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Trellows Property Market Update March 2023

Trellows Property Market Update

Trellows Property Market Update March 2023

An overview of the UK residential property market

Summary

This month saw the 11th interest rise in 15 months, taking the base rate from 0.1% in December 2021, to 4.25% a rise of 4,250%. The current rate may not be high by historical standards and still remains lower than the median average, but following 15 years of historical lows, that have resulted in much higher borrowing overall, the effects of the increase have had an enormous effect on borrowers, as the larger average mortgage has amplified the effects of the increase, but how does this affect the market overall?

Background

This month, the UK base rate has risen to its highest level since 2008. There are many contributing factors to  the need for the base rate to rise, although it was inevitable that the base rate has been at a historical low since the last financial crisis and therefore, it was only a matter of time.

In real terms, the current rate of 4.25% is having a greater impact on borrowers that it would have done in the past, due to the higher earning to borrowing ratio, as the value of mortgages has risen exponentially.

With inflation for 2022 ending at over 10% (although it much higher in real terms) and although it was predicted to fall this year, the latest figures for March, confirmed that contrary to falling, inflation had risen to 10.4% which signalled the latest rate rise.

The true impact of higher borrowing costs along with the general slow-down of the property market has not made its way to the public forum yet, as there is long time lag between agreed sales and published figures.

The sales that are completing now, are still for the main part, sales that were agreed before the disastrous mini-budget, that rocked the money markets, it then takes upwards of three months from the point of completion before figures are published on the land registry website.

The figures that we do have, indicate that on average, property is already at or below the figure it was at he beginning of 2022, with further falls on the horizon.

However, if we then factor in an anticipated compound inflation rate for 2022-2023 by the end of this year, that is on course to be in excess of 20%, then we can see that in real terms, property need only fall by 10% which is being accepted to be a minimum, by most of the industry pundits, whether they admit it openly or not, for house prices to end the year 30% lower than they were at the start of 2022.

In addition to this, there has already been a fall in wages(adjusted for inflation) of around 5% minimum, with the possibility of a further 5% fall by the end of this year, which has seriously effected affordability.

The inevitable fall in prices, is not by any means anything to be alarmed about, the combination of affordability, due to inflation and lower wages (when adjusted for inflation) in addition to all the other factors within the UK economy, but should we be alarmed by this and expect a property meltdown?

The short answer is no, there is always a correction in property prices at some point in the cycle and this is simply that time now. The impact of exiting lockdown, rocketing energy costs and an over-heated market, thanks to the stamp duty holiday have contributed to the ‘perfect storm’ which should not come as any surprise to any of us.

London property market snapshot

Interest Rates 2020-2023

Average house price change since 2007

Average UK house price annual percentage change was 6.3% in the 12 months to January 2023

Completed house sales 2015-2022

The average house price change since January 2023 is even steeper than the fall in 2008.

statistic id290623 monthly completed house sales volumes in england and wales 2015 2022

As we can see, July 2022, was clearly the peak of the current cycle, with completions falling to their lowest level since 2008 (with the exception of the lockdown)

Additional contributing factors

The Renter’s Reform Bill’ is expected to get through parliament in the next few months, which will transform the rental market significantly. This on top of the Section 24 income tax act, has contributed to an exodus of buy-to-let landlords from the market. Although there is an increasing entry in the buy-to-let market by the corporations, (15% of property sales in 2022, were to institutional investors) with Lloyds Bank declaring that it intends to be the UKs largest landlord by 2025 and even Tesco making an entry in the ‘Build-to-Rent’ market, these institutional investors are not likely to be taking up the properties off-loaded by exiting buy-to-let landlords.

On top of this, there is the anticipated raising of the minimum EPC rating for rental properties, from the current ‘E’ to a ‘C’ in 2025, although this has yet to be confirmed. This has certainly added fuel to the fire, with over 60% of rental properties in the UK being rated ‘D’ or lower, the cost to landlords could be prohibitive.

In addition to this, yet more bad news for landlords, has been the recent increase in the ‘stress-test’ by most buy-to-let lenders. When this was introduced, it was set at 125% of the rental income, that is to say, that the rent needed to be at least 125% of the prevailing interest payments. However, many lenders have increased the rate to as much as 141% in recent months, which added to significantly higher rates, many landlords are failing the stress tests and therefore unable to re-fix with a better deal, leaving them exposed to BTL variable rates, which are as high as 9%.

