Author: Marketing

Not falling, but definitely decelerating. That’s the story on UK house prices. Look at the headline number and you will see an annualised rise of 10.5% – or 74% over the last decade. Look more closely and you will see that while the monthly number is up for the 11th consecutive month, it’s by a mere 1%.

Mortgage approvals are falling – now slightly below their pre-pandemic average. Mortgage rates are rising – the average two-year fixed mortgage is up 0.69 percentage points since December, says Hargreaves Lansdown, and is now just over 3% for the first time in seven years. Finally, data from Zoopla suggests that 5% of properties saw a price cut in May (by an average of 9%). None of this quite screams crash, but it whispers slowdown – at a time when it is hard to see reasons for prices to keep rising.

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The pandemic property panic is over. There are even mutterings that the exodus to the countryside might be reversing. And while most people are on a two-year fix so will not feel rising rate pain for some time, it makes sense for new buyers to think twice about taking on new mortgages into a cost of living crisis and a rising interest-rate environment. The question then is whether slowdown will turn to crash.

This doesn’t happen often: in the 90 years since 1931 there have been only 16 years in which we have seen nominal house-price falls. Even in the 1970s – the years we think of as endlessly crisis ridden – houses served their owners remarkably well. House prices doubled between 1970 and 1973 and had quadrupled by the end of the decade (from £4,000 to nearly £20,000 at the end). If prices had risen only in line with inflation they would merely have tripled.

A store of value
Unlike most assets in the 1970s, houses ended up more valuable in both nominal and real terms. They acted as a hedge against inflation, a store of wealth, and also via the capital gains they made, a source of wealth. So well did they do that Kit McMahon, the former deputy governor of the Bank of England, noted that borrowing to buy a house is a “cheap, almost risk-free method of financing an appreciating asset with a depreciating debt”.

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Still, the starting price always matters. In 1970, the house price/earnings ratio was around 4.5 times. Today it is more like seven times. That might be mitigated by much lower rates and access to credit, but it is still a big difference. So do earnings – look at the volatility in 1970s house prices and you will see they fluctuated with real wages. If we see real wage growth at levels that can withstand higher mortgage rates, we will see house prices rise. Finally, not all houses are equal in a time when real wages for workers are rising. In the 1970s big country houses took a nasty hit (as owners or buyers lost fortunes on stockmarkets), while smaller houses that were less costly to run and to travel to and from did not.

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So think perhaps of the kind of country houses far from cities that have seen their prices soar in the last few years as the equivalent of growth stocks, says James Ferguson of MacroStrategy on our latest podcast. Smaller suburban or urban houses are more akin to value stocks. That might give you a clue as to the kind of house that might make it to the end of this decade as an appreciating asset financed with a depreciating debt.

By Merryn Somerset Webb

Source: Money Week

The gap between the expectations of buyers and sellers in the UK property market has narrowed to a record low, according to the latest market analysis from London lettings and estate agent, Benham and Reeves.

Based on data from the top four existing indices, the research looks at where the average house price sits overall when taking into account mortgage approved house prices from Halifax and Nationwide, seller expectations via the Rightmove House Price Index, and sold prices from the UK House Price Index.

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It also highlights how the gap has changed between buyers’ and sellers’ expectations, as well as asking price and actual sales price, on a quarterly basis across London and the UK.

Current property values

Based on a geometric mean of all four existing data sets, Benham and Reeves put the current average UK house price at £296,406 for the first quarter of 2022, up 2.6% on the previous quarter and 10.4% annually. In London, the current average is £562,146 having climbed 1.8% quarter to quarter and 6.3% in Q1 on 2021.

Market gap between mortgage approval price (buyers) & asking price (sellers)

Despite a hat trick of base rate increases from the Bank of England during the final quarter of 2021 and the first of 2022, mortgage approved house prices via Nationwide and Halifax climbed by 2.7% on a quarterly basis.

At the same time, the average asking prices also climbed for the fourth consecutive quarter, although at 1.7%, this rate of growth was more muted.

This means that the gap between what buyers are prepared to pay (£269,769) and what sellers are hoping to secure (£348,129) has reduced to just 29%, the smallest gap recorded since Benham and Reeves began their house price index in 2018.

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In London, the average mortgage approval price also increased by 2.2% on a quarterly basis, with asking prices up 1.3% on the previous quarter.

This means that the capital’s sellers remained less expectant compared to the wider UK market, with the gap between the average mortgage approval price (£518,333)and the average asking price (£653,333) sitting at just 26%.

However, as with the UK overall, this is the smallest gap between buyer and seller expectations recorded in the London market since the Benham and Reeves Index began in 2018.

Market gap between asking price (sellers) & sold price (buyers)

During Q1 2022, the gap between the asking price expectations of UK home sellers and the price paid by the nation’s buyers fell to its lowest on record. With the average buyer paying £277,287, home sellers were having to reduce their asking price (£348.129) by just -20.3% in order to secure a sale. This is undoubtedly due to the severe lack of stock available on the market causing many buyers to offer above and beyond what they may have otherwise, simply to secure themselves a property.

