Monthly Market Review - January 2011
During the early weeks of 2011 the market has given out mixed signals. Accordingly we are focusing attention this month on those factors driving demand for, and prices of, UK property that are likely to shape market characteristics for the year ahead.
Which Way Next?
The various published market indices continue to give mixed messages, not least (as we have commented previously) because of variations in the data used – asking prices (Rightmove), mortgage approvals (Halifax) and average quarterly prices (UK Govt.)
The National Association of Estate Agents has reported a buoyant start to the New Year with “a surge in the level of enquiries for both buyers and sellers in the first 2 weeks of January”. This is echoed by Rightmove who reported “the first ten days of the year were the busiest ever period for website traffic, averaging 25 Million pages viewed per day”. Garrington have also received higher enquiry levels than at this time last year, but it has been noticeable that a lot of enquiries are very tentative from buyers who remain confused by the market. The key determinants of future price movements in 2011 are inflation, interest rates and funds available for purchase.
Inflation Still Rising...
Latest figures were higher than expected with the Consumer Price Index (CPI) up from 3.3% to 3.7%, and the Retail Price Index (RPI) 4.8% (4.7%) – the latter includes mortgage interest payments and house price movements. The rise was due to higher fuel and food prices – a trend which seems likely to continue, and does not take account of January’s increase in VAT; these are not the result of higher consumer borrowing/spending and will not be controlled by raising interest rates.
Whilst rising inflation has fuelled concern about an early rise in interest rates it is important to note that, historically, house prices have proved a good hedge against inflation, returning an average 2.9% p.a. real return since the end of 1980 as illustrated below.
Interest Rates – Divided Opinions
The Bank of England has kept its base rate at 0.5%, and faces the dilemma of whether to increase the rate to try and reduce inflation, or to maintain the present rate for fear of weakening the fragile economic recovery, and generating a double dip recession. Rates would need to increase significantly to control inflation, and it seems unlikely therefore that the Bank will want to change its present stance for the time being.
Funds Available for Purchase
Garrington has seen continuing demand from overseas buyers for UK property, especially in London. With uncertainties in other European economies, and the fall in the value of Sterling as well as house prices, the UK market is seen to be attractive.
We have also seen activity as a result of ‘Accidental Landlords’ being forced to sell tenanted properties which were previously their main residences – either because of the end of their permission to let mortgage arrangements or because of the three year tax rule. This in turn has created a demand from tenants keen to buy given a background of strongly rising rental levels, and the imminent increase in Stamp Duty (new 5% duty on properties above £1m from 6 April).
There is some evidence of a greater willingness of banks and building societies to lend, but a dearth of sellers will continue to be a constraining factor.
A Window of Opportunity
Garrington has successfully agreed a number of off-market purchases in recent months where sellers have agreed transactions now rather than face the uncertainty of waiting to put their properties on the market in the Spring.
Whilst the New Year has not brought a new wave of transactions in the market, there is definitely renewed activity and intent amongst sellers and buyers alike waiting for the right moment to act. For the savvy buyer however, opportunities are available now – if you know where to look for them...
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