A couple of weeks ago I speculated that in terms of the UK mortgage market it is not a matter of when interest rates will rise but how quickly, and now we have a bit of a clearer idea after Chancellor George Osborne announced in his Mansion House Speech that the Bank of England will get new powers to intervene in the mortgage market.
Business Secretary Vince Cable also stepped into the debate claiming that the property market is getting out of control in parts of the country and Bank of England Governor Mark Carney appears to have done a U-turn and now backs an interest rate rise.
The International Monetary Fund (IMF) also sounded alarm bells over the rise of house prices in the UK, saying that record low interest rates have fed into price rises up past historical averages.
Indeed, according to the most recent Global House Price index from Knight Frank the UK has seen the 12th biggest growth in residential property prices compared to 53 other countries in the year to March. In the first quarter of last year it was ranked 34th.
So it is looking like an interest rate rise before the end of the year. Clear? Well not really as there is a lot of opposition to an interest rate rise in the coming months.
The market always thought that there would be a rise but it would come in the second half of 2015, which is after the general election. Now it looks like it will be before then because of concerns about the housing market in London.
However, the Nationwide Building Society said the signs point to activity in the UK housing market starting to moderate and the latest report from the Royal Institution of Chartered Surveyors (RICS) said that the momentum was starting to slow in the housing market, as a lack of supply, higher prices, and more prudent lending measures make both buyers and sellers more cautious.
Many experts point to the fact that most of the house price growth has been in London where overseas buyers have been fuelling the market. But even that is slowing with the latest analysis reports pointing out that price growth in the city is slowing and there are predictions of 0% growth in the near term.
And when you talk about house price bubbles take a look at the north east of England and Northern Ireland where price growth has been much more subdued, if at all in some locations.
The lending industry points out that the new MMR rules which were introduced in April are already causing a lull in the mortgage market. The latest figures from the Council of Mortgage Lenders show that lending to first time buyers increased by just 1% in April compared with March.
A new report from the Intermediary Mortgage Lenders Association (IMLA) says there is currently a mismatch in housing and mortgage market activity and urges caution in terms of interest rate rises.
It also points out that the mortgage market remains very subdued. Mortgage debt is still shrinking in real terms and on aggregate, households have been putting over £10 billion of equity into their homes every quarter since the middle of 2010.
Also, borrower quality remains robust. Average mortgage loan to value (LTV) ratios have been exceptionally depressed since the financial crisis and, despite the gradual rising trend since 2009, median first time buyer LTVs remain lower than at any point prior to 2007.
While the Bank of England has flagged concerns about rising loan to income (LTI) ratios, the affordability rules arising from the Mortgage Market Review (MMR) mean that new owner occupiers seeking a mortgage will only be granted a loan that is manageable at considerably higher interest rates, it adds.
IMLA's report suggests the combination of a high LTV on a large mortgage loan raises its risk profile, which might justify a lowering of the maximum purchase price under the Help to Buy mortgage guarantee from £600,000.
The talk among economists is for a very small rise sooner rather than later, say of 0.25%, then another equivalent small rise next year, easing borrowers into higher lending. If I was looking for a mortgage I would be locking into lower rates now. There are deals around amounting to around 1.9% over 15 years. But how many people will be able to take advantage is a matter for the lenders. A sudden run on demand for the best products could see them withdrawn. I wouldn't be surprised if the top 10 products no longer exist in a matter of weeks.
So, although it is clearer than before, it is still pretty muddy. When the Bank of England's Financial Policy Committee (FPC) meets tomorrow (Tuesday 17 June) I would love to be a fly on the wall.
Ray Clancy
Editor Property Wire
