UK housing market has reached a plateau, analysis suggests

The UK housing market has reached a plateau as activity and lending have been flat since the start of the year, according to the latest outlook analysis report.

A period of belt tightening now seems to be under way and may become more acute, if the economic outlook deteriorates further, says the report from UK Finance.

It points out that a number of Bank of England monetary policy committee (MPC) members have recently voiced their opinions on raising interest rates. Despite this, a rate increase seems unlikely in the short term.

‘The economic backdrop helps colour what has been happening in the housing markets, as the two are closely linked. The housing market has reached a plateau, as activity and lending have been flat since the start of the year. It is possible that we see a slowdown in activity if economic conditions become more challenging,’ the report explains.

It argues that this is illustrated by property transactions averaging just over 100,000 a month for the past few months, though the recent weakening in house purchase approvals, a leading indicator of activity, could mean fewer transactions in the months ahead.

Looking at transactions with a mortgage, first time buyer activity is the only part of the market that has shown consistent growth recently. Home mover numbers have been slowly falling, on a 12 month rolling basis.

Buy to let has been more volatile and the report points out that this is not surprising due to the tax changes last year, but it is currently deeply in negative territory. While buy to let remortgage activity had been growing until very recently, over the last two months this trend has reversed, as the number of loans for remortgage on a 12 month rolling basis fell relative to the 12 months preceding it.

On the remortgage side, there is still growth amongst home owners remortgaging and the report says that this has been and continues to be driven by market share objectives, which has led to intense competition between lenders, even though funding costs have started to edge up.

‘Despite all these moving parts, total lending in the mortgage space continued to be stable and was estimated to be £19.9 billion in June, on a seasonally adjusted basis. On an unadjusted basis, lending was £22.1 billion. Over the last 12 months, lending has averaged just over £20 billion a month,’ the report adds.

‘Home owner remortgage activity and first time buyers have driven lending for some time now. We expect this to continue, but perhaps not as strongly as has been the case of the last few years, as the factors supporting them are dampened by a challenging economic outlook,’ it concludes.