Thursday, 23 September 2021

Shortage of homes on the market pushing up prices

With the market slow throughout 2015 after the last stamp duty shake-up, and a lack of properties on the market generally, LUCY BOON asks what can we expect to see as the year unfolds

With the market slow throughout 2015 after the last stamp duty shake-up, and a lack of properties on the market generally, LUCY BOON asks what can we expect to see as the year unfolds...

THE property market has become an increasingly quiet place. House-hunting is like looking for a needle in a haystack as the number of homes for sale has plummeted to a new record low, in turn driving up prices.

House prices in the South East will see an increase of seven per cent over the course of next year according to the Royal Institute of Chartered Surveyors’ housing forecast for 2016. This is higher than the national average increase of six per cent.

This is a view shared by many, including Halifax, which said the lack of homes for sale, combined with continued low mortgage rates and economic growth, are likely to continue to drive housing market demand in the near future.

Halifax housing economist Martin Ellis said: “Increasing demand is combining with very low supply to drive robust underlying house price growth. There is little reason to expect any fundamental shift in the key market drivers over the coming months.’

Evidence suggests some people trading up the property ladder are keeping their current home as an investment and renting it out, meaning it does not come back on to the market.

The Royal Institute of Chartered Surveyors (RICS) said the lack of choice was now beginning to deter potential buyers from entering the market at all.

Simon Rubinsohn, RICS’ chief economist, said of a recent RICS residential survey: “I can’t recall a set of comments in a survey which have so frequently drawn attention to lack of stock on the market.’

The situation is also beginning to distort the housing market in certain regions, with sellers asking unrealistic prices.

At a local level, Stephen Christie-Miller, head of office residential at Savills Henley, said: “Demand remains highest for properties priced up to £1million where stock is relatively low and this is where we continue to see the most activity.’

Most agents agree that the 2014 stamp duty changes really knocked the £1million to £3million market in 2015, and this shows no sign of changing as 2016 progresses.

Land Registry figures from last summer show that sales of homes worth more than £1million plummeted 26 per cent year-on-year, and the £2million-plus market slumped 38 per cent.

Mr Christie-Miller said: “The residential sales market in Henley continues to be divided. At the top end of the market, the stamp duty levies introduced on December 4, 2014, continue to deter buyers at the £.1.25million-plus level of the market, which is where the impact of stamp duty has been most keenly felt.’

In fact, Savills has predicted that the timing and pace of interest rate rises, coupled with patterns of economic growth at a regional level, will dictate the distribution and sustainability of any increases.

Mr Christie-Miller added: “Whilst also challenging, we are continuing to see activity at the very upper end of the market, but interest at this level is dictated by best-in-class and location properties and relies on a buyer being able to find a new home which exactly fulfils their criteria.’

Perhaps the situation at the upper end of the market can be summed up by one particularly motivated owner who last year offered to pay the buyer’s stamp duty for them, after struggling to find a buyer.

In this case, the stamp duty in question was a history-making £8.9million — the duty on the vendor’s £75million Hyde Park property, being sold through Savills. (The vendor said the bill would have “just’ been £5.4million under the previous regime.) Back to 2016, and some agents feel the situation with stamp duty regulations will eventually sort itself out and help smooth out the market.

One said: “Most willing sellers and buyers will find a compromise. For 2016, at the higher end of the market, I believe there will be increased activity as buyers get used to budgeting for the higher stamp duty levels introduced in 2014.’

However, others feel the system needs to be readjusted. One London-based agent said: “The stamp duty changes brought in to show that the coalition [government] was not afraid to tax the wealthy has been a disaster. It has slowed down the market and the government will make less money as a result.’

Romans says it thinks homeowners not putting their houses on the market because they can’t see anywhere else they fancy living will also continue to play a part in the low housing stock/house price growth situation in 2016.

In a poll the agency commissioned, it found that 89 per cent of people said finding their next home is harder than selling their existing one and almost 50 per cent don’t plan to put their own home on the market unless they have seen another they would like to buy or their search reveals there are lots of possibilities.

“In high-demand areas this is starting to cause a property gridlock,’ said an agent at Romans’ Hart Street branch. “With the supply of homes for sale low and demand remaining strong, prices are being pushed up — textbook economic law of supply and demand — resulting in more concerns for homeowners who are sceptical about the marketplace, and delaying their move further.

“For many, once they’ve decided to move, the biggest challenge is finding their next home and they don’t feel comfortable about putting their house on the market until they do.

“However, it’s a vicious circle, as homeowners are not putting their houses on the market because they are concerned by the lack of stock available and affordability of making a move, which in turn pushes prices up even more.’ At the upper end of the scale house prices are also rising, with more detached properties selling than any other property type in most of the areas Romans covers.

This is partly down to the ripple effect generated by London’s property market, which is resulting in many house buyers leaving the capital for its surrounding regions in search of more cost-effective property.

And yet, as we’ve already said, according to the RICS annual housing market forecast, local house prices are still set to increase more than the national average.

According to a recent poll by Romans, many house hunters were expecting the rises anyway, with 75 per cent expecting house prices will rise in 2016 — slightly less than the same poll 12 months earlier, when 89 per cent predicted house prices would rise in 2015.

Vincent Courtney of Romans said: “The fact that prices will continue to rise in 2016 is no secret. There is simply no good reason why they wouldn’t: demand from buyers is stronger than ever, there isn’t enough supply to satisfy the demand, and there are nowhere near enough new-builds. But how much will they rise by? I believe house prices will rise by five to 10 per cent in most of the towns we cover and the increases will predominantly be seen in the first half of the year.’

Philip Booth of Philip Booth Esq says: “I think 2015 has been a challenging year for many estate agents, particularly those that rely on volume sales, as the numbers just haven’t been there. I am fortunate that as a small independent estate agent I don’t have the pressure that some of my peers with high overheads are experiencing.

“The reduction in the number of homes coming to the market in Henley has also had a knock-on effect with asking prices, which have continued to go up.

“With a plethora of estate agents in the town all vying for instructions in a market that has seen lower stock levels, naturally some agents have bought stock by giving high values.

“This has led to some properties sitting on the market for many months or being reduced by tens of thousands of pounds to meet the demands of financially savvy house buyers.’

Mr Booth predicts that as the year rolls out the housing market in general will be more steady, with the number of transactions increasing against 2015 figures.

He said: “Family homes in Henley between £500,000 and £1million will continue to receive strong demand from local upsizers and London buyers.’

Edward Welton, a partner in the country department at Knight Frank, made his own prediction for the prime market: “With changes to the stamp duty coming into play in April, affecting second homes, we see the first quarter of this year being a busy time at the top end of the market.’

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