The latest figures released this week, show house prices continue to rise at a starling pace.
According to the Nationwide, the UK’s largest building society, house prices have leapt by 11.1% over the past 12 months, taking the value of the average home to £186,512.
May was the 13th month in a row when prices have risen, with an increase of 0.7%, although this was down slightly on April’s 1.1% rise.
Despite the seemingly unstoppable rise in house prices, there are perhaps signs that the mortgage market is starting to cool off.
Mortgage approvals were down by around 17% in April, compared to the high in January. Many experts are blaming the changes introduced as a result of the Mortgage Market Review (MMR), which many believe will cause delays in applications being processed and more people having applications declined.
Time will tell whether the slowdown in mortgage approvals will translate into lower house prices.
High demand from first-time buyers
The demand for housing from first-timer buyers continues to rise, with this group playing an increasingly important role in the housing market.
First-time buyers accounted for 48% of all purchases in March, significantly above the long-term average of 38%. The Help to Buy scheme is clearly helping first-time buyers, who account for 80% of all loans made under the scheme. Although the scheme is having less of an effect in London and other areas where growth is strong.
Robert Gardener, the Nationwide’s Chief Economist, doesn’t think Help to Buy will have a huge part to play: “The modest numbers involved so far suggest that Help to Buy is unlikely to be the main factor behind the recent pickup in the wider housing market. For example, 12,853 Help to Buy mortgages were completed in Q1 (6,327 under the mortgage guarantee scheme and 6,526 under the shared equity scheme), equivalent to around 9% of total mortgage completions over the period.”
“Low mortgage rates and growing buyer confidence on the back of improving labour market conditions and the brighter economic outlook are probably playing a much greater role in stimulating buyer demand.”
Gardener continued: “Help to Buy appears to be playing less of a role in areas which have seen the strongest recovery in house prices (see chart on next page). For example, London has recorded the fastest pace of house growth in recent quarters, with prices rising at an annual pace of 18% in quarter one, almost twice the pace recorded in the UK as a whole.”
“However, we estimate that Help to Buy accounted for around 4% of mortgage completions in London in quarter one, the lowest proportion amongst the UK regions. Indeed, Help to Buy has accounted for a larger share of transactions in regions such as the North of England where house price growth has been less marked.”