Is This The Beginning Of The End For The UK’s Housing Boom?

It was revealed yesterday that last month Britain’s banks approved the lowest number of mortgages since August 2013. Now, in itself, this would not be such a bad thing but this revelation comes at a time when the sustainability of the UK’s housing boom is being called into question almost everyday.

Indeed, only last week the Governor of the Bank of England, Mark Carney told reporters that; “…[the UK] housing market…has deep, deep structural problems…”

And today, Nationwide has revealed that there is already a noticeable slowdown occurring within the housing market. Further, the building society has warned that the housing market is set for “natural correction”.

Banks stepping back

These comments come as the UK’s two state backed lenders, Lloyds (LSE: LLOY) (NYSE:LGY.US) and Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US) have announced that they are taking a step back from the London property market.

Lloyds has more than halved its share of London lending in comparison to year-ago figures and RBS has cut its exposure by a fifth.

What’s more, Lloyds has tightened its lending criteria on large loans, restricting customers seeking loans of more than £500,000 from taking out loans of more than four times their annual income. With the average London house price now in excess of £450,000, these new rules effectively block individuals with an income of less than £100,000 per annum from entering the London market.

RBS is also considering similar lending restrictions, and the Bank of England has signalled that it might tighten controls on risky mortgage lending as soon as next month.

Alternatives growing

However, it seems as if the fire for lending is still burning as new lenders are piling into the market. Indeed, while RBS and Lloyds are pulling back, Woolwich, Santander UK and Clydesdale have all jumped in, becoming the most active lenders for the London market during recent months.

But it’s not just banks taking advantage of this lending boom. The financing arms of estate agents and home builders are eager to lend. For example, Knight Frank Finance and John Charcol are two alternative mortgage brokers which have seen business boom during recent months. 

Hard to justify 

Estate agent Foxtons (LSE: FOXT) has its own property financing arm and the company reported thatmortgage broking revenues were up by 54% at the end of the first quarter, slightly higher than new property sales commissions, which ticked up 41% for the same period.

However, the company warned that a sharp upturn in property sales had depressed lettings demand, as rental yields collapsed; first-quarter lettings revenues were flat at £15m. Traditionally, lettings income is the more stable side of property management, while the sales generate higher fees and commissions, letting revenue is recurring.

Unfortunately, if the property market does take a turn for the worst, Foxtons management is going to have to work hard to convince the market that the company is worth its lofty valuation of 24 time forward earnings.

Other opportunities

Still, only time will tell if the UK housing market is about to take a tumble, but if the market suddenly turns around, the last thing you want to do if it does is get caught by surprise.

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Rupert does not own any share mentioned within this article.