Despite rates looking more likely to fall, the Bank of England re-emphasised the need for prudence when considering a mortgage.
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The latest HMRC transactions data show that for the year to May transactions have grown by 13 per cent compared with the same period last year. But, looking at the month of May alone, transactions are down by 12 per cent year on year. This illustrates well the level of distortion in the market caused primarily by the stamp duty hike back in April.
Knowledge of higher transaction costs from April drove many to bring forward their purchases so we saw larger than expected transaction growth in the first three months of the year. That also resulted in larger than expected fall in transaction growth for the months after. There was also a similar pattern of activity being brought forward and then waning in mortgage approvals data, which account for around 60 per cent of final transactions.
Part of this no doubt has to do with declining interest from investors. After a 226 per cent year on year increase in buy-to-let mortgages in March, the number of mortgages issued fell by 51 per cent in April compared with last year. The Bank of England Credit Conditions survey also shows that the consensus from banks shifted to expecting the level of buy-to-let lending to decline further in the second quarter of the year. The net balance of bankers’ expectations of demand for buy-to-let lending between April to June fell to levels last seen in early 2009.
This all came against the backdrop of the uncertainty created by the EU referendum. Uncertainty weighs heavy on the market and typically causes those making large financial decisions to pause. Buyer registration numbers, up 2 per cent compared with last year, suggest that there may have been some delay in activity as buyers waited to see the result of the EU vote. That is now settled, but brings its own, even greater uncertainties, which along with the looming tax relief changes for landlords, could mean that transaction growth will be disappointing for a while longer.
Early signs are that a weaker pound is encouraging more international buyers to take advantage of the relative price cut, which will provide some support, but that’s only a small proportion of the whole market.