Saturday 3 September 2016

Is everything we know about the property market wrong?

Post-Brexit chaos? Priced–out first-time buyers? The latest round of stats suggest we might need to revise what we think we know about the property market.

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There are certain truths about the housing market that hardly need repeating, they are so widely accepted. First-time buyers can’t afford their homes (a recent survey by Halifax revealed that in some parts of Britain house prices are on average more than 12x local earnings), there’s a shortage of rental properties pushing up rents (new research from referencing company HomeLet reveals the average cost of renting outside London rose by 5.1 per cent in the 12 months to April, while in the capital it rose by 7.7 per cent) and, a particularly juicy one, post-referendum uncertainty is going to cause the housing market to crash and burn (former chancellor George Osborne warned that house prices could fall by between 10 per cent and 18 per cent in the event of a leave vote – an average drop of £50,000 in the first two years). 
Yet in the last few days a number of reports have shown that all those firmly held beliefs could be wrong. In fact, new Nationwide figures show that house prices actually rose in the weeks following the vote, although the building society was quick to point out that this does not necessarily mean everything is rosy.
Robert Gardner, Nationwide’s chief economist, said: “The pick-up in price growth is somewhat at odds with signs that housing market activity has slowed in recent months. New buyer inquiries have softened as a result of the introduction of additional stamp duty on second homes in April and the uncertainty surrounding the EU referendum.”
At the very least, the situation is rather more complicated than we thought. Here’s why:
First-time buyers are buying
There’s no doubt that it’s a difficult time for new buyers. Recent research from the Resolution Foundation shows that home ownership is at its lowest level in 30 years and analysis from the Priced Out campaign reveals that 3.5 million people are trapped in rented accommodation because of unaffordable house prices. In fact, while 31,000 buyers have been assisted by Help To Buy, a further 258,000 were priced out by house price rises in the scheme’s lifetime alone.
However, while there’s concern that government help is simply supporting rising prices with its new buyer help, there has undeniably been positive movement in the market.
The number of first-time buyers achieving a mortgage on their first home in June was up 17 per cent compared to the same month last year, according to figures from the Council of Mortgage Lenders.
“First-time buyers are continuing to drive house purchase lending, outperforming home movers for the third month running. More loans were advanced to them in June than at any time since August 2007,” commented Paul Smee, director general of the council.
Rents are stable (for now at least)
The rental market also remains complicated, with rising rents pushing many tenants into difficulties or forcing them to move frequently. The Priced Out