Market Update July 2013

There have been a number of reports in recent weeks indicating growing confidence in the property market with signs of prices rising and attractive mortgage rates encouraging those that have been waiting to see now, as the time to make their move. Mortgage rates are at very low levels and, for those with the ability to pay, borrowing is an attractive option when house price increases are rising at greater levels than interest rates being paid.

The Government has been working hard at introducing initiatives designed to get more fluidity into the property market. They have already introduced their help to buy scheme on new homes which has made buying a new home easier and is encouraging developers to start building in greater volumes.

January 2014 will see the next phase of the help to buy scheme come into play when the Government will act as “guarantor” to first time buyers who have the income to borrow but not the deposit to put down to secure the tighter loan to vale ratios that lenders are insisting on.

This may see people who are currently renting as tenants take the opportunity to purchase their first home rather than stay in the private rental sector.

These initiatives together with Funding for Lending, which is designed to enable lenders to distribute funds more readily, are undoubtedly having some direct effect and a clear indirect effect on the market in terms of increasing confidence.

Key will be increasing the supply side of the equation and this will need to come from building and refurbishing more homes, bringing empty homes back into use, creating homes from unviable commercial buildings and possibly from some landlords stepping away from the rental market as increasing house prices will see lower yields resulting. Many people became landlords because they were unable to sell and buy but changing conditions are likely to see this position change.

The number of properties in the UK that are owner occupied has fallen in recent years to around 67% of households (from a peak of around 73%). I expect this decline to stop and that owner occupancy rates will slowly rise again as the economy recovers and borrowing (whether Government supported or not) becomes easier.

In regards the private rental sector, this remains buoyant with good demand although the last brick on the chimney in terms of rent is showing signs of having been achieved and new tenancies and renewals are being made at strong but affordable rental levels.

The Government has also been busy encouraging a vibrant private rental sector with finance available for Build to Let schemes.

It is anticipated that the private rental sector will continue to grow slightly and will peak at around 20% of UK households in the next three years.

The Government has just released a report saying that energy efficient and “green” homes are showing signs of attracting much higher prices than those that have not been brought up to standard.

The Government can claim thousands of properties by way of research but I cannot help but think that this report was released to try and boost their flagging Green Deal initiative which has seen little take up since inception.

These reports are however misleading in that there may not have been much direct take up of the Green Deal but many people are investing in energy saving home improvements by spending savings or using mortgage finance (which is generally cheaper than Green Deal finance).

The Government’s claims that more energy efficient homes attract higher prices is also probably true but down to a combination of factors, not least of which is the fact that, when improving a home, owners will tend to automatically do so in an energy efficient way (new heating systems, double glazing, extensions to the latest building regulation and codes etc.).

People who have invested in making their homes attractive and in top condition naturally see higher prices for their properties which, I believe, is being interpreted (I have resisted the word manipulated) by the Government as being as a result of the energy improvements only when this element, whilst important, is only one of a series of reasons for a higher price being obtained.

In conclusion, the market looks set to continue positively for the forseeable future and, with some slow signs of improvement in the wider economy, confidence is growing.

A few good sporting victories over the Summer period to provide even more of a feel good factor will be the icing on the cake.

Peter Lawrence
Managing Director