The granddaddy of forward (rather than historical sold price based) property market indicators, Rightmove’s House Price Index tells us how average prices are performing.

The indicator right now is showing a market that is losing momentum. Yes, while government schemes were initially brought in to pull the housing market out of its post-recession funk….

Data pointing from Halifax & Nationwide is showing property prices across the UK have slowed down. In fact fallen for the third time in four months.

Don’t believe me? There are signs there…

Here’s the first one – in a market where prices have ballooned, particularly London, prices have dropped a little as sellers have brought to the market a fresh supply of property which haven’t been soaked up by the ‘pent up’ demand.

The balance for price growth in London slipped to a more than one year low of +31 in June, well below the U.K. average (The balance is calculated by subtracting the proportion of surveyors who say house prices fell from those who say they rose)

Buyers have been particularly put off by higher asking prices and values, and had even more choice in neighbouring, better-value-commuter-belt areas.

Entwined by the fact of a surge of new instructions coming on to the market, as sellers sought to cash in on record high values has meant some markets are starting to run out of steam.

The below graph shows average house prices fell by 0.6% in June to £183,462:

The roadblock to the runaway price growth can be apportioned to the changes which were brought under the Mortgage Market Review where mortgage lenders have undertaken stricter affordability checks, tighter underwriting measures before offering mortgages.

Halifax cited home sales fell below 100,000 for the first time in 3 months, a 3% decline in May, while the Bank of England stated mortgage approvals fell to an all time 11 month low.

Perhaps an example of what happens when affordability and common sense gets stretched too far? It wouldn’t be too surprising, indeed, if the news would be welcomed by Mark Carney, the Governor of the Bank of England, who initially warned rising prices, represented the biggest threat to the UK economy. George Osborne, also admitted high prices could destabilise the UK economy in the future.

Yet you have to sometimes sit back and wonder… what exactly is the point of government?

Get the housing economy moving. Check. Get the major house-builders geeing us up for a great season? Check. Extend the Help to Buy Scheme to 2020. Check. Great knock-on benefits for the economy at large. Check.

But now, the guys in charge want to bring down the whole facade. Last month, the planners at the Bank of England, took a massive step to control mortgages, effectively saying that 85% of residential mortgages must be limited to 4.5 times the borrowers income.

House price as a multiple of salaries fell slightly in June, but was still near 5 times price to earnings ratio:

The slowdown in current prices isn’t down to one single development in the housing and mortgage market, but rather a combination of moves that is beginning to have a slowdown in price growth momentum.

You see, the speculative ‘boom’ may very well be under way and cheap mortgages always bring the punters in…

But what happens when things go wrong again? And the house of cards deck collapse?

The Next Bailout?

Is there anyone big enough to bail out the banks? There’s always whisky in the jar and ‘we’ll just print, print, print!’

But…I don’t see it happening anytime soon. Sure, prices have slowed down because of the above factors… and may do for the next few months, but expectations for the year ahead seem positive, but at a slower pace amid rate rises.

Or to put it another way, think of the property market like an opponent in a boxing match and understand that a punch might have a minor effect in the first few seconds of round one, but a more devastating effect toward the end of round nine.

Therefore the overall picture seems to be settling down – but one where income multiples in London (often not elsewhere) remain high when compared with historical values.

I don’t think there’s a risk of a downturn or the market buckling at the knees any time soon.

Mark Homer
Mark Homer

Co-founder at Progressive Property, 600 + properties bought & sold. Full time property investor/analyst/geek & World Record Holder Author of No.1 Amazon best-selling book Uncommon Sense, Low Cost High Life and Commercial Property Conversions.