9 Jun 2016
Author: Stephen Breen
What’s happening to house prices
Recent surveys have shown house prices are still on the rise, fuelled by low interest rates, low mortgage rates, rising employment and a lack of supply. However, the last few weeks have seen a decline in price growth, and concerns around Brexit have fuelled some uncertainty in the market.
Areas where growth is strong
The big cities have seen a 4.2 per cent growth in the first quarter of 2016 which was the highest in 12 years. Property analyst Hometrack believes this was influenced by buyers attempting to complete their purchases before the stamp duty rules changed in April.
After the April deadline had passed, the growth in urban house prices slowed, although didn’t stop. London, Cambridge and Bristol have all benefited from double-digit rises in 2016 up to May, with Cambridge taking the lead, attributable to its affordability over the capital and attractive commuting distance.
Looking across the Country, price growth was strongest in the South and weakest in the North with the Midlands in between. Some locations including Liverpool have not followed the trend however as a lack of supply has driven demand. Price rises here continue, but at a slower rate than the South. A two bed flat in the City Centre can be bought for around £200,000 and will typically deliver a rental yield of between 4 and 6 per cent.
Properties under the £1 million mark have seen the strongest growth in London. The growth is also higher where buyers are British owner-occupiers, with foreign investors hesitating because of the forthcoming referendum. Consequently smaller flats in good value areas are going well, while lavish properties that would often be snapped up by overseas buyers are remaining on the market.
The areas seeing the greatest price growth per square metre over the last five years are in the parts of London that attract young professionals with Waltham Forest, Greenwich and Lewisham heading up the pack. In these areas, house prices have nearly doubled.
New London developments have seen popularity with the apartments at Berkeley’s One Tower Bridge being snapped up by British buyers. With apartments ranging from £1.475 million for a one-bed up to £3.6 million for a penthouse, these areas offer better value than the more elite districts and have good transport links.
Outside of London, the areas performing well are those with decent schools, facilities and transport links. Oxfordshire, Bristol Bath and Harrogate all continue to prove popular, with prices rising for farmhouses, cottages and rectories. By contrast, manor house prices are dropping in line with the trend towards homes under the £1 million mark.
Seaside towns such as Southport have also seen growth.
Areas where growth is weak
Lavish country houses are lagging when it comes to house growth with properties above the £2 million mark seeing the worst in terms of growth. In the first quarter of 2016, the value of homes over the £5 million mark fell by 2.7 percent vs. the same period last year. However, overall country houses have dropped by around 14 per cent since the financial crisis and consequently there has been increased interest in these now good-value properties. Young families in particular are looking at these homes as a prospect, attracted by good schooling nearby and the availability of more space.
In the North, country houses can offer exceptional value and properties priced under the £800,000 mark are doing well. For a little more than the £1.5 million required to purchase a 1 bed flat in London, you could pick up an A listed 6-bedroom hall with 68.5 acres and stables. Properties like this which have good links to major cities including fast trains to London are an increasingly attractive prospect.
The lag in the foreign investor market has also presented some bargains in some of London’s poshest districts. Property data company LonRes reports that prices in the £2 – £5 million range were down by 9.7 percent in the first quarter versus the same period in 2014, and some properties over the £5 million mark went for 8 per cent less. There was at least one price reduction during this period for nearly half the prime London properties, before a buyer was found – and on average, prices were 9.1 percent under the asking price.
RICS report a slowdown in buyers’ inquiries which are falling at their fastest rate since August 2008. The British Bankers’ Association have also reported a drop of 8.6 percent in mortgage approvals for April. This can be attributed to a number of factors: the previous month’s increased activity before the stamp duty changes, uncertainty as to Brexit, tighter lending criteria, rising prices and a drop in confidence as both UK and global economic growth slows.
Some predict that house prices are inflated and a correction is long overdue. Fathom Consulting note that the house price to income ratio in the UK is close to its pre-recession level and significantly over long-term average. To bring the ratio back into balance, household income would need to grow ten times its current pace for the coming five years, or house prices would have to fall by up to 40 percent.
Prices will undoubtedly be affected by the outcome of the referendum, with many predicting a slump in prices should we vote Brexit. Polls are currently suggesting a leave vote is likely, and Hometrack suggest this could result in a drop of 5 to 10 percent in housing turnover, with London affected the most. Areas where there is shortage of supply are likely to be less affected by a leave vote. On the flip side, a vote to remain should boost confidence and result in further house price growth, particularly in cities such as Leeds, Birmingham and Manchester where the demand remains strong.
The holiday period follows the referendum and it is usual for the market to subdue during this time anyway – which some could blame on Brexit. Analysts have emphasised the importance of taking a longer term view – a bounce back in Autumn or otherwise will be the mark of whether the market has been affected by the referendum vote.