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Experts have been warning for months of a property bubble developing in London and the southeast caused by a shortage of affordable housing in the capital and surrounding areas, which is forcing property prices ever to higher levels. Observers are hoping that new lending rules recently introduced will slow the market and prevent a huge crash further down the line.
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The Stress Test
The Bank of England’s Financial Policy Committee (FPC) is set to introduce a new ‘stress test’ for potential buyers in the summer. However, this is likely to lead to problems for many first time buyers, as they will find it much harder to get mortgage funding.
‘Given the importance of first time buyers in the recent surge of market activity, any limit on their ability to borrow relative to current trends could lead to a slowdown in both house price growth and overall transaction levels,’ explains Neil Hudson from Savills research.
The end result will be, of course, ever-greater numbers of people forced into the rental market because they can’t afford to buy in their chosen area.
Changes to Lloyds Group Lending Rules
The Lloyds banking group has introduced changes to its lending criteria already. As of last week, customers will be assessed on an income multiple of 4 for property purchases of more than £500k. This is a targeted policy that is designed to ease pressures in the London housing market.
Interest Rates Set to Rise
Interest rates are predicted to rise to 3% in the next year.
