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Mortgage activity starting to cool


Nationwide Building Society has claimed that the housing market may be starting to cool, despite house prices rising by 11.1% over the last 12 months, the fastest increase in seven years.

Whilst house prices have risen considerably over the last year, this looks to have slowed down in recent months as prices increased by just 0.7% in May compared with 1.2% in April 2014.

Just last week, Grahame Beale, chief executive of Nationwide said that there’s the potential that the housing market could slow down as a result of a “natural correction” to house prices.

Nationwide also said signs of moderation could be a result of new mortgage lending rules introduced under the ‘Mortgage Market Review’ (MMR) in April 2014. The rules mean that lenders now have to subject mortgage applicants finances to a stringent ‘stress test’ to ensure they could afford their mortgage in more abject circumstances.

The reason for the implementation of these rules is to help ensure the type of irresponsible lending that contributed to the financial crisis in 2007 does not reoccur.

First time buyers and affluent buyers driving the market

It appeared that whilst the market was beginning to slow, there were two key drivers who were purchasing homes.

First time buyers accounted for 48% of house purchase activity in March 2014 despite the ‘Help to Buy’ scheme contributing to just 9% of house purchases. At the same time, houses in affluent areas such as the South East and Central London appeared to be increasing in value at a much higher rate than elsewhere.

Nationwide said: "The evidence suggests that higher-priced areas have been seeing the largest percentage increases in house prices, especially in London and the South East. But the majority of Help to Buy loans have been on transactions where the property values are below the national average."

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