Monthly Market Review – May 2014

The recession is over according to economists, and the housing market remains strong as earnings growth begins to pick up. The market is still very short of stock; with sellers holding back – according to RICS the dearth of new instructions is a national trend. New tougher lending regulations for mortgage lenders have been introduced by the Financial Conduct Authority.

Economic Background

The National Institute of Economic and Social Research has recently increased its forecast for GDP growth to 2.9%, taking it to above the 2008 peak in the next few months. According to the CBI confidence among manufacturers is at its highest level since 1973, with factory orders growing at the fastest rate since 1995. There is evidence that a strong economy is feeding through to wages which at last are beginning to rise in real terms.

Against this background there are concerns that interest rates may have to rise sooner than expected, and that further action may be needed to curb mortgage lending.

Opposing Market Indices

Last month’s data from national indices was conflicting, with considerable variations in figures between different commentators. Rightmove reported mid-month a 2.6% increase, whilst Halifax and Nationwide reported end-month figures of -0.2% and +1.2% respectively. This does illustrate the danger of taking just one month’s figures, especially when these are based on a lender’s mortgage approvals. Taking a longer period, Land Registry figures for Q1 of this year confirm a strong market with annual growth of 5.6% (London 12.4%).

Market Developments

New lending rules for mortgage lenders were introduced at the end of last month, with considerably more information now required from borrowers about their finances and lifestyle, representing the largest set of changes in over a decade. This may cause some slowdown in lending – the Council of Mortgage Lenders estimate that lending in March was around £15.4bn which is 33% above the same month last year. According to the Bank of England there were 67,135 mortgage approvals in March, the number having decreased in each of the last 2 months from the January six year high.

The Chancellor has been under mounting pressure from the Commons Treasury committee and from three former chancellors to reduce the Help to Buy Scheme which is seen as creating a bubble.

Latest figures from RICS confirm a market constrained by weak supply and high demand, and a broadening of the recovery from London into the regions.

London and Country Roundup

We have seen a continuingly strong market in London, and particularly fringe areas, as buyers are priced out of Prime Central London. There has also been a noticeable increase in the number of investor buyers who are motivated by the prospect of long term capital appreciation, and a “safe haven” for their wealth. Britain is now the home of more than 100 billionaires, with some two thirds of this number in London.

Garrington was recently able to secure multiple properties in the second phase launch of the Battersea Power Station development, which made headlines last month when it virtually sold out in just a few days during a £500m scramble.

Activity in the country market has gained momentum over recent weeks, with our regional offices all witnessing more stock entering the market, but in many cases still nowhere near the levels needed to balance purchaser demand. The country market remains extremely polarised, both in terms of location and price.

Locations in the South such as Guildford, Cambridge, Royal Tunbridge Wells and Harpenden are being further buoyed by an overspill of London equity as further buyers head out of the Capital seeking a new life and a broader range of property options.

Outlook

House prices in general look set to remain on an upward trend – RICS is forecasting 6% per annum for the next five years, including 9.3% in London. With a continuing shortage of stock it is increasingly important to get ahead of the competition whenever possible, but equally ensure any purchasing decision is a well-informed one.

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