The housing market in London is gathering pace once more after a slow start to 2015 that lasted up until the general election in May, with the annual rate of house price growth in the capital continuing to outstrip the national average on the back of a widening supply-demand imbalance, improving job prospects, increasing wages and a strengthening UK economy.
The latest transactions data from the Land Registry shows that October last year was the fifth successive month in which there were more than 100,000 residential property transactions nationwide, putting activity in a whole different league to the first half of 2015, as buyers responded to a robust economic backdrop, low interest rates and attractive mortgage products.
Brian Murphy, Head of Lending at Mortgage Advice Bureau, commented: “Demand from potential buyers remains high, with many taking advantage of the excellently priced mortgage rates available on the market.”
With consumer sentiment improving, gross mortgage lending jumped to £12.9 billion in October ‘15. That was 26% up on October ‘14 and the highest figure since before the financial crisis in 2008, the latest data from the British Bankers’ Association (BBA) shows.
“Consumers remain confident and their incomes are growing. Mortgage rates are at multi-year lows and people are snapping up the very competitive deals being offered by banks,” said Richard Woolhouse, chief economist, BBA.
Despite healthy levels of overall demand, there has been a fall in the number of people snapping up homes in Fulham over the £2 million mark in the past 12 months, and this is perhaps due to the astronomical property boom that preceded it. For one period during 2013 Fulham recorded one of the highest levels of capital growth ever seen in the UK.
The slowdown at the top-end of Fulham last year was caused mainly by the hike stamp duty coupled with mortgage reform, uncertainty over the possibility of a mansion tax in the lead-up to the general election in May and waning interest from international buyers. Such wealthy overseas purchasers, many of whom were from Western Europe, made up around half of all buyers of homes in Fulham over £2 million in recent years. However, many have now been deterred by high house prices in London, a weak eurozone economy and the fact that the pound has strengthened significantly against the euro in the past year, making it even more expensive for many Europeans to buy property in the English capital.
But how long will this slowdown last? While competition for property in and around Fulham may have cooled, correctly priced homes are still selling, reflecting the fact that there remain plenty of people actively buying, while there are still nowhere near enough homes available to cater for all would-be buyers’ needs.
The latest data released by the National Association of Estate Agents (NAEA) shows that there were 342 prospective buyers registered at each NAEA member branch in September last year, while the number of properties available to buy fell to 37 per member branch in the same month. This followed a major drop in the availability of housing stock the month before, when the number of properties available fell from 55 in July ‘15 to 38 in August ‘15 – a collapse of 31 per cent.
Greater demand is being supported by a notable rise in sales to first-time buyers which now account for almost a third (29%) of all sale transactions, according to the NAEA.
“It’s obviously very positive to see that the number of sales being made to first-time buyers has risen,” said Mark Hayward, the NAEA’s managing Director.
“We’re seeing a whole range of new competitive mortgage products coming on to the market, which is likely to be encouraging first steppers to take the plunge,” he added.
Those that are now looking to buy may be keen to know that the traditional Autumn property price lull has presented a chance for house hunters to potentially acquire cheaper property.
Purchasers that were on the lookout for a new home in the run-up to Christmas may have seen sellers set lower than average asking prices, according to research conducted by Rightmove.
Miles Shipside, director and housing market analyst at Rightmove, said: “New-to-the-market sellers dropped their asking prices in the run-up to Christmas for the last eight years, with an average drop of 1.9% over the last five years.”
He said: “Those looking to market their property as Christmas gets closer often have a greater sense of urgency to find a buyer and sensibly recognise that trimming their asking price will provide an incentive to potential buyers more focused on seasonal Christmas trimmings.”
In London, average property prices dropped 1.6% in November ‘15 to £619,866, compared to £630,050 the month before. But a closer look at the historical data provided by Rightmove shows that this was the smallest slowdown in asking prices for properties in November for four years suggesting that there could be a sharp rise in 2016.
Room for growth
While the market may not return to the heady days of 2013 when prices jumped almost 30% in 12 months, there may be room for home values to rise as we head into 2016. “The spur of cheap money - if you’ve got your credit rating in good order - helps buyers to pay the asking price or out-bid the competition for their ideal home,” Shipside added.
Given the existing supply-demand imbalance in the market, many experts forecast that this acute housing shortage will worsen in the coming months, pushing property prices even higher.
But the Chancellor George Osborne did make housing one of his biggest priorities in the Autumn Statement, pledging a raft of new measures, including vowing to build a higher number of homes and tax landlords more, with a view to potentially boosting homeownership levels in this country, which are currently at their lowest level in almost three decades.
The government’s latest housing market policy to increase housebuilding, coupled with growing speculation that the Bank of England may now not increase interest rates until 2017, may help increase demand. But much will depend on whether building activity can keep pace, because there is currently no real sign that there will be anywhere near enough properties to cater for more buyers, especially in the near term.
The supply-demand imbalance in the market will almost certainly be greatly accentuated in the coming months, as anyone already thinking of acquiring a second home or a buy-to-let property start looking more keenly with a view to buying before April when they will have to pay an extra 3% in stamp duty.
“As buy-to-let represents over 15% of total housing purchases the tax changes are large enough to distort prices in an inelastic market,” said Ray Boulger, of mortgage broker John Charcol. Howard Archer, UK economist at IHS Global Insight, believes home prices will increase by up to 7% during 2016. Looking further ahead, various property forecasters have looked at what may happen to home prices over the next 5, 10 and 15 years. Despite all using slightly different methodology, they each estimate that prices in London, supported by a growing population and strengthening economy, will continue to grow, albeit with a few blips along the way, to eventually reach an average of £1 million by 2030, as calculated by forecasting body Oxford Economics.
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