Market Update

As we approach the end of 2013 it seems a sensible time to both reflect on the property market during the year and to express a view as to what we can expect in 2014

Overall 2013 has been a much improved year for the residential property market locally with both sales and lettings activity and transaction numbers at strong and improved levels.

Interest rates have remained at historic lows throughout the year and, following the new Bank of England Governor Mark Carney’s announcement, look set to continue at these levels in the year ahead.  As the economy continues to improve and unemployment rates drop (the Bank of England has set a target of 7%) there will be pressure on interest rates to rise.

Recent inflation, growth and employment reports show that the economy is beginning to move forwards and consumer confidence is increasing.

All markets are largely built on confidence and the signs are encouraging.

The Government has launched Help 2 Buy in order to assist people with upward moves in the market or to take their first step into home ownership. The first phase of the scheme has been in operation for some time and relates to the new homes market, providing a loan to buyers to bridge the gap between 75% mortgage lending and 95%.

This has seen developers enjoy greater numbers of sales and there are some signs that the volumes of new homes under construction are rising, albeit still at levels well below any reasonable estimate of requirements.

The second phase which will really start to have an effect in 2014 applies to all housing up to £600,000 and sees the Government “underwrite” mortgage lending between 75% and 95% by way of a mortgage guarantee.

The intention is to get many more people on the home ownership ladder and to allow those existing home owners with low levels of equity to trade upwards. In simple terms it will facilitate those with good incomes but low amounts of cash to buy.

The cost of borrowing a high percentage loan to value is significantly higher than a loan at a lower loan to value level but we have undoubtedly seen a significant increase in activity and enquiries as a result of the scheme’s introduction.

Of course, if the supply side of the equation does not improve, then prices will inevitably rise and there is a concern, particularly in London and the South, that a “price bubble” may be created with potentially dangerous future consequences.

At the present time it is difficult to predict any effect on the supply side but my anecdotal view is that a greater number of properties will come to the market in 2014 as sellers realise they can move more easily than in recent years and they look to take advantage of the attractive mortgage deals currently available. 

The rental market remains strong with tenant demand still ahead of supply although there are some signs of a slowdown in the numbers of tenants looking for accommodation. It is likely that, as the second phase of Help 2 Buy becomes more established, that this situation accelerates as some tenants, primarily those with good incomes but low levels of savings and who wish to “put down roots”, will take the opportunity to buy rather than rent.

Consequently, current rental levels have remained strong although the rate of increase has slowed and both landlords and tenants are being more discerning in ensuring that the transaction is right for both parties. The average length of a let has increased and now stands at over two years.

The introduction of Help 2 Buy phase two may also see some landlords who had entered the market through necessity rather than choice, exit now that the sales market is improving although many more landlords are taking advantage of increases in capital values to extend their portfolios and, whilst yields as a percentage may fall slightly over the coming months and rental returns are not likely to increase significantly, they remain strong and, coupled with likely capital growth, buy to let investment looks attractive.

Overall, the private rental sector is an established market of choice for many and I expect this to continue as the economy recovers.

To conclude, 2013 has been a year of progress in both the economy and the property market with transactional volumes increasing and confidence growing.

I hope we will see a little more growth in the supply side during 2014 with more properties coming to the market as this will both help meet demand and keep prices moving forward on a sensible and not overly inflated basis.

Peter Lawrence
Managing Director