During what is traditionally considered one of the busiest times of the year in the property market, activity has been strong yet more restrained than some commentators were predicting after the surprise General Election result in early May.
So far there are no signs of the frenzied market conditions witnessed last year returning to the market; instead buyers and sellers have been galvanised by the clarity offered by the majority government election result, but are adopting a more considered approach to their moving plans.
House prices continue to rise
Aside from Halifax’s data, all of the national house price indices have reported a further rise in house sale prices during May, albeit at a more sedate pace than seen in the previous month. Nationwide recorded a monthly increase of 0.3% bringing the annual rate of growth to a calmer 4.6% – nearly half the rate of increase seen 12 months ago.
Land Registry figures released last week which record April’s transactions data as its latest information, also confirms an upward trend of 0.9% in sale prices, with the average house value now just £1,200 below its pre-financial crisis peak of 2007.
In recent weeks Garrington has noted the upgrading of forecasts by economists and market analysts, who are now of a consensus that prices will rise nationally between 5% and 7% this year.
Mind the gap
Fundamentally conditions look ripe for another intense period of growth in the property market. This is due to historically low mortgage rates driven by strong competition between lenders, a recent lull in annual house price growth rates, supportive government policies and higher levels of confidence about the medium term stability of both the property market and the UK economy.
However, recent history underlines how sentiment and affordability remain strong influences on market activity. Despite an easing of credit controls and lowering of rates in the mortgage market, buyers are still finding it challenging to access the funding they require to fulfil their purchasing plans. Core to this issue remains the house price to earnings ratio, which remains stubbornly high above the long term average and any further dramatic rise in house prices is likely to hinder transaction levels.
With this in mind, Garrington has already seen some evidence of a growing ‘value expectation gap’ between buyers and sellers and it is interesting to see that despite some of the recent bullish reporting on the property market, asking prices fell, according to Rightmove, by 0.1% in May in contrast to the 2.1% rise seen last year at this time.
Prices in the prime market have continued to rise over recent months albeit in central London at the slowest rate seen for 5 years. Transaction levels have fallen significantly so far this year at the top of the market, with sales over £1 million in England and Wales falling by 18% and in London by 20%. This trend is further exacerbated above £2 million, where in London sale volumes fell by 34% during Q1 according to Land Registry data.
Across our network of national offices Garrington has seen examples of local micro markets that continue to defy the norm, where demand severely outstrips supply. In locations such as Cambridge, Harrogate, Bristol, Guildford and pockets of London prices have been supported by a lack of stock. This trend now may start to come under pressure in some of these locations as more sellers enter the market.
Mortgage approvals are frequently seen as a reliable forward indicator of activity and it is therefore interesting to note that the Bank of England reported that mortgage approvals rose to their highest level in 14 months in May, to 68,076 approvals – a figure not seen since February 2014 just prior to when the market last experienced a surge in activity.
The general expectation in the market is that we are likely to experience a strong summer market with many previously hesitant buyers and sellers now feeling confident to progress their moving plans. However, key to the return of what can be considered ‘normal market conditions’ will be for the Government and Bank of England to collectively ensure that we see a period of steady and predictable growth.