The UK property market has remained busy over the last month although has come under intense scrutiny from political and economic quarters, with a chorus of concern that continued rising house prices could create headwinds for the wider economy.
Sellers remain ambitious in their pricing, underlined by Rightmove recording its highest ever jump in asking prices for the month of May, at a rate of 3.6%, which means the annual rate of price inflation now stands 8.9% higher than a year ago, and its highest rate since October 2007, when it was at 10.4%.
Opinion on the rate of momentum in the market, based on sale prices, was divided between the national house price indices last month. Halifax reported a staggering 3.9% monthly rise in prices; their highest recorded monthly jump in prices for 11 years. Nationwide echoed the upward trend, but at a more sedate 0.7% rise, down on the 1.2% increase recorded in April.
Both Nationwide and Hometrack reported last month that there are early signs of market activity starting to cool and that we may see more ‘normal’ conditions in the second half of the year.
A calmer market?
Buyer demand is starting to moderate, the time a property is on the market is starting to increase and the proportion of an asking price achieved is starting to plateau, according to Hometrack. Garrington has seen similar trends with some sellers now reducing overzealous asking prices in parts of the UK including London, as some buyers are unable to see fair value in some bullish prices being asked.
With higher property values, it comes as no surprise that the British Bankers Association has reported that the value of mortgages taken out is now at its highest level since 2008. However, of note is that mortgage approvals have fallen for the third month running, to 42,173 approvals; also below the six-month average of 45,720. We watch with interest as to whether this is a direct result of the Mortgage Market Review or evidence of a softening in buyer demand.
Data published last month by HMRC covering April, reports 94,960 properties were sold in the UK. This is up from 72,180 sales last April but remains significantly down on the 126,450 sales recorded in April 2007. So whilst market activity is now improving, there remains a substantial gap in transaction levels to catch up with, as part of a full recovery.
We reported last month about the changes to the mortgage market following the Mortgage Market Review, which has triggered a step change in how lenders assess applications for credit. Despite these changes being widely reported in the press, many movers failed to stop and consider the wider ‘real world’ consequences of the changes. In a number of cases, mortgage processing times have at least doubled as policy changes take hold.
In what so far this year has been a fast paced market, such delays are now disrupting transactions, as motivated sellers dictate timescales that are now simply not achievable for the average buyer and in some cases are causing property to come back to the market.
Under mounting political pressure the Prime Minister has given the first hint that the Help to Buy scheme may come under review sooner rather than later.
The Government backed Lloyds Banking Group has been the first major institution to attempt to influence market behaviour by introducing new lending restrictions on loans in excess of £500,000 by placing a cap on the income multiplier it will allow for borrowing.
Confidence and caution
Industry research from the Markit sentiment index reports that sellers’ expectations are at their highest ever. Despite this level of confidence about values, many sellers are still holding off marketing their homes, cautious of selling too quickly, without having found anywhere to move to themselves, then leaving them renting and out of the market.
This trend is once again giving rise to heightened ‘off-market’ activity where buyers and sellers alike are being attracted to a calmer and structured moving process. Of the purchases Garrington agreed for its clients last month 60% were either agreed ‘off-market’ or ‘pre-market’.
As pressure mounts from political quarters for the Bank of England to reassess its policies, there is growing evidence of a shift in sentiment and the signs of a natural change in market conditions.
This has the potential to set the scene for a summer market which could yield interesting opportunities for the well informed buyer, as sellers adopt a more pragmatic view on their pricing and negotiation strategy.
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