Bank Of England Numbers Say The UK Housing Boom Is Coming To An End

Figures released by the Bank of England on Tuesday showed demand for mortgages fell in the third quarter of 2014 after eight consecutive quarters of expansion:

House prices across the UK have been on a tear for the past three years, rising over 9% on average in the 12 months to the end of March:

Policymakers had become increasingly worried about the increasing number of higher risk mortgages being taken on in the UK. The possibility that risky mortgage lending might put the UK’s economic recovery under threat prompted the Bank of England’s Financial Policy Committee (FPC) to request additional powers from the government in October:

And here’s why they’re worried — high loan-to-value (LTV) mortgage lending has been rising. Higher LTV mortgages mean that falls in house prices can quickly drive the value of properties below the value of the loans used to buy them, making it harder for banks to recoup losses if borrowers default.

Here is the recent uptick in LTVs:

The news that the housing market may be showing signs of cooling will be reassuring for those who were worried about a concentration of risk in the property sector. In particular, policymakers will be pleased that “lenders also reported that they had become less willing to lend at LTV ratios above 90% for the first time since the question was introduced in 2013.”

However, the Bank of England warns this may only be a temporary respite with mortgage demand set to increase again in the final three months of the year.

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