All this factors combined have spelt disaster for the thousands of individual BTL landlords.

Conclusion

Whilst the current situation may seem to be the recipe for Armageddon in the property market, there are also many reasons why the market will not grind to a halt.

First Time buyers:

There is without doubt a growing number of first time buyers, who should be very careful about buying at this time with a small deposit of course, as they risk finding themselves in negative equity for the next few years, but as the slide in prices begins to ease, there will be a tipping point, where those who can, will begin to enter the market..

Next Time Buyers:

Regardless of the situation in the property market, this need not be an obstacle to those who need to move and for those moving upwards, there could even be a benefit. The key here is to ensure that you are using a good estate agent, who is not only going to be realistic about the property market, but one who will also work hard to ensure that your property is noticed amongst the increasingly growing number of properties coming to market.

Albeit in lower numbers, properties are still selling, but it is only those that are priced realistically that are finding buyers. The key for next-time-buyers is that although they may need to take an offer lower than they had hoped for, that drop can/should also be reflected (in percentage terms) on the property that they are buying.

If you want or need to sell, in the current climate, the worst thing that sellers could do, is to go on the market too high, the longer that their property is on the market, the lower the final selling price will be.

Investors

There is a large number of investors, already looking for a bargain, but far more who are waiting for the fall to level off, before they begin to enter the market, therefore many of the properties that are either on the market, or due to come to market this year, will find buyers, albeit at a lower price, which will cushion the fall.

Demographics

The ownership of property has changed significantly over the last two or three decades, with an increase in numbers who are either renting, or mortgage free. Those who need to rent, will continue to do so, regardless of the rising rents, even if many do decide to resume living at home, the demand for rental properties continues to out-strip supply.

These two factors combined, result in the effects of higher interest rates impacting a smaller percentage of households in the UK, therefore the likely hood of the housing crisis of the early 90s, where thousands of homeowners were handing back their keys, very unlikely.

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Central London Market Update April 2022

West London house prices map

Central London Market Update April 2022

The state of the market in Central West London

 

The average property price in West London postcode area is £1.1M. The average price declined by £-190.1k (-14%) over the last twelve months. The price of an established property is £1.2M. The price of a newly built property is £702k. There were 5.5k property sales and sales increased by 9.2% (497 transactions). Most properties were sold in the over £1M price range with 1650 (30.0%) properties sold, followed by £500k-£750k price range with 1348 (24.5%) properties sold.

West London postcode area England and Wales
£1.1M £342k
average property price average property price
-14% 5%
average price percentage change average price percentage change
£-190.1k £15.8k
average price change average price change

West London house prices map

West London property sales share by price range

London house prices ‘overvalued by up to 50%’

Official data for January reveals the average price fell by 1.8% to £510,102

London’s property market is “overvalued” by as much as 50% and this has raised fears of a “looming correction”, The Telegraph reported.

S&P Global Ratings, an American credit rating agency, told the paper that “a combination of low rates, the stamp duty holiday and excess savings amid the pandemic have driven property prices higher, particularly in London and the South East”. Researcher Alastair Bigley warned that prices were likely to fall. “We expect a greater correction in property prices in an overvalued market,” he said. Meanwhile, outside London, S&P estimated that property was overvalued by 20%.

According to the latest house price index issued by property website Rightmove, the average home in London now costs £664,400. And the average time it takes to sell a home in the capital dropped from 68 days to 57 days in February – “another sign activity is picking up”, said the London Evening Standard.

Rightmove’s data also revealed that the UK house price average is now £354,564 – the first time it has exceeded £350,000.

Property prices fell by 1.8% in January

The average property value in London was £510,102 in January 2022 – down 1.8% from December 2021, according to official data published by the HM Land Registry and the Office for National Statistics (ONS).

Regional data from the house price index revealed that London saw the lowest annual price growth, an increase of 2.2%, and the 1.8% dip was the most significant monthly price fall.

The London property market is one of the most robust markets in the world. The market is still being affected by a combination of factors that will take a long time to balance out.