Across London, the gap between the average sold price (£524,570) and the average asking price (£653,333) fell to just -19.7% during the first quarter of 2022. This was also the smallest gap between seller expectation and buyer intent recorded by Benham and Reeves since 2018 bar just one. During the first quarter of 2021, this market gap had closed to 19.5%, the only time it has been smaller than it currently is.

Marc von Grundherr, Director of Benham and Reeves, commented: “Despite a string of interest rate hikes, UK homebuyers continue to make hay while the sun shines, with mortgage approved house prices climbing yet again in 2022.

“At the same time, asking prices have also increased but they haven’t done so with the same gusto. As a result, this continued optimism from the nation’s buyers means that the gap between what they are borrowing and the notoriously ambitious asking price expectations of UK sellers is now at its smallest since we began our records back in 2018.

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“But while buyers continue to swamp the market at mass, the challenge facing them is a severe lack of available stock and this is having a notable influence on the market reality gap between asking prices and sold prices.

“Sellers will always overprice when entering the market in order to leave a little room to do the dance during the negotiation stage. Although they continue to do so, they are finding that buyers are willing to come up that bit more than they previously have in order to secure a property.

“This has caused the gap between asking prices and sold prices to narrow to its lowest on record.”

Source: Property Reporter

Much has been spoken about the rising cost of living and mounting financial pressure on UK households; yet, the property market continues to be brisk as the imbalance of supply and demand continues to underpin market activity.

According to Iain McKenzie, CEO of The Guild of Property Professionals, buyer enquiries are up 31% compared to the last ‘normal’ market in 2019.

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He adds: “We continue to find ourselves in a market where mortgage approvals and sales are up, but there is half as many properties available to buy, and according to Rightmove, stock levels are down 55%. This prolonged mismatch between demand and supply continues to push housing prices up.

“Competition for properties is fierce, which means homes are selling quickly and often for over asking price. In fact, Rightmove reports show that asking prices have hit their fourth consecutive record high in as many months.”

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According to HMRC, over 433,000 homes in the UK changed hands in the first four months of 2022, making it the third busiest start to a year since 2007. Last year was an exceptional year due to Covid-19 and 2016 saw a surge prior to the introduction of the 3% additional homes surcharge. Except for last year, April 2022 has been the busiest since 2007.

While demand is high, and the market is brisk, economic headwinds are mounting and this will filter through to the property market.

McKenzie says: “Expectations of global and UK economic growth have been pared back, while consumer confidence has plummeted to its lowest level since records began in 1974. Optimism is weaker than during the global financial crisis, Brexit or Covid-19. The Covid recovery, war in Ukraine and rising energy and food prices, alongside a strong labour market and low unemployment have created a perfect storm.

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“Inflation is pushing a 40-year high. Thanks to fixed-rate mortgages, many households are cushioned from the impact of the latest base rate rise, but day-to-day budgets are increasingly feeling the squeeze. These growing pressures will no doubt have an impact on the market, and it is likely that we will start it begin to moderate. Unlike the rapid emergency brake scenario seen during the global financial crisis in 2008, any gear change in the property market is liable to be slow and steady.”

Even with the economic pressures, forecasters anticipate that we will continue to see positive house price growth over the course of the year.

McKenzie concludes: “The average price of a home is now nearly £47,000 more than in March 2020. This compares to a rise of less than £9,000 in the two years previously. Month-on-month price growth continues across nearly all regions of the UK, with all the main property price indices indicating the annual rate of price growth remains firmly in positive territory. The average price of property now equates to over eight times the current average annual earnings. With earnings growth failing to keep pace with property price rises and cost of living increases, the relative affordability of property is rising up the agenda.”

Source: Property Reporter

The average price of a UK home has topped £250,000 for the first time, but the proportion of sellers applying discounts to properties is increasing, according to an index.

Typical property prices hit £250,200 in April but the pace of price growth is slowing, Zoopla said.

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House prices increased by 8.4% in the year to April, cooling down from 9% growth in March.

Zoopla said it expects the rate of house price growth to slow further, to 3% by the end of the year.

It said that since the second half of April, around one in 20 properties have had price reductions of 5% or more – an increase from one in 22 properties with reductions during the previous month.

Where prices are being cut, the average reduction is 9% – and when applied to the average home value, this equals a price reduction of around £22,500.

Sellers are also waiting slightly longer typically to achieve a sale, Zoopla said.

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Outside London, the average time between a three-bedroom house being listed for sale and a sale being agreed increased from 16 days in March to 18 days in April. In London, this average figure increased from 17 days in March to 21 days in April.

Buyer demand for properties however continues to outweigh supply.

