Read between the lines of today’s inflation report and it’s clear that the Bank of England believes the house price mini-boom will soon be over.
The report highlights trends in new buyer inquiries, new seller instructions and mortgage approvals. Much of the bounce-back in prices can be explained by increases in the first and the third and lack of increases in the second.
‘In part, the recent strength in house prices may reflect an unusually weak supply of properties available to purchase relative to demand,’ says the report. ‘But the Royal Institution of Chartered Surveyors (RICS) survey suggests that imbalance may have narrowed, as new instructions to sell have increased and new buyer enquiries have risen more slowly.’
That was obviously written before the RICS published its January survey yesterday showing sharp falls in both buyer inquiries and seller instructions. As the RICS was quick to point out, that may just be a blip caused by the cold weather but the imbalance between them still seems to be narrowing.
The inflation report also highlights a key point about the recent rise in mortgage approvals: almost all of the expansion has come from the largest lenders. The big six lenders – Lloyds, Santander, Nationwide, HSBC, RBS and Barclays – currently account for about 95 per cent of approvals for house purchase compared to about 60 per cent just before the credit crunch.
Smaller building societies and, especially, specialist lenders have still not re-entered the market and the Bank says they are still facing greater funding and liquidity challenges. Meanwhile many specialist lenders focused on higher-risk loans, including self-certified mortgages, and may have reassessed those risks during the recession.
‘It remains uncertain whether the major UK lenders will increase capacity to fill the gap left by other lenders,’ says the Bank, before adding rather unnecessarily: ‘For example, providing higher-risk loans may be less attractive than in the years running up to the financial crisis.’
Elsewhere in the report, the Bank also says that inflation is likely to rise more than it expected. Just to rub it in, housing associations currently wrestling with the rent cuts triggered by October’s negative RPI figure may like to know that the RPI is now surging ahead as the effects of previous interest rate cuts on mortgage costs drop out of the equation.
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