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Thursday, 23 May 2019
HOUSE prices in the three months to October were 1.5 per cent higher than in the same three months a year earlier, according to the Halifax House Price Index.
However, this represents the lowest rate of growth since March 2013 — by comparison, the annual rate of growth recorded in September was 2.5 per cent.
House prices in the latest quarter (August to October) were 0.2 per cent higher than in the preceding three months (May-July) and on a monthly basis, house prices rose marginally by 0.7 per cent in October, following two consecutive monthly falls.
The average UK house price is now £227,869 according to the Halifax.
The figures mirror those released by Nationwide at the start of the month which showed house price growth had fallen from two per cent in September to 1.6 per cent in October — far below the two per cent to three per cent range characteristic of the past 12 months.
In the meantime, monthly UK home sales remain flat. In the three months to September, sales were unchanged from the previous three months.
The volume of residential transactions has been broadly flat over the past year and is likely to remain so in the coming months, according to HMRC’s seasonally adjusted figures.
Halifax managing director Russell Galley said: “The annual rate of house price growth has fallen from 2.5 per cent in September to 1.5 per cent in October — the lowest rate of annual growth since March 2013.
“However, this remains within our forecast annual growth range of nought to three per cent for 2018.
“House prices continue to be supported by the fact that the supply of new homes and existing properties available for sale remains low.
“Further house price support comes from an already high and improving employment rate and historically low mortgage rates which are creating higher rates of relative affordability.
“We see this continuing to be the case over the coming months and we remain supportive of our nought to three per cent forecast range.”
Meanwhile, international real estate adviser Savills has identified affordability rather than Brexit as the major factor affecting the UK housing market over the next five years.
UK house prices are set to rise broadly in line with incomes between 2019 and 2023, but the traditional North-South divide will turn on its head, with the Midlands, North and Scotland expected to see the strongest increases, according to the firm’s latest long-term forecasts.
Brexit will continue to impact sentiment over the short term, particularly in London and its commuter belt, but local market affordability is expected to determine the pattern of price growth over the longer term, says Savills.
Between 2019 and 2023, UK house prices will rise by an average of 14.8 per cent, the firm projects, ranging from 21.6 per cent in the North West to single digit growth in London and the South — by far the strongest performers since the downturn — due to affordability constraints.
Values in the capital’s prime market will perform much more strongly, given price adjustments already seen in this market since 2014, according to Savills.
Other regions were much slower to recover in the wake of the global financial crisis and some have only recently returned to peak values. House prices are therefore more affordable, with greater capacity for loan to income ratios to increase.
Lucian Cook, Savills’ head of residential research, said: “Brexit angst is a major factor for market sentiment right now, particularly in London, but it’s the legacy of the global financial crisis — mortgage regulation in particular — combined with gradually rising interest rates that will really shape the market over the longer term. That legacy will limit house price growth, but it should also protect the market from a correction.”
Transactions, rather than house prices, are often seen as the ultimate measure of market strength. Sales volumes have fallen only 6.9 per cent since the Brexit vote to 1.145 million, demonstrating the resilience of the UK housing market in Savills’ view.
The firm expects this figure to decrease by just one per cent over the next five years. But a continued rebalancing of the composition of the market is expected, with mortgaged buy-to-let investor purchases falling by 23 per cent.
This will add to upwards pressure on rents, particularly in London, as investors look to lower value, higher yielding markets.
In the capital, house prices have risen by 72 per cent over the past 10 years — well ahead of any other region. The average home buyer with a mortgage now pays just under £429,000 and has a household income of almost £76,000 (58 per cent higher than the UK average). Even with borrowing at over four times that income, these households still need a deposit of £123,000.
Small falls (-3.5 per cent) are expected in London’s mainstream market next year, before values bottom out in 2020 and tick up steadily from 2021. Price growth over the next five years is forecast to total 4.5 per cent.
The prime London markets are less dependent on mortgage borrowing and will outperform the mainstream, Savills predict.
The UK capital is expected to remain an attractive place to live, work and own residential assets, supporting 12.4 per cent price growth in prime central London by the end of 2023.
At this point in the cycle, the highest price growth is expected in the lower value markets much further from the capital, which have seen nothing like the 10-year price rises seen in London – just 1.9 per cent in the North and 5.8 per cent in Scotland.
The Midlands, the North of England, Yorkshire and Humberside, Scotland and Wales all have the capacity for borrowing to increase relative to incomes, even allowing for higher interest rates, and this will support price growth ranging from 17.6 per cent to 21.6 per cent across these regions.
Key regional economies — most notably the metros of Manchester and Birmingham — have the capacity to outperform their regions attracting both local and investor buyers.
Wales will perform in line with the Midlands as it has done in previous cycles, but it is a hugely diverse market. There may be increased housing demand crossing over from Bristol once the Severn bridge tolls are abolished.
Scotland, which has only recently returned to pre credit crunch peak, is performing strongly, particularly Edinburgh and Glasgow, which have seen prices rise 8.9 per cent and 7.0 per cent over the past year, respectively.
Transactions - by buyer group:
Transactions have fallen from 1.619 million in 2007 to around 1.145 million this year, but are forecast to remain stable over the next five years, though the market mix has changed.
Cash remains king and cash buyers now account for almost a third of all sales (31%). The bank of mum and dad has provided important support to first time buyer numbers and, judging by receipts from the three per cent surcharge for additional homes, cash is also an important component of investment demand, Savills says.
Mortgaged first time buyers, the only buyer group to have expanded since 2007 – from 359,000 to 370,000 this year – continue to be supported by Help to Buy and the bank of Mum and Dad. Numbers are expected to remain robust despite the prospect of a less generous, more targeted Help to Buy, with a fall of just -2.7 per cent anticipated by 2023.
Mortgaged home mover numbers have fallen dramatically since 2007 as existing home move home less frequently. Numbers are down from 653,000 to 370,000, but having adjusted for stress testing of borrowing, are expected to remain constant over the next five years.
Buy to let buyer numbers will continue to come under pressure. Stamp duty and mortgage-interest tax relief changes have led highly leveraged investors to rationalise portfolios or pay down debt.
Rental growth to outpace income growth:
Rental growth is expected to track house price growth, averaging 13.7 per cent over the next five years. Tightening access to mortgage finance and limited social housing supply is driving demand for privately rented homes at all price points. This is particularly true in London, where rents will rise by 15.9 per cent.
“Until the market sees a significant injection of build to rent stock, rental demand will outstrip supply and rents will rise. Investor buyers requiring borrowing are expected to focus on higher yielding markets and this will put further upwards pressure on rents in some of the most expensive rental locations,” Cook concludes.
Savills forecasts for UK mainstream market 2019-23:
UK house prices to rise 14.8% from 2019-2023, with significant regional variation
Ranging from 21.6% in the North West to single digit growth in London (4.5%), SE and East (9.3%)
London’s prime market will perform more strongly, with prime central London +12.4%
Transactions to stabilise, with first time buyer and cash buyer numbers most resilient
Rents to rise 13.7% over next 5 years; London rents +15.9%
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