Nationwide warns on housing market 'correction'

Graham Beale , the chief executive of Nationwide, has said that the housing market could be facing a "natural correction" and warned that there is a "slowing down in the market place", particularly in London.

Speaking to me this morning as the mutual announced its annual results, Mr Beale said that buyers were starting to baulk at the high prices being demanded by sellers. "At some point buyers just start saying no," he said.

Announcing what he said were the best results the mutual had seen, Mr Beale's comments will increase the belief that the housing market could be about to turn. Last month Land Registry figures revealed a small decrease in house prices in March of 0.4%.

Yearly figures are still showing rapid increases. The latest Nationwide Index released at the beginning of May showed a 10.9% rise last year. In March house prices in London were increasing by 18% year-on-year, fuelled by foreign buyers.

Stricter tests

Mr Beale said that he did not believe that the Mortgage Market Review was taking the froth out of the housing market.

The review by the Bank of England demanded that mortgage lenders test buyers more strictly on affordability criteria and whether they could keep up mortgage repayments when interest rates rise.

One banking chief executive I have spoken to said that could lead to six week delays for people wanting approvals.

The number of mortgage approvals fell for the third month running in April.

Mr Beale said that Nationwide customers were happy to have affordability tested and would not see much change. He argued that after a long period of rapid growth automatic stabilisers came into effect which would naturally slow down house price increases.

Cooler housing

The Bank of England is expected to act further to cool the housing market in the summer, possibly looking at forcing lenders to hold more capital against mortgage loans and looking at loan-to-income controls.

Although some believe that there could be action to rein in Help to Buy, the government scheme which supports mortgages on properties valued up to £600,000, others believe that the Bank will look at other measures first.

It will review the operation of the scheme - strongly backed by George Osborne - in autumn and could suggest changes by the end of the year.

Mr Beale will be happy with Nationwide's results. Increased switching between lenders by customers and the fall from grace of the Co-op Bank has helped Nationwide pick up new business. In the last year it has provided mortgages for 58,100 first time buyers, up 37%.

The number of people opening current accounts is also up by 18% and its key Core Tier 1 capital ratio - the benchmark for the financial health of an institution - is 14.5%, which Mr Beale says is the strongest in the sector.

Although the costs of running the business are up, revenues are rising more rapidly meaning that the cost-to-income ratio has fallen and profit margins have increased. That is all good news for the bottom line on the balance sheet.