Mortgage approvals slow but is anyone to blame?

The last month has witnessed the formal introduction of the Mortgage Market Review (MMR), and in both the lead up to and the intervening period since the new regulations became effective we have seen market activity reach something of a plateau.

Recent data quantifying the number of mortgage approvals for purchase, remortgage and other mortgage approvals all slowed during April.

Some commentators have called for measures to be applied to rein in the housing market following headlines that show some fairly significant annualised house price percentage increases, but if we look at the detail behind the headlines, the picture is quite different.

Much of the overall rise in prices is fuelled by the London market, and much of this is driven by property transactions in specific London boroughs which are attractive to overseas buyers.
Many of these buyers are buying with cash, leaving little to be done by regulators to curb the market. Putting the capital and South East to one side leaves us with a far more measured and controlled annual growth of 4.7%.

The finger of blame has also been pointed at the Help to Buy (H2B) schemes for causing significant house price increases in London. The reality is that only 5% of completions took place in London, with most buyers using the scheme purchasing in the North West and the East.

The Help to Buy Mortgage Guarantee scheme was designed to help first-time buyers with smaller deposits onto the property ladder, and the latest government data shows the scheme is hitting its target audience.

The average value of a property bought with the Mortgage Guarantee scheme is 40% lower than the average house price across the UK and far below its £600,000 limit. The typical income for borrowers using the scheme is also just under the average across the market, underlining the fact that H2B is assisting those whose main challenge is saving a deposit, and not facilitating loans to people on lower salaries who might struggle with their repayments.

The Bank of England has signalled that macro-prudential measures to limit the housing market upturn are likely in the near future, although what form these take is yet to be determined.
It is important that any measures are proportionate in ensuring that those who can buy property and comfortably afford a mortgage, both now and in the future when interest rates rise, are able to continue to do so, and that the long-awaited recovery in the housing market is not snuffed out.

Removing the Help to Buy Mortgage Guarantee in the hope of driving down activity in the South would be both unnecessary and unsuccessful. Lending activity has generally slowed since 2013 and new rules resulting from the MMR putting strict affordability conditions into play will continue to ensure sustainable growth.

Those hoping to dampen activity in London would be better off targeting the external factors that have such a strong influence on the capital’s housing market, such as the rise in cash buyers and the shortage of new homes.

For many UK homeowners, the property revival is still in its early stages and they are only now starting to recoup some of the equity in their homes that was lost after the crash.

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