It’s been a busy old month in Scottish property news, with lots of seemingly contradictory stories coming out. So what is the real picture? Is an interest rate rise imminent? What effect has the Mortgage Market Review had so far? We are now almost halfway through the year and about as far into the World Cup too! We have been running a World Cup promotion for people who are thinking of selling their property, so if you are thinking of selling but have not yet put your home on the market click here for more info about what you could win!
Positive news about the state of the housing market in Scotland
Reports about the state of the property market remain extremely positive, with multiple stories in the papers about property prices rising and consumer confidence growing.
The Herald reported that confidence in the market has doubled within the last 12 months, with more than half of UK homeowners anticipating that their home will increase in value over the next 12 months.
This positivity is also reflected in the Edinburgh market in the May 2014 ESPC House Price Report (http://www.espc.com/news/espc-house-price-report-may-2014). The ESPC’s report shows that the number of homes sold had risen 43% annually and that the median selling time across East Central Scotland has fallen from 12 weeks to just under 7 weeks. This is reflected by our own experience here at MOV8: the average selling time for properties at the moment is sitting at 6.5 weeks! The ESPC also reports that almost 60% of homes sold in the Capital achieved or exceeded their valuation: the highest level since Home Reports were introduced. Again, this absolutely reflects our own experience, with 64% of the homes sold through MOV8 in May 2014 having achieved the Home Report valuation or higher. Finally, the ESPC report also confirms what we have been experiencing for a while, that demand has been outstripping supply. Between March and May 2014, the number of homes sold across Edinburgh, the Lothians and Fife rose by 43% annually. In comparison, at MOV8 we have seen our sales over the same period rise by 54%. By contrast, in the same period, according to the ESPC, the number of homes coming onto the market rose by only 11%, whereas at MOV8 we experienced a 29% rise. Although this is good news, it still shows that demand is higher than supply to the market and that there is some way to go before seller confidence rises to that of buyers.
Interest rates to rise before the end of 2014?
The speculation about an early interest rate rise is gathering pace, with The Telegraph reporting that the Bank of England may be preparing for a rate rise before the end of this year. This was also supported by an opinion piece from Richard Woolnough, a respected bond fund manager at M&G.
So an early rate rise, at some point before mid-2015 is beginning to look a lot more likely. However the Governor of the Bank of England, Mark Carney, did seem to muddy the waters slightly on 23 June by appearing to play down the need for an early rate rise, leading to accusations from some MPs that the Bank of England was ‘behaving like an unreliable boyfriend’, giving mixed messages on when the first rise in interest rates is likely.
What this means for households with mortgages of course is that it is time to look at how you would be affected if rates were to rise, and start to plan for this eventuality. If you are on a variable rate, it may be a good time to have a mortgage review. At the very least you should familiarise yourself with the amount of additional interest that you may have to pay in the event that rates do rise.
Business Secretary, Vince Cable, also went on record to say that action must be taken to stop the “housing boom” in parts of the UK getting “out of control”. He said he was “appalled” that some banks had been lending five times a mortgage applicant’s income, suggesting a “stable level” was up to 3.5 times.
This same article also gives a more balanced view of the recent talk of the possibility of a housing bubble, with Nationwide Building Society quoted as saying that activity in the UK housing market was starting to “moderate” and the Royal Institute of Chartered Surveyors (RICS) saying that “momentum was starting to slow as a lack of supply, higher prices, and more prudent lending measures” were making buyers and sellers more cautious.”
However, in an attempt to ensure that the housing bubble in London doesn’t damage the entire economy, the UK Chancellor, George Osborne, announced that he is to give the Bank of England new powers to directly limit the size of mortgages in relation to the value of a home or the size of a potential buyer’s income. These measures give the Bank of England the ability to exercise control using alternative methods to simply raising interest rates, something that affects the whole of the UK equally when addressing what is more of a local problem.
This can only be good news for property owners and buyers in Scotland, as raising rates across the country would run the risk of damaging the delicate recovery of the property market in Scotland. In terms of timing, the Chancellor is expected to push these changes through parliament before next year’s election in May, possibly too late to affect any initial interest rate rises. Osborne also gave clear indications in the same speech that he doesn’t see the housing market posing an immediate threat to financial stability, or that there is an imminent risk of a property bubble.
Mortgage applications down
All of this news comes alongside reports of falling mortgage applications. Mortgages featured heavily in the news throughout June with the Council of Mortgage Lenders reporting that lending had flattened. So the Mortgage Market Review (MMR), introduced in April 2014 with a view to creating more checks and balances in the mortgage lending market, does appear to have had an effect on banks’ lending practices.
Rightmove, the UK’s largest property website, also looked at mortgage approvals slowing, with the Bank of England reporting that mortgage approvals fell for the third consecutive month.
So why is this all happening? The suggestion from Rightmove is that pent-up demand might have been released slightly: buyers who really wanted to move and hadn’t been able to do so have now had quite a long period of the Help to Buy scheme to allow them to move. As a result, some of that stampede to buy has passed.
Is this a problem for the property market in the longer term?
It should be noted that part of the issue, since the MMR in April 2014, has been that it’s taking longer for buyers to get appointments with their lenders. This slows down the entire process and makes achieving a quick date of entry far harder than it was in the past. Speaking with our own mortgage advisers at MOV8 Financial, Independent Mortgage Advisers, they have reported delays of, in some cases, several weeks for potential buyers getting appointments with their own lenders and longer processing times when the mortgage applications are finally submitted.
Using a mortgage adviser can speed-up this process significantly as they can help to get the ball rolling with an appointment much quicker than many of the banks at the moment can and they are also able to push the application through the lender’s bottlenecks.
Time will tell if this mortgage slowdown is simply a result of the MMR and the market readjusting to this. In the meantime, however, there is no doubt that, even in the absence of interest rate rises, this might help to moderate run away house price growth.