UK house prices could fall due to stricter mortgage lending rules

Chris Papadopoullos
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New rules will hit the number of mortgages being approved
House prices could fall next year due to stricter rules on mortgage appro­vals and potential buyers being put off by rate hikes, according to the Centre for Economics and Business Research (CEBR).

A combination of rising interest rates and tougher mortgage eligibility could depress demand significantly – enough to cause house price growth to hit negative figures, the CEBR claims.

Prices look set to grow 7.8 per cent this year, the CEBR says, but could be at risk of falling 0.8 per cent over 2015.

Nationwide has already reported signs that the housing market is slowing, with its index showing house prices slipping by 0.2 per cent month-on-month in September, the first monthly fall for 17 months.

The slowdown coincides with a decline in the number of mortgage approvals after April saw the introduction of the Mortgage Market Review. These new regulations are designed to make it harder to get a mortgage in an attempt to prevent the reckless lending that many policy makers view as playing a significant role in the global financial crisis. The rules are expected to curb demand for mortgages.

“Tougher mortgage eligibility criteria, high deposit requirements and concerns about future rate rises are starting to take steam out of the UK housing market,” said CEBR economist Scott Corfe. “Price falls next year will be modest and we shouldn’t be too worried about this – we are not anticipating a crash. The market is adjusting after getting ahead of itself in the first half of 2014.”

Other economists thought housing demand might pickup despite the new regulations and other downside risks.

“Mortgage lending and activity should begin to recover towards the end of the year, with demand supported by a strong economic backdrop and a return to more realistic pricing,” said Matthew Pointon, economist at Capital Economics.

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