As activity levels in the property market normalise after the traditional summer lull, for anyone contemplating a property purchase there is a need for clarity and comfort on which way the market is likely to be heading for the rest of the year.
House price data over the summer months presented a mixed picture. Halifax has reported two months of solid house price rises – on both a quarterly and annual basis. Nationwide, on the other hand, have reported more sedate conditions in August with the annual rate of house price growth falling from 2.5% to 2%.
Across Garrington’s operating areas the picture we are seeing on the ground is that the market remains deeply polarised, with pockets of value and activity pulling different regions in opposing directions.
Rates rise – buyer interest holds
The Bank of England’s Monetary Policy Committee announced the widely predicted rise in the bank base rate on the 2nd August to 0.75%. This was only the second time that there has been an increase in interest rates in ten years.
Traditionally rate rises spelled the potential for a slowdown in the property market, but this small rate rise will only affect those on variable and tracker rate mortgages (around 3.5 million borrowers) and repayment cost increases for most are likely to be fairly minimal.
Any mortgages taken out in recent years, which have been subject to strict mortgage lending affordability criteria, should have factored in such an increase. Furthermore, the vast majority of new loans are on fixed rate deals.
Meanwhile base rates, while at their highest level for nine years, are still very low by historic standards and mortgage rates remain low. The question potential borrowers will be asking though is, is this the start of further increases?
Given this potential, instead of cooling the market, there is a real possibility that the threat of future rate rises may well spur on hesitant buyers to proceed with their moving plans whilst relatively lower fixed rates still remain available.
Back to school
The new school year is underway for over 10 million children across England and Wales and school catchments continue to rate highly for many choosing a home. How much more are home buyers prepared to pay to live close to an Ofsted rated outstanding school?
An analysis of property sales across England and Wales (excluding London) over the last year reveals a 10% price premium associated to homes close to an outstanding primary school and a significant 17% price premium associated to an outstanding secondary school.
Properties located within one mile of an outstanding primary school sold for, on average, £22,686 more than properties within one mile of other schools, the price premium for secondary schools was £37,558.
Detached houses attract the largest price premium, with buyers having to find an extra £90,000+ on average to live within one mile of an outstanding school. In London and parts of the South East this average figure further increases.
Recent industry research has estimated that parents are investing an extraordinary £2bn into the prime London housing market each year, as they look to secure accommodation while their offspring are at school in the capital.
For international buyers, the top three motivations for sending their children to school in the UK were; quality of education, prestige of school name – including perceived future employment prospects, and to improve their children’s chances of securing a place at Oxbridge or other top UK universities.
Changing property priorities
In addition to proximity to good schooling facilities one of the increasingly important criteria Garrington’s clients require from a new property is good broadband availability to work from home.
Working from home is increasingly popular, with almost a third of UK employees using computers for their job, working remotely either every day or at least once a week.
Remote working has the potential to alter the interior of our homes. There is mounting evidence to suggest that there may soon be a premium for new homes with built-in office space.
Homes in areas with superfast broadband are already in high demand. A recent poll found that 55% of UK house buyers would reject their ideal house if speeds were below 100 Mbps, with many willing to pay a premium.
London market turns a corner
The London property market is never far from the headlines and has been disproportionately affected by recent stamp duty revisions and its intrinsic links to both financial and international markets, which continue to be buffeted by painfully slow Brexit negotiations.
However, the latest LonRes Agent Survey reports a change in selling agent sentiment over the summer with 46% of respondents reporting a narrowing in the gap between vendor and purchaser expectations on price. This was also reflected in the difference between vendors’ initial expectations on price and those achieved in the last quarter. In prime areas of London, buyers paid an average of 9.9% less than the initial asking price, compared to 10.6% in the first quarter of 2018.
Price reductions also appear to be having the desired effect to attract purchasers, with 52% of homes sold in Q2 2018 finding a buyer following a price reduction.
By no means a barometer for the whole London market, but worthy of note is that Land Registry records reveal that an apartment at One Hyde Park has recently changed hands for a record-breaking £160 million over the summer, eclipsing the previous high-water mark by a £20m and evidence that there remains a level of enduring confidence in the ultra prime London market.
The benign nature of price movements over previous months has brought a much-needed level of stability to the market and as such it is reasonable to assume that the market is likely to be steady rather than spectacular as we head towards autumn.