Is the steam coming out of the property market?
Recent reports would seem to indicate a slowing down in the rate of property price increases and the changes lenders have made following the mortgage market review (MMR) have certainly added delays to the process of securing a loan as lenders go through a more detailed process to ascertain that any loans made are affordable by the borrowers.
There is often talk of the “ripple effect” that has, at its centre, Central London and whatever happens there tends to work its way into the wider UK market. Speaking with agents operating in Central London there is no doubt that there has been a “cooling down” of activity and the manic scenarios being seen only a few weeks ago with several buyers for every property have certainly reduced.
The Bank of England have also signalled that interest rates may need to increase a little sooner than previously forecast but have said that any rises will be small and incremental. Indeed the rhetoric from Bank of England Governor Mark Carney and his team is undoubtedly a major factor in “cooling the ardour” of prospective buyers and, of course, will help delay or mitigate any proposed upward movement in interest rates if the housing market steadies itself.
We are also less than a year away from a General Election and, in my experience, as we get closer to voting time there is likely to be a natural slowing down as the uncertainty of result causes people to “sit on their hands” and await the outcome.
At the time of writing however, the sales market remains strong as demand, in most price ranges, still exceeds supply. Yes we are seeing some slowing down of price rises (and there are now reports of some actual falls in Central London) but this is probably a good thing and property in prime locations is still attracting interest from large numbers of potential buyers.
Sales pipelines are at record levels but an issue that is causing concern is the growing delays in getting transactions from sale to completion. A combination of under resourced and over worked lawyers, the additional bureaucracy associated with getting a post MMR mortgage and the growing number of chains is causing estate agents pipelines of business to get “constipated” It is a fact that the longer a sale takes to exchange and complete, the greater the risk of something going wrong (a chain collapsing, a buyer changing their mind, unforeseen circumstances arising etc.).
Normally an estate agent would expect to “turn” their pipelines every 3 months or so. Currently the picture is one of pipelines of business only being “turned” every 4 to 5 months. This potentially has serious implications for cash-flow.
The lettings market is steady and has gone through a period of adjustment as many “accidental landlords” have taken the opportunity of an improved sales market to sell and realise their property value. Rising prices also means that yields effectively reduce although yields remain good in comparison to other investments, particularly when you factor capital value increases over the medium and longer term.
A lack of fresh supply is ensuring good rental returns are being maintained and many landlords are looking to grow their portfolios, a clear indicator that confidence in the sector remains high.
Increasing legislation and regulation affecting agents is, if coordinated and well thought out, probably a good thing with a need to ensure that standards in the lettings industry are at least as good as those in sales. We still have the ludicrous situation that an estate agent could be banned from practicing under the Estate Agents Act in the morning and could reopen as a letting agent in the afternoon. A clear nonsense!
Whilst new home numbers are increasing they are still pitifully below the levels needed to meet demand and this imbalance will help ensure that property values hold up and grow, albeit at more comfortable rates of growth in the weeks and months ahead.
Help to Buy has clearly assisted many, particularly first time buyers, to buy and has also contributed to improving confidence in the sector.
To conclude, my view is that the property market remains set fair for a good and positive 2014. I believe there may be some stuttering during 2015 due to the General Election but that the overall prognosis remains positive.