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April saw valuations activity drop by 15 per cent compared to March, according to chartered surveyors Connells Survey & Valuations, as the long-anticipated Mortgage Market Review rules came into force on 26th April. This month-on-month fall leaves the total number of property valuations for all purposes at the same level as was seen exactly one year ago, in April 2013. Connells argues this flat rate represents a stabilisation of the housing market, following March’s 10 per cent annual fall in the total number of valuations.
John Bagshaw, Corporate Services Director of Connells Survey & Valuation, comments: “The housing market is undergoing a temporary correction as lenders move to enforce stringent new affordability rules. This has fed through into valuations activity – both as volumes feeding through the system have dipped, and as the mortgage application process now takes longer in each case."
Indeed, some experts have voiced concerns that the changeover to the new mortgage rules could see the UK housing recovery stall. The new regulations are designed to restrict lending and minimise the risk of giving loans to people who cannot afford them.
While lenders adjust to the new system, which asks mortgage applicants far more questions than before, conveyancers warned at the start of the month that the slowdown could threaten the market's recent momentum.
Suzanne Marsters, Conveyancer, and Chartered Legal Executive at North West law firm Maxwell Hodge said: "We have seen conveyancing work double in the last six months in our region alone which is a direct indicator of the recovering property market. However the tougher rules being brought in for mortgage applicants could threaten this recovery."
Remortgaging "hardest hit" by regulations
Property sales in the first three months of 2014 has hit a six-year high with the Royal Institution of Chartered Surveyors (Rics) reporting recovery on a national scale. But Suzanne argued that "they could also impact on property growth and the economic benefits that brings".
Indeed, the new rules will not only affect first time buyers but those looking to remortgage, with existing home owners potentially being required to go through an advised process and new assessment checks.
According to Suzanne, these measures, together with declining interest only mortgages and the rising property prices could well shut out first time buyers and young families from the housing market for some time, leaving them in a position where they have to rent.
Remortgage applications were hit the hardest in the run up to the Mortgage Market Review ‘go live’ date on April 26, according to the April National Mortgage Index from the Mortgage Advice Bureau.
But speculation about tightening criteria did not appear to dissuade younger homebuyers. The broker's index showed the average age of buyers seeking a mortgage during April dipped below 37 (to 36.9) for the first time in almost four years, since September 2010.
Data from over 550 brokers and 900 estate agents shows the volume of remortgage applications dropped by 12 per cent in April, while purchase applications dipped by 7 per cent. However, both purchase and remortgage volumes during April were still 29 per cent higher than in April 2013.
Brian Murphy, head of lending at Mortgage Advice Bureau, comments: “A degree of slow-down was inevitable in the run-up to MMR, particularly given the exceptionally busy start to 2014. With applications up 29 per cent year-on-year, the mortgage market remains open for business and in far better shape than it was a year ago."
He adds: "It’s a promising sign that confidence appears unshaken among younger borrowers."
A price worth paying?
Connells echoes the positive sentiment towards the UK's mortgage market.
"When new regulations come into play we would expect a transition period associated with the switch to new processes," contineus Bagshaw. "But over the course of the year, valuations levels will recover, leading to a healthier and more sustainable housing market overall. Demand for all sorts of property remains extremely high, while lenders remain willing to expand their balance sheets.”
Indeed, first time buyer activity remains 3 per cent above this point last year, according to surveyors. Meanwhile on a monthly basis the number of valuations on behalf of first time buyers saw the least dramatic dip alongside established home movers, down 13 per cent from March.
By contrast, due to slower growth in previous months, this 13 per cent monthly dip for established home movers leaves such activity down on an annual basis. The number of valuations carried out on behalf of home movers in April is 1 per cent lower than in April 2013.
John Bagshaw continues: “In the last twelve months the prospects for first-time buyers have changed dramatically, and the latest rules have not changed that. The availability of high loan to value loans has expanded enormously in the last year – and a careful approach to affordability will actually support this further.
“For both new and established home movers, the MMR will support the fundamental affordability of housing over the long-term. Teething problems are a price worth paying and are almost completely temporary.”
UK, Mortgage Desk