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News: Short supply supports house prices November 2011 HAP Index

Tue, 15 Nov 11

The mix-adjusted average asking price for homes on the market in England and Wales remains unchanged since October, according to the Home Asking Price Index from Home.co.uk.

Sellers who cut their prices cut deeper in October, knocking a total £1.3 billion off the UK’s property portfolio, says the UK’s only independent forward market indicator.  Home prices fell in 7 out of 9 English regions and in Scotland and Wales during the last month, while Greater London and the South East showed gains.

The index, calculated using a weighting system based on the DCLG (formerly ODPM) Survey of English Housing Stock, finds that the autumnal slowdown in the UK property market is more acute this year than in 2010. Despite a fall in supply, homes are spending more time on the market and prices are flat overall. A total of 81,353 homes on the market had their prices reduced in October, with an average price reduction of £16,632 - the largest figure since December 2010.

Greater London and the South East are the exceptions to the gloomy national picture. Perhaps unsurprisingly, these property markets are relatively buoyant, benefiting the most from the financial bailout and foreign investment.

Mortgage approvals for purchase remain relatively unchanged year on year, while according to the CML, re-mortgaging and buy-to-let approvals are up significantly. The number of buy-to-let loans increased by 16% over the three months to the end of September, while the value of mortgages advanced in the sector went up by 19%.

In the year to September, repossessions totalled 27,500, down 4 percent on the year to September 2010, and therefore repossessions in 2011 as a whole were now likely to be below their 40,000 forecast, the CML said.

However, the poor economic outlook continues to haunt the UK property market. Jobless totals are rising and cuts in government spending look set to thwart any further market recovery. Consequently market sentiment across most regions of England, Wales and Scotland remains cautious.

The year-on-year (YoY) change in asking prices for England and Wales now stands at -0.1%, although when corrected for the effect of increasing monetary inflation (CPI or RPI) the real fall is worsening (ca. 7% per annum vs. RPI ex housing). Despite falling supply, the typical (median) time on market for unsold property has risen 7 days to 128 days since last month, and is now 10 days longer than in November 2010.

The current average time on market for unsold property has increased 2 days since November (now 212 days) and is 20 days longer than in November last year. Average marketing times for property continue to be considerably longer than those observed before the financial crisis (<100 days).

Market house prices in Greater London have been performing very strongly over the last two months, driven chiefly by a lack of supply. London may well have ended the long downward trend from the recent high in July 2010. However, London home prices show little or no change since November 2010 and are performing far behind rents, which show an average rise of 19.5% and median rise of 13.7% over the last year.

The typical time on market for Greater London showed no change this month when a seasonal rise would be expected. Shortage of supply and strong BTL demand will keep marketing times down and support prices over the coming months.

The 2011 price maximum for properties for sale in the North East fell a long way short of the 2010 high in October last year. The asking prices for properties in the North East are currently 1.8% lower than in November 2010, despite the fact that supply of sales properties is 22% down on last year.

Typical time on market in the North East is considerably higher than last year. The median time on market is now 179 days, which is 26 days longer than in November 2010.

Asking prices for homes in Scotland have fallen recently in line with seasonal expectations but remain 0.9% higher than in November 2010. Time on market in Scotland is 15 days higher than in November last year and has continued a rising trend suggesting that further price falls are to be expected. Supply of property for sale in Scotland is down only 7% on this time last year.

With London home prices showing little or no change over the last year (£1million-plus properties excluded) and average rents showing a rise of 19.5% (median rents up 13.7%) over the last year, it is hardly surprising that interest in buy-to-let is growing quickly. Lending to the sector is at a 3-year high and tenant demand is soaring.

According to the CML, 'in the third quarter, there were 18,580 loans for the purchase of buy-to-let properties, accounting for almost 12% of all house purchase loans. But the proportion remains significantly lower than the former peak in the first quarter of 2008, when 32,650 mortgages for buy-to-let property purchase accounted for 19% of all loans for house purchase.'

However, the proportion of loans to the BTL sector is growing quickly and if the trend continues the sector will account for 20% of all home purchase loans by 2015. However, as well as choosing the best rental property location the prudent investor must also take into account capital values, especially in an inflationary environment.

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