Demand is currently 61% up on the five-year average, while the supply of homes for sale is down by 37% on this measure, Zoopla said.

Grainne Gilmore, head of research at Zoopla, said: “High levels of buyer demand mean that the market is still moving quickly, but the time to sell – the time taken between listing a property and agreeing a sale – is starting to rise across most property types in most locations.

“We expect that this measure will continue to rise during the rest of the year as buyer demand levels start to fall, punctured by changing sentiment around the cost of living and personal finances.

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“Another signal that the market is starting to soften is the number of properties where asking prices are being cut by more than 5%.

“Some one in 20 properties has been re-priced this month, with the average new asking prices some 9% below the original.

“The annual rate of price growth will ease this year – on a monthly basis, price growth has already moderated.

“A continuation of this trend, even with some small monthly declines, means price growth will reach 3% by the end of the year.”

Vincent Dennington, director at estate agent John D Wood & Co, said: “We are starting to see more and more price reductions on property portals, which is perhaps an early indication that the market is slowing down.

“However, this may also be a sign that properties have been initially overpriced and are not achieving any interest from potential buyers; therefore needing to be adjusted correctly to ensure a reduction generates new interest and ultimately offers.”

He added: “Currently, the market remains buoyant enough that should a property come to market competitively priced, it is likely to create a multi-bid scenario, resulting in final offers going over the guide price.”

By Vicky Shaw

Source: Bloomberg

House prices in the UK have increased 9.8% in March on an annual basis, with the average property in the UK being valued at £278,000, according to the latest UK house price index data from the Office for National Statistics.

The data found that house prices in the UK have decreased from 11.3% in February this year.

Andrew Montlake comments: “House prices cooled in March relative to February and we can expect more of this throughout the year given the frightening level of inflation. The Stamp Duty holiday, record low interest rates and the race for space triggered an unprecedented surge in demand and activity during the pandemic, but those days are now over.”

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“9% inflation, rising interest rates and a potential recession ahead will impact demand while lenders are becoming ever more cautious, which will restrict what people can borrow. This will almost certainly see the rate of price growth slow during 2022 and into next year. Only the entrenched lack of supply can prevent prices from falling,” Montlake explains.

Average house prices increased over the year in England to £298,000 (9.9%), in Wales to £206,000 (11.7%), in Scotland to £181,000 (8.0%) and in Northern Ireland to £165,000 (10.4%).

London continues to see the lowest annual growth, as average prices increased by 4.8% over the year to March 2022, down from 7.8% in February 2022.

Despite being the region with the lowest annual growth, London’s average house prices remain the most expensive of any region in the UK, with an average price of £524,000 in March 2022.

The North East continued to have the lowest average house price at £155,000.

On a non-seasonally adjusted basis, average house prices in the UK increased by 0.3% between February and March 2022, down from 1.6% during the same period a year earlier.

Average house prices in the UK on a seasonally adjusted basis, increased by 0.6% between February and March 2022, following an increase of 0.9% in the previous month.

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Simon McCulloch says: “More properties are coming onto market and selling faster than ever, and at record-breaking prices, yet house prices continue to rise. Even for first-time buyers, our data shows new instructions are up 54% from 2020.”

“However, the rising cost of living, lenders pulling competitive rates, and base rate rises mean many buyers are becoming limited in what they can afford. Ultimately, there’s a clear dichotomy between rising prices, greater supply, and constrained affordability and we’ll see within the coming months if economic pressures test the market’s current trajectory.”

“It is time the analogue conveyancing process was digitised. Whether you’re a lender, buyer, homeowner, solicitor, or estate agent, adopting new technology will help make the transition for all parties involved quicker and more efficient,” McCulloch adds.

Anne Clare Harper explains: “Much like for the wider economy, house price inflation is being driven by shortages of supply. This shortage relates to housing in general, and to quality housing that people can afford, in the places they want and need to live in, in particular.”

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“The shortage of suitable, affordable housing is being made worse by planning backlogs from lockdown alongside labour and material shortages and inflationary pressures, as well as the fact that many new-build schemes are unaffordable to local people. Construction material prices rose by over 20 per cent (including 10 to15 per cent inflation in the first quarter of this year according to The Construction Leadership Council). So, the trend is unlikely to reverse any time soon.”

“The result is an ongoing and growing constraint on the affordability of home ownership. In England, full-time employees could expect to spend 9.1 times their annual earnings on purchasing a home in 2021, and this figure is not improving with the latest HPI data highlighting that house price growth continues to outpace wage growth.”

“This rate of inflation increases the importance of the Private Rental Sector, which is essential for providing safe, quality housing to millions of people and families for whom home ownership is not the right path to follow.”

“This is a major reason why we are seeing growing appetite from investors such as pension funds, which increasingly realise they play a major role in plugging the gap in quality, affordable homes for people and communities across the UK.”

By Becky Bellamy

Source: Mortgage Finance Gazette