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House sales on the up but lending should be reined in

The announcement by property builder Barratt that it will make a pre-tax profit of £390 million in the year to June 30, is to be welcomed.

It is about time that we heard some positive news about the housing market; in addition to Barratt announcing record sales, Taylor Wimpey has also enjoyed a strong first half of the year, as has Bovis Homes.

The tide seems to be turning – Barratt’s chief executive Mark Clare has stated that sales figures are at their highest level for six years, with the average price paid for a Barratt home increasing by 13% to £220,000.

However, the Royal Institution of Chartered Surveyors (Rics) has revealed that the property market has been affected and dampened, particularly in London, by stricter rules imposed in April’s Mortgage Market Review (MMR).

The changes, brought in by the Financial Conduct Authority (FCA), mean that lenders must ensure that borrowers can only be granted a mortgage if they can afford to make the monthly payments.

And from October, borrowers will have to prove they are able to manage a 3% rise in mortgage rates from their present level, while lenders will not be allowed to allocate more than 15% of their funds to those seeking to obtain 4.5 times the size of their incomes.

As a professional and a consumer, I believe we are faced with two contradictory arguments. On the one hand, our leading developers are selling homes at a rate of knots, while on the other, we are being told that the market is slowing down.

So what is really going in the housing market and what will be the long term impact of Bank of England Governor Mark Carney’s plans?

Since the introduction of the Help to Buy scheme, the housing market has indeed been able to make a comeback and has gathered pace in the last 12 months. This has helped fuel sales and enabled developers such as Barratts and Taylor Wimpey to boost their profits.

Mark Carney’s plans are to be welcomed. It is about time that mortgage lending was reined in, not only to stop housing market volatility, but also to prevent buyers borrowing more money than they can afford.

With banks being made to act responsibility, we will hopefully see an end to homeowners being forced to leave their homes because they cannot cope with their mortgage payments.

Ultimately, the aim is for long-term stability, with house prices running in line with wage inflation.

What do you think about the Bank of England’s new mortgage lending rules? Should a borrower be allowed to access 4.5 times the size of the income?

This was posted in Bdaily's Members' News section by VIDA Architecture .