Demand in the reviving housing market is the slowest it has been since early 2013 as strong words from the Bank of England and tougher mortgage rules from the financial sector regulator deter some would-be home buyers.
That is according to a housing market survey by the Royal Institute of Chartered Surveyors (Rics) for June. Its house price balance – the difference between those surveyors reporting higher or lower prices – slowed to +53 in June from May's reading of +56.
House prices are soaring. The Office for National Statistics (ONS) said the average price hit £260,000 in April 2014 after leaping 9.9% over the year. And in London the rise is even sharper at 18.7% to £485,000.
Higher house prices mean bigger mortgage debt for home buyers. Increased levels of household indebtedness is concerning the Bank of England.
Policymakers worry that when they lift the base rate from its record-low 0.5%, the uplift in debt repayments will choke off a large part of consumer spending – denting the economic recovery.
To limit this threat, the Bank of England has put an electric fence around the mortgage market. From October 2014, just 15% of a bank's new mortgage lending will be allowed to comprise loans worth 4.5 times or more the borrower's income.
And the Bank of England is making banks conduct affordability tests for borrowers that assess whether they would be able to make the debt repayments if the base rate were to reach 3%.
Following its Mortgage Market Review (MMR), the Financial Conduct Authority also imposed its own set of tougher affordability tests for lenders to apply to prospective borrowers.
"The Bank of England's recent introduction of a ceiling on high loan to income lending and a 3% interest rate stress test is unlikely on its own to have an immediate influence on the market," said Simon Rubinsohn, chief economist of Rics.
"However, rhetoric from key officials at the Bank, including Mark Carney, alongside the consequences of the introduction of the MMR are already slowing momentum particularly in London.
"Buyer enquiries in the capital are now slipping back which suggests that the very sharp upward move in prices will flatten over the coming months. Elsewhere around the country we believe the more hard fought recovery should remain intact."