Experian Economics update: June 2014

Consumer credit report

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Latest insight now available on emerging trends in consumer credit.



House price report

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Key trends in house prices and economic foresight.



The impact of rising interest rates

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interest rates paper
How will rising interest rates affect your customer affordability and portfolio?

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Mortgages to be goverened to prevent a 'housing bubble'

The Bank of England are looking to control the size of mortgages amid fears that rapidly rising house prices and looming interest rate rises are at risk of causing a ‘bubble’ that could threaten Britain’s economic recovery.  This control measure, not seen since the 1980’s is an attempt to prevent significant damage to the economy when interest rates rise.

With growing concerns of a potential housing bubble and growing disparities in the performance of the UK residential housing market it is important to understand as a lender, what your future capital values will be in your secured lending portfolio and what are the associated values at risk? In addition having knowledge of which areas will have the strongest growth in house prices and whether your current lending practices are appropriate going forward as house prices continue to outstrip income growth.

Housing market growing momentum

UK house prices have maintained growth, with an average of 2.6% increase each quarter, 9.2% higher than in March 2013. London has the biggest growth showing an average 18% rise, whilst northern England is growing 5.9%.

Mortgage approvals continue to be strong averaging 70,684 per month since September 2013, considerably higher than the 55,425 monthly averages seen in the first half of 2013

The number of house transactions in December 2013 was up 30% on the previous year. But, it’s important to put the recent increase in prices into context; housing transactions would need to rise by a further 21% for it to return to its long-term average.

The prospecting economy

The economic recovery is firmly entrenched as the flow of strong data that has emerged over the past year continues to defy the headwinds that are likely to constrain growth. Employment is responding positively to output trends, rising by about 1 million in the last 2 year and the unemployment rate has fallen from 8.3% at end-2011 to 6.8%.

The sustained momentum in the housing market continues to be demand-led, with policy extremely supportive. We expect these two factors to continue to underpin strong growth in the medium term.

Secured credit

The availability of secured credit to households increased slightly in 2014 Q1, with availability increasing significantly at higher LTV ratios. Spreads continue to tighten, albeit at a slower pace than previous quarters.

A growing competitive landscape

Overall, credit conditions continue to improve. There is evidence that competition among lenders together with an increased appetite for risk is contributing to expanding loan availability and lower quoted interest rates, particularly for higher loan-to-value secured loans.

Supply vs. demand

There are some signs that house-building is picking up and we expect the supply of houses to further pick up as would-be sellers are attracted into the market as price rises continue. While construction activity has a natural lead time of at least a few quarters, it is only a matter of time before the supply of houses picks up at a time when affordability would naturally be coming under pressure.

Regulating the housing market

There is a growing likelihood that the Financial Policy Committee (FPC) of the Bank of England will employ its new macro-prudential tools and try to cool the housing market.  The Bank’s new tools allow it to address housing market risks in a relatively targeted way. The FPC has indicated that it is closely monitoring developments in house prices and we believe that the Committee will use its new tools shortly, possibly as early as June.

Rental trends

The rental side of the residential market remains weak. In London, rents have remained stagnant in the six months between 2013q2 and 2013q4 as the reduction in City jobs in the first half of 2013 weighed on demand for high-end rented properties and also brought an increased supply of properties available to rent onto the market.

About the author - Sadia Sheikh

Head of UK Regional Forecasting

Sadia is responsible for Experian Economics’ regional forecasting product suite and oversees the production of all products relating to UK and European regions and cities.

She is responsible for product innovation and the application of economic methods to business solutions. She has considerable experience in commercial and residential real estate markets and works closely with real estate clients across Europe and the UK.

Sadia has also held overall responsibility for projects involving the application of econometric modelling techniques and other quantitative methods to understand regional and local economic development for public sector clients across the UK.

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