Things aren’t going well in the housing market. After a few years in which it looked as if prices might soon fall to, and then stabilise at a reasonable level, they are once again on the up.
The International Monetary Fund has already warned the Bank of England to “remain vigilant” in the face of a new boom, says the Financial Times.
House prices are already “disproportionately high compared with levels of rent” and with the Royal Institution of Chartered Surveyors warning of a “chronic imbalance” between supply and demand, that’s a trend many assume will continue indefinitely.
That’s why a council-owned garage in Camberwell sold for £500,000 last week and why asking prices in London are now at their highest-ever level.
However, there are a few things that might put the brakes on sooner than most people think. The first is interest rates.
As Roger Bootle of Capital Economics told The Sunday Times, “the housing market is more sensitive to interest rates than people expect – if borrowers start to fear bigger rate rises in future, we could see a major correction”.
That might seem a while off. But the second – the Mortgage Market Review (MMR) – isn’t. This look at the market by the regulator, the Financial Conduct Authority, has resulted in a set of new rules that will come into force on 26 April. The result, says The Guardian, will have your bank going through “your finances with a fine tooth comb”.
Getting a mortgage used to be simply a matter of proving your income and negotiating a loan that was a multiple of that income. No more. Now you will have to show that “you are financially healthy and can meet your repayments”.
That means your lender will want to see “a squeaky clean credit record”, as well as bank accounts that aren’t “weighed down with bills and other commitments” and proof that you have a “decent amount” over at the end of every month.
There will be winners from this. If you are single and very frugal you could, in theory at least, end up being able to borrow six to seven times your income. But there will be losers too.
High-spending applicants – perhaps with children in costly childcare – may find that even after a three-hour meeting to put their case (according to Mortgage Strategy, this will soon be standard stuff), they end up with rather less.
Everyone can increase their odds of getting a good loan by cutting spending fast and acting as if they already have the commitment of a mortgage several months before applying, say the brokers.
However, not everyone will be able to do this – and the consequences of that might, if we are lucky, take a bit of heat out of the market even before interest rates rise.