The positive market factors that have been evident since spring have continued throughout the summer. Whilst the holiday period inevitably means a reduced level of activity in the property market, all the latest evidence points towards an increasingly buoyant market which has set the stage for a busy autumn.
Summer brings balance to the market
Values continued to improve over the summer with property sales achieving a 0.8% uplift in prices since July and 6.3% over the year, according to the Land Registry.
We pointed out earlier in the year that asking prices appeared to be ahead of themselves. Rightmove’s latest data suggests that asking prices fell 1.8% in August, following a seasonal trend, and also aligning them more with selling prices.
This alignment is supported by Hometrack’s figures which show a steady increase in the percentage of asking price being achieved as seen in the chart below. A narrowing of the ‘value gap’ is likely to ensure that activity remains brisk as deals are pieced together more easily and stock sells swiftly.
Sales volumes also increased according to latest Land Registry data, which records that the number of completed sales was up by 19% on the same period last year. This trend was, as ever, more profound in the Prime Market, with sales of properties over £1m up 28%.
Improved transactions levels, realistic pricing and availability of funding are likely to all lead to a steady continuation of market growth. Across our offices, Garrington has also observed that the market has a renewed sense of buoyancy with vendors, purchasers and agents seemingly having regained confidence in the market’s ability to perform, even within the traditionally quieter summer break.
A sustainable rate of growth?
With continued signs of upward monthly trends in the property market the inevitable question arises; is this a sustainable growth curve or simply a ‘bubble’? Market commentators are taking both sides in the debate, each recognising that it is challenging to quantify the total overall effect on sentiment of temporary initiatives such as Funding for Lending and Help to Buy.
These schemes are clearly enabling the release of more mortgage funds, with the Funding for Lending total up £1.6bn in the last quarter and Help to Buy attracting more than 10,000 reservations since April. As a result, there are now over 10,250 mortgage products available to borrowers compared to only 4,000 in the depths of the banking crisis in 2008. It is also interesting to see that The Council of Mortgage Lenders have highlighted that mortgage borrowing by first time buyers made up 45% of all property purchase loans in Q2, thus illustrating improving activity across the market, not simply in the Prime sector.
Further concerns are being voiced about the second phase of Help to Buy which is being launched on ‘re-sale’ properties in January 2014. This will in effect offer lenders a Government guarantee for up to 20% of the amount borrowed and in turn allow them to offer larger loans at preferential rates to buyers, which is likely to appeal to a broader section of the market who are not seeking a new-build home.
The Bank of England Governor, Mark Carney, has also made a robust response to critics of the government schemes over recent weeks, stating that he is aiming for a ‘measured’ recovery and giving clarity that interest rates are likely to remain low until unemployment reaches 7%, at which point it would be time to reassess the economy – not automatically raise rates. Indicators point to this being achieved sometime between mid-2015 and mid-2016.
Garrington believes that an element of certainty about interest rates, wider availability of credit coupled with improving economic indicators surrounding the property market will underpin a level of sustained growth in the medium term. It looks as though the pre-crisis pattern of a September surge may make a return on the back of sustained summer activity levels, price growth and improvement in sentiment. This is a time of year when players in the property market are keen to make decisions and secure, or sell a home, before the year end and we feel that this is likely to be evident in activity levels over the autumn.
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