Firstly there was Brexit, which resulted in less demand for housing in the capital, as many companies and workers either put their plans on pause, pending a clearer picture of how leaving the EU will change things, then there was the lockdown, a once in a lifetime event that came out of nowhere, forcing companies to switch to a work from home policy that changed the demographics significantly and with many workers still not travelling in to work, the city is still not back to normal.

Another consequence of the lockdown, was the number of EU workers who decided to leave, figures suggest that this may have been up to one million in London alone. This was then followed by constant uncertainly about the pandemic and to top it all, February the 24th saw the invasion of Ukraine by Russia, which has resulted in a significant fall in investment from the Russian market as sanctions were imposed. This happening at the same time as high inflation caused by the bounce-back along with the first interest rises in a long time, as the markets deal with massive price rises, due to delays in the supply of materials around the world, post-pandemic.

Despite all these factors, which are referred to as the ‘perfect storm’ London is still holding up relatively well and there will no doubt be a striking point where investors will begin to enter the market in larger numbers, placing their money in to one of the safest markets in the world.

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Bedfordshire Market Update April 2022

Bedfordshire House Prices- Map

Bedfordshire Market Update April 2022

An overview of the property market in Bedfordshire

 

Properties in Bedfordshire had an overall average price of £340,159 over the last year. The majority of sales in Bedfordshire during the last year were semi-detached properties, selling for an average price of £326,370. Terraced properties sold for an average of £269,621, with detached properties fetching £501,950. Overall, sold prices in Bedfordshire over the last year were similar to the previous year and 8% up on the 2019 peak of £314,356.

This unprecedented price level is being stoked by the greatest imbalance between buyer demand and the number of properties available for sale that we have ever measured at this time of year. This is the strongest spring sellers’ market that we have ever seen in several metrics. Tim Bannister, Rightmove’s Director of Property Data comments: “There’s a hat-trick of reasons for home-owners to follow the normal trend and make it their goal to sell this spring. Firstly, the potential to achieve a record price for their property.

“Secondly, the imbalance between high buyer demand compared to low available property supply is the greatest that we have ever seen for the start of a spring market, meaning that the chance of being able to pick and choose between several suitable buyers is strong. Thirdly, the proportion of properties finding a buyer within the first week is also at an all-time high for this time of year, so sellers with an appropriately priced and well-presented property can expect a shorter marketing period than the norm. Those who weren’t ready to take advantage of last year’s rush now have another chance to get on the market while these conditions last.”

There are now more than twice as many buyers as sellers active in the market, which is the biggest mismatch between supply and demand that we have ever recorded at this time of year. The speed of the market is further demonstrated by the fact that are there more than one in five (22 per cent) deals being agreed on Rightmove within the first week of being marketed.

This is double the figure for the same period in the more normal market of 2019. Almost half, 47 per cent, are having a sale agreed within the first fortnight, another indicator of high demand and the likelihood of finding a buyer quickly. While these unprecedented numbers are helping to drive prices to new records, they do also show that there are a number of properties that will remain on the market after this time and that may benefit from a price reduction.

BEDFORDSHIRE ENGLAND & WALES
£334,000 – Average Property Price £342,000 – Average Property Price
2% – Average Percentage Change 5% – Average Percentage Change
 £6,700 – Average Percentage Change £15,800 – Average Percentage Change

 

 

PROPERTY TYPE OTM SSTC % SSTC AVAILABLE % AVAILABLE
ALL 7,524 5,218 69.35% 2,306 30.64%
HOUSES 5,235 3,841 73.37% 1,394 26.62%
FLATS 1,699 987 58.09% 712 41.90%
BUNGALOWS 476 323 67.85% 153 32.14%
LAND 67 45 67016% 22 28.20%
COMMERCIAL PROPERTY 177 118 54.12% 89 32.83%

 

Bedfordshire-property-sales-share-by-price-range
Bedfordshire-property-sales-share-by-price-range

Bedfordshire house prices

 

Bedfordshire-real-house-prices

Bedfordshire-real-house-pricesCOMMENT

The Bedfordshire property market, whilst not the most active in the country, seems to be benefiting from sustained growth, with very little evidence that this will change. This is very good for confidence, which adds to the sustainability of the growth.