Is the UK housing market peaking?

Well the Mail and the Express can’t agree on the answer to this question, but official borrowing data released later this morning seem to suggest that it might be. Mortgage approvals (a good lead indicator of house prices) were at their lowest level for a year. The Nationwide house price index is also showing a weakening, if not yet price falls on a UK average level. There’s some good stuff in the Nationwide press release, comparing this rate hiking cycle with the 2003-2004 one. Then, activity in the housing market collapsed very quickly in response to the Bank’s hikes, whereas in this cycle we are only now seeing a response to the hikes which started in 2006. They suggest that this is because in the earlier cycle, market derived swap rates (from which fixed rate mortgages are priced) reacted much more aggressively, rising by more than – and earlier than – base rates. This time swap rates have tracked the Bank’s rate more closely, so demand has been slower to come off – but it looks as if monetary policy is finally working in slowing activity (consumer credit statistics today were also weak).

This doesn’t preclude further UK rate rises however – the Bank will remember its policy mistake in cutting rates in 2005 having seen the housing market cool slightly. Then, the housing market took this cut as a green light to reaccelerate, and the average UK house price has since put on another £25,000 in value (to £182,000). So not the end of the cycle – but perhaps the beginning of the end?


The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

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