The European Commission is concerned with Britain's house price inflation calling on the Chancellor to “deploy appropriate measures”.

House prices have been escalating with London leading with a 17% rise and the rest of the country 8% higher over the past year.

For remortgage buyers higher prices give them an opportunity to release capital which they can use to improve their home.

They have recommended reducing risk with smaller mortgage multiples and adjusting phase two of the Help to Buy scheme where the government guarantees 15% of the property value to the lender.

To purchase a home, first time buyers would only be required to have a 5% deposit with the balance secured with an 80% loan to value mortgage from a lender.

Reform council tax bands

The commission also urged the government to reform the council tax system and to end the relatively higher tax on low-value properties compared to high-value homes.

Taxes on property has not been updated since 1991 and the UK should remove distortions by regularly updating the value of property and reduce the regressivity of the band and rates with the council system.

This means as property prices increase the current tax banding would not result in a higher property tax.

More effort must be made to increase the supply of housing.

Mortgage lending is slowing

New affordability rules for first time buyers, home movers and switching remortgage buyers introduced recently by the Mortgage Market Review (MMR) are beginning to take effect with mortgage approvals at a nine month low.

This does not apply to buy-to-let landlords as they must have a 25% deposit and show the rental income can exceed 125% of a higher notional mortgage interest.

Lenders are responsible to check that home buyers can afford the mortgage even when interest rates rise by considering their outgoings such as child care, holidays and living costs.

For older equity release mortgage buyers, fixed rates can typically be secure from interest rates of 5.9% upwards without any evidence of earnings which is important for borrowers with only pension income.

The bank of England data shows there were  62,918 house purchase loans in April and below the peak in January of 75,838. This figure is also lower than the previous six month average of 70,132.

By value mortgage loans in April were £15.7bn down from £16.3bn in March.

For re-mortgages the figures were again lower with 31,703 mortgage loans approved in April compared to the previous six month average of 34,316.

This suggests the MMR rules are having an effect on the mortgage market by reducing house market activity.

What are your next steps?

Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.

Learn more by using the property value tracker chart, mortgage monthly cost calculator and equity release calculator. Start with a free mortgage quote or call us and we can take your details.

For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property to gift to a family member or friend or even buy a more expensive home.

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