How 29-year-olds are boosting housing market

House prices have been rising since the start of 2013 and this trend is continuing, but the rate of growth is slowing, according to the latest figures from Nationwide, the UK’s largest mortgage lender.

Prices rose by just 0.1 per cent in July (the 15th consecutive monthly increase), down from 1 per cent in June, and are increasing at their slowest pace since April 2013.

Robert Gardner, Nationwide’s chief economist, believes “at least part of the slowdown” is due to the mortgage market review (MMR), tougher tests for would-be homeowners introduced by the Financial Conduct Authority in April.

These tests are designed to crack down on irresponsible lending and weed out mortgage applicants who are likely to struggle with repayments.

‘Temporary slowdown’

When they were brought in, the assumption was that they would have a dampening effect on the housing market, but Mr Gardner assumes this will be temporary: “With the labour market strengthening, mortgage rates expected to remain low and consumer confidence rising, activity is likely to recover in the months ahead.”

Halifax paints a slightly different picture from the Nationwide, with prices up 1.4 per cent in July, but it points out that home sales are down 6 per cent since their recent peak in February.

While prices are rising across every region of the UK, there are big variations, with London and the south east recording the biggest rates of growth (prices in the capital are now 30 per cent above pre-recession levels, twice that of the rest of the UK).

Across the UK as a whole, prices are just above 2007 levels; excluding London, they would be just below.

Over-stretch

The cost of homes – their affordability – has an obvious effect on the market, but so does the ability to get a home loan from a bank or building society, in the midst of the MMR and other measures from the Bank of England to ensure that financial institutions and their customers do not over-stretch themselves.

Figures from the Bank of England show that mortgage lending in June rose by 6 per cent, while the Council of Mortgage Lenders (CML) says home loans in the second quarter of 2014 are 23 per cent up on the same period in 2013.

Despite fears that rising house prices are making it difficult for young people to afford a mortgage – although this is more of a problem in London and the south east than elsewhere – first-time buyers are not going away.

In June, 28,600 loans for first-time buyer were agreed – the highest figure since late 2007, 7 per cent higher than in May and 19 per cent up on June 2013, according to the CML.

In the second quarter of 2014, there were 79,900 first-time buyer loans – 17 per cent up on the previous quarter, and 24 per cent up on the same period in 2013.

Average age 29

These buyers are typically borrowing 3.47 times their annual earnings. Their average income is £37,000 – well above the national average – and their average age is 29, a figure that has not changed in recent years despite rising prices.

Low interest rates are helping these first-timers to climb the housing ladder, with an average of 19.3 per cent of income spent on mortgage repayments.

But in another sign that the market may be cooling, although first-time buyer loans rose by 19 per cent over the year to June 2014, this was down on the 30 per cent rise recorded by the CML over the same period in 2012-13.

What happens next is also likely to be affected by rises in base rate, expected later this year or in 2015, and Bank of England measures to limit what banks and building societies can lend.