Mortgage broker Andrew Frankish says UK housing market is becoming more realistic

Amanda Jarvis

November 22, 2004

“Recent interest rate rises, together with comments on the state of house prices from the Governor of the Bank of England, have conspired to inject some much needed common sense back into the property market,” states Frankish.

‘Figures released by The Halifax tell us that prices have risen 18.5% over the past year, which takes house price inflation below 20% for the first time in six months. This is backed up by figures that show the average UK house price standing at £160,857, down from £162,911 in September,’ he adds.

‘One of the factors causing prices to moderate is that mortgage repayments now represent 19% of earnings for a typical new borrower, compared to 14% one year ago. Nevertheless, this figure remains well below the peak of 34% back in 1990. As such, and despite recent price rises, properties remain much more affordable than ten or fifteen years ago’ states Frankish.

‘Other recently published indicators have shown a gradual softening in the demand for property,’ adds Frankish. ‘Data from the Bank of England reveals that mortgage approvals in September have fallen to their lowest level since August 2000. The Nationwide Building Society also recorded a fall of 0.4% in October, the largest decline since February 2001.’

‘One factor that is becoming more apparent is that sellers are accepting the advice of reputable estate agents when pricing their homes, rather than placing their houses on the market for what they think they can get away with. This brings much more realism into the buying and selling arena, as people’s expectations find a more acceptable level,’ he comments.

‘Because most indicators show the recent interest rate rises as having the desired cooling effect, commentators and experts are starting to say that rates are very near or already at their peak. This means that the fundamentals for a healthy property market remain very sound,’ states Frankish.

‘I reiterate the comments I made three months ago in that the most important factor remains the quality of lending activity in the marketplace – in other words whether mortgage applications are likely to be accepted or not. At the moment, while the overall number of applications might be down slightly compared to a few months ago, the quality of activity is superior,’ he states.

‘Both employment levels and overall household incomes are continuing to rise. These factors, combined with an ongoing restriction in the supply of new properties, will ensure that 2005 represents a more consistent and stable market, helping to herald the return of the first time buyer to the housing market,’ he concludes.

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