It is also increasingly important to understand how prices interact with transactions and households’ ability to get on or trade up the housing ladder in different parts of the country.

Twelve months on

Last year we were consumed by what the mortgage market review would mean. Twelve months on and its effect has become a little clearer.

Mortgage approvals and consequently transaction levels appear to have reached a plateau, as the affordability tests on borrowers and loan-to-income restrictions on lenders limit the amount home-buyers can borrow. Those seeking to get a new mortgage are being constrained by the higher interest rate assumptions adopted in the regulatory stress testing of affordability.

This means what happens to interest rates going forward is critical to our outlook for the market, a subject which we have addressed in our article Maintaining Balance.

Mortgage regulation also means the cost of mortgage deposits will remain high with ongoing implications for levels of mortgaged home ownership and private renting, as discussed by Neal Hudson in Swimming Against The Tide.

Different submarkets

These issues are of acute importance in London, given the extent of price growth it has seen over the past 10 years. However, this does not mean that the London market will run out of steam completely.

A closer look at the capital gives an important reminder that the performance of each region is an amalgam of different submarkets across both the prime and mainstream sectors, each with different drivers.

This said, over the next five years the economic recovery should spread geographically. This is likely to result in much less London-centric price growth than we have become accustomed to, even if our crystal ball indicates that it will be tempered by the twin constraints of mortgage affordability and accessibility.