Monthly Market Review – May 2016

Mirroring the recent unpredictable and unseasonal weather the property market has not seen the usual ‘spring bounce’. After an exceptionally busy first quarter activity is now showing signs of slowing. Some would argue that 2016 is looking anything but a traditional year. Given the level of geopolitical and economic volatility and associated uncertainty, there is an element of inevitability that the property market becomes affected.

All change

Price indices and media reports on the state of the market have been rife with opposing views and contradictions on a near daily basis over the last month. This is largely down to the reporting period of the data, which all too frequently is overlooked. Evaluating this data on a timeline basis provides a clearer picture. According to HMRC transaction volume data, the first quarter of the year ended in spectacular fashion. Sale transactions rose significantly from an unseasonal high of 116,930 in February to a record breaking 165,480 in March – the highest monthly transaction volume since records began in 2005. This spike in activity was driven by a rush of purchases being made ahead of the introduction of increased stamp duty charges for additional homes from 1st April.

Since the start of April market conditions have been noticeably calmer. The Bank of England recorded a fall of 2.5% in mortgage approvals between February and March. This forward indicator of buyer activity has now translated into softer rates of price inflation, with Nationwide recording a 0.8% month on month fall in the rate of annual house price growth. Halifax also recorded an identical monthly fall in average prices, in turn spelling the end of double digit rates of annual house price growth as the rate fell to 9.2% – its lowest rate for over three months.

Brexit bites

Irrespective of whether the UK is inside or outside of Europe, many buyers have not been deterred from progressing their moving plans. However, for more discretionary based buyers, the EU referendum vote has the potential to alter the dynamics of the market and accordingly is creating an air of caution. This is particularly true in the prime sector of the market where the value of wealthy buyers’ assets are intrinsically linked to the health of the wider economy. Political rhetoric surrounding future house prices as a consequence of the vote has already begun with both the Chancellor and heads of banks publicly stating house prices are likely to fall as a result of a ‘vote leave’, and that mortgage interest rates would rise. Sceptics cite this as political scaremongering, but what is certain is that markets do not like uncertainty and tend to suffer as a consequence.

Garrington has already seen some clients deciding to place purchasing plans on hold until there is clarity after the vote. This trend has been most acute in London and particularly among international buyers. Our relocation team has also seen global mobility projects being delayed beyond the vote, which is already affecting corporate rental demand in certain sectors of the market.

Fear and anticipation

Uncertainty and reports of a slowing market is ironically creating a self-fulfilling prophecy as some potential sellers now adopt a ‘wait and see’ approach. As a consequence, latest data from the Royal Institution of Chartered Surveyors shows stock levels of homes for sale remaining close to historically low levels, which in turn is acting as a counter balance to softening demand – the likely net result being a plateauing of prices over the coming months.

For some buyers adopting a long term view, any levelling or fall in prices is being seen as a ‘window of opportunity’ given the number of positive long-range forecasts for property values. Since April’s stamp duty deadline Garrington has been able to achieve close to double digit price reductions for some investment clients who held back from the buy-to-let stampede, but have now swooped on deals that simply were not available three months ago, with significant discounts more than offsetting increased stamp duty. Additionally, over recent weeks lenders have introduced higher loan to value products for buyers and increased the age limit for which credit is available for older borrowers.

The property market is likely to remain in the spotlight as a discussion point in the weeks leading up to the referendum. Irrespective of the outcome the market is undeniably once again changing, creating both new threats and opportunities.