Mixed messages over state of UK housing market

Conflicting data over the state of the British housing market was released today with figures showing that price growth was slowing but mortgage lending booming.

The Royal Institution of Chartered Surveyors said interest rate rises and warnings that house prices could fall had put the brakes on the British property market.

It said prices rose at their slowest rate for 10 months during June, following back-to-back interest rate hikes by the Bank of England and warnings from Governor Mervyn King over the state of the market.

But at the same time the Council of Mortgage Lenders and the British Bankers’ Association both reported a surge in mortgage lending during the month.

The CML said a record of £27.8bn (€41.7bn) was advanced in June, up on May’s figure of £24.1bn (€36bn).

At the same time the amount lent to people buying a home reached a new high of £13.6bn (€20.4bn) – 40% more than during June 2003 and accounting for just under half of total lending.

The BBA said net lending, which strips out redemptions and repayments, by the major banks reached £6.45bn (€9.67bn) during June, up from a subdued £5.09bn (€7.63bn) in May.

CML director general Michael Coogan said: “The signals in the housing market are mixed at present.

“June saw a bounce back to record lending levels, with an especially strong resurgence in lending for house purchase.

“But however you look at it, in an environment of rising interest rates and rising house prices, there will come a point where affordability constraints mean that lending growth slows down.”

He added that early evidence from estate agents suggested consumer appetite for debt was beginning to turn, but it was likely to be a few months before this was reflected in lending surveys.

Surveyors included in the RICS survey reported seeing small price falls in London and the South East during June for the first time since the Iraq war, while those in northern regions said there were signs the boom there was coming to an end.

Overall 17% more surveyors in England, Wales and Scotland, reported seeing price rises during June than those who saw falls, well down on May’s figure of 43% and the long-run average since 1978 of 24%.

John Butler, an economist at HSBC, said: “Once again we get mixed messages about the UK housing market and consumer appetite for debt.

“Recent commentary and survey evidence has tried to paint a picture of a housing market that is slowing sharply, already responding to the rate rises. In contrast, household appetite for credit rebounded strongly in June.”

Simon Rubinsohn, chief economist at Gerrard, said: “On the face of it the jump in mortgage lending is somewhat at odds with the RICS survey of the housing market which came in well below expectations.

“However, the latter is more of a forward looking indicator and, we suspect, more fully reflects the impact of the two consecutive monthly base rate increases as well as the carefully chosen words of Mervyn King.

“Significantly, the number of mortgage approvals has fallen back since the tail end of last year and if the RICS survey is anything to go by, this trend will become more pronounced over the coming months. As a result we would expect the mortgage lending numbers to gradually reflect this more subdued picture.”