The recent trend of upbeat sentiment within the UK property market continued in June, supported by statistical evidence of ongoing positive growth within various sectors of the market. The first half of 2013 looks to have surprised many analysts and market momentum is showing no signs of slowing down as we enter the summer.
Prices continue to rise
The Land Registry indicated that whilst price movement was positive, it was somewhat muted with figures indicating a rise in values of 0.1%, but both Halifax and Nationwide pointed to a higher level of growth at 0.6% and 0.3% respectively.
Hometrack’s latest data highlights interesting trends relating to some of the less high profile market indicators aside from property values, which in isolation can sometimes be misleading. The positive feeling illustrated in the sustained growth in values is further supported by a continued gradual increase in the percentage of an asking price being achieved, which now sits at over 94%. Also of note is that only 3.1% of postcode districts saw a decline in values in June, down from 23.4% at the same time in 2012. Properties continued to transact swiftly with an average time on the market of 8.1 weeks, down from 9.4 weeks this time a year ago.
Restricted supply spurs bullish asking prices
Latest data from the RICS shows that the UK’s stock of properties for sale remains relatively low and was 5% lower in May than a year ago. Lack of supply and rising demand is having the inevitable effect of increasing prices.
However, Garrington believes there is a risk that vendors could cause sales to stall by increasing asking prices too rapidly. Interestingly, Rightmove indicate that London’s asking prices have risen nearly 11% in the first half of the year whilst the South East’s have risen just under 15% – could this be an example of sellers in the Home Counties getting carried away? Garrington feels it is too early to tell, but we would point out that despite seasonal growth in the volume of sales in the UK, the year on year transaction volumes are still down by over 8% when compared to the same month in 2012.
The new norm
During the month of June IMLA published some thought provoking research carried out by the University of York, on the future of transaction volumes within the mainstream UK market. Their findings suggest that what some may view as a fragile market in the midst of recovery, may now be the norm for the next 10-15 years.
Whilst market data universally records low transaction volumes in recent years, this report highlights the fact that the current level of funding available (£144 billion) means this lower volume has very little opportunity to increase. The UK has a reduced number of lenders offering largely repayment mortgages and we are unlikely to see a relaxing of their lending requirements which are now far more strict in relation to deposit size, income multiples and affordability.
Despite short term Government initiatives and mortgage product innovation, the findings suggest that overall funding is likely to see only modest growth. Whilst the market may edge back up to £200 billion over time it is unlikely to ever reach its 2007 peak of £363 billion again, and therefore transaction volumes are likely to remain constrained at their current ‘downsized’ levels.
Whilst the findings may be applicable to the mainstream market, Garrington however believes that the same cannot be said of the Prime UK market which is far less credit reliant and has seen a further surge in recorded transactions. Across the UK, sales volumes of property over £1 million are up 21% on 2012; a figure that has reached 28% when looking at London alone.
Unlike previous years, market momentum is likely to be supported over the summer by a still fragile but improving economic climate. The British Chamber of Commerce June Confidence Survey shows UK manufacturing has registered its strongest growth in 2 years and that the service sector has registered its fastest growth in domestic sales since 2007. With Mark Carney taking over as Bank of England governor at the start of July, we will comment next month on the early signs of how any policy changes may be affecting the prospects for the UK economy and property market.
Whilst Garrington does not anticipate a stalling of the market over the traditionally quiet summer period, there will undoubtedly be a seasonal lull in activity as the holiday season begins. An element of the overpriced stock in the market may be withdrawn for re-launch in the autumn and other elements will agree sales at reduced values in order to be able to enter the autumn market in the best possible position to agree their onward purchase.
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