for the three months to the end of September, the smallest gain since July 2006.

Figures from the Land Registry which were published yesterday showed prices in England and Wales climbed 0.2pc in August, with annual house price inflation at 9.4pc and an average property costing £182,914.

In the East of England prices fell fractionally - down 0.1pc - although they are still 9.4pc higher than a year ago at £192,457.

Evidence that the market is slowing was backed by figures from the British Bankers' Association.

These showed a fall in the number of mortgages approved for people buying a house for the third month in a row, with 9pc fewer loans arranged than during July and 14pc fewer than in August last year.

The total value of all mortgages in the pipeline during August was £19.1bn, just 0.2pc higher than 12 months ago, while the total amount advanced was £21bn, 1pc above the figure for August last year.

Philip Shaw, an economist at Investec, said: “This fits with the picture of a weaker housing market and probably reflects the fact that interest rates were increased in July.”

Data on the housing market has presented a mixed picture in recent weeks, with some indexes suggesting a slowdown is now well under way, while others have pointed to house prices remaining relatively resilient to recent hikes in interest rates.

But the recent turbulence in global credit markets is expected to have a cooling effect on the market, leading to higher costs for some mortgages and making lenders become more risk averse.

Fionnuala Earley, Nationwide's chief economist, said: “Overall, house prices defied the gloomy predictions of some recent headlines, but their underlying growth is still on a decelerating trend.

“Higher wholesale funding costs are now clearly leading to a reassessment of the pricing of credit in the mortgage market.

“As expected, this has not had an immediate impact on house prices, but the longer-term effect will undoubtedly be to take some of the froth out of the market.”

Ms Earley said that lenders would be taking a more cautious approach, and mortgages for higher risk customers were likely to be much more expensive.

She said: “Over the last year, borrowers who have wished to extend themselves to the limit have been able to do so relatively cheaply in comparison to more restrained borrowers. While some lenders are still willing to extend loans with little or no deposit, such products are now more expensive, reflecting the extra risk involved.”

Meanwhile Norwich-based financial information group Moneyfacts said buy-to-let lenders were becoming more cautious.

It said there had been a number of changes to products during September, with lenders tightening their lending criteria, increasing fees and withdrawing some products completely.

The group said the most obvious change had been an increase in the so-called minimum rental cover demanded by some lenders.

This refers to the level of rent on a buy-to-let property relative to monthly mortgage repayments.

At the same time the group said some lenders had withdrawn their entire range of buy-to-let mortgages, while others had withdrawn variable and tracker rate products.

Julia Harris, mortgage expert at Moneyfacts.co.uk, said: “The ease of availability, the choice of products and the cost of buy-to-let products seem to be taking a battering at the moment, but look hard enough and there are still some very competitive deals to be found.”

Howard Archer, chief UK and European economist at Global Insight, said: “Going forward, housing demand seems set to lose significant momentum as it is increasingly pressured by affordability stemming from higher interest rates, modest real disposable income growth and elevated house prices.

“Mortgage rates are rising further as a consequence of the liquidity crunch, pushing up money market interest rates, while the Northern Rock crisis may hit confidence and increase consumers' wariness about buying a house.”