Housing market begins to cool

The British housing market may finally be losing some steam. Asking prices in London this month saw their largest drop since December 2007, falling by 5.9%, according to property website Rightmove. Prices across the UK as a whole were down by 2.9% on the month. It was the third drop in London prices in a row.

Meanwhile, official figures showed that prices were up by 10.2% in June compared to last year – but that was a little slower than May’s 10.4% rise.

As for lending, in July gross mortgage lending hit its highest level since the summer of 2008, according to the Council of Mortgage Lenders. The number of loans advanced for house purchases (as opposed to remortgaging) was up by an annual 19% in the second quarter, with growth slowing a little from the 25% jump seen in the first.

What the commentators said

Earlier this year the housing market “looked as if it might run away with itself”, said Ruth Sunderland in the Daily Mail. “Now it seems to be calming down a bit.”

The market is always slower in the summer when people are on holiday. But it seems that recent price rises, increased talk of interest-rate rises, and stricter rules on mortgage lending are all “giving buyers pause for thought”.

The tighter rules introduced under the Mortgage Market Review have tempered rather than “slammed the brakes” on mortgage lending, said Capital Economics. Mortgage approvals have resumed their upward trend after a few months of disruption.

The amount first-time buyers are borrowing in relation to their income has reached another record high. Lending increases are slowing to a more sustainable pace, but given strong economic and employment growth, the path of least resistance remains upward.

Most analysts seem to think that the irrational exuberance in the housing market will now be replaced by relative calm. But financial history suggests that bubbles tend to burst rather than gently deflate.

Housing markets overshoot, said Tim Worstall on Forbes.com. And if we are seeing the start of a turnaround, it will be in full swing by the time the election comes around in May – much to the government’s horror.

  • Knave Dave

    As someone who predicted the U.S. housing collapse six months before it happened, but (unlike the permabears) did not predict economic collapse for 2012 or 2013, I wonder if Britain is about to dump on the world what the U.S. did in 2008. I have not followed your housing market to see if you have the same pitfalls the U.S. did, but I know what the worst pitfall is. It is adjustable rate mortgages. These are traps. So long as the housing market escalates, everyone is safe. Someone who cannot pay his mortgage when the rate goes up, can sell his or her house for more than was paid. The home has appreciated during the five years between the introductory rate and the new higher rate. Everyone is fine. Enter a falling market and a week economy, and you have more people who cannot pay a higher interest rate when the rate rises and who must sell their house for less than they paid for it. The borrower, the banks, everyone suffers. Those foreclosures dumped on the market can pull the prices down more, and within months you enter the vortex where prices are cascading and more and more people cannot get out of their loans if they are unable to afford the higher adjusted rate.

    The U.S learned nothing from its crisis and has continued with adjustable rate mortgages and very low interest rates to entice people in. If those rates start to rise, it will be back into the same situation it was in in 2008. So, will be the case now in the U.K. if many of loans are ARMs.

    Get ready for the second dip of the Great Recession

    –Knave Dave


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