Date 19 July 2011
According to the recent DCLG market report house prices fell 1.2% in May. Nationwide reported no change to the market in June whereas HBOS’ index actually recorded a 1.2% rise during the month, but that still equates to a 3.5% drop on a year ago looking at the 3 month average, or a 1.1% drop if you prefer Nationwide’s figures.
By and large whichever index you care to follow the picture isn’t pretty and it doesn’t look set to change any time fast. Property search engine Home records that around 85,000 house prices were cut in June and experts predict that property prices will slide further to the year end as demand remains low, the clear result of challenging economic circumstances faced by many.
And it’s not just prices that are falling, transaction volumes have tumbled too and it’s taking longer for the average property to sell, 113 days according to reports 13 days longer than 12 months ago. HMRC’s figures for the first quarter of this year show sales figures of 173,000 compared to 459,000 near the top of the market in the last quarter of 2006.
It is expecting too much though to presume that there will come a point where prices will drop to a level at which the public will decide they want to start buying at again? Certainly that time doesn’t appear to have reached us yet and there is little to suggest too much optimism for the months to come. Mortgage approvals have not improved at any pace since the worst of the recession. Figures for May show circa 46,000 approvals which is actually low down the scale for the last 18 months. At best the market looks to be treading water.
It is however very easy when faced with a new set of unappealing statistics seemingly on a weekly basis to only see the clouds. There are though some signs of life in the housing sector, not least for property developers. The DCLG reported that as of May 2011 new property prices had risen 7.8% over 12 months, many people’s desire for a brand new home and the continued difficulty with land supply available to developers is helping to push prices up in the new build sector.
Another silver lining is that property prices are coming more into line with people’s salaries as, taking into account recent falls, property prices have risen by only around 10% in the last 5 years, 50% less than the average salary increase and thus property must be becoming more affordable, in stark contrast to the price rises of over 75% in the preceding five years which vastly outstripped wage improvements. That view overly simplifies matters however and ignores the fact that buyers often require deposits of tens of thousands of pounds to be able to buy with the current dearth of higher loan to value deals available, certainly at competitive rates.
Price Waterhouse Coopers latest analysis suggests that there is only a fifty-fifty chance of property prices getting back to 2006 levels by the end of the decade. For those who bought near the top of the market that is likely to be a scary prospect but no doubt will be welcomed by many who have long seen property prices as dislocated from income.
Whether you see the current lull in the upwards march in property values as an opportunity or a challenge will probably come down to a number of factors but key amongst those will be Deposit. If you are sitting on decent savings or have equity in a property currently then with mortgage interest rates being relatively low at lower loan to values then no doubt the current situation may create opportunities, but for the first time buyer without a large deposit the possibility of getting on the housing ladder remains a tall order.
If you would like more information or advice relating to a specific matter, please do not hesitate to contact Steve Kenneford on 01727 798052 or by email at steve.kenneford@salaw.com.
© SA LAW 2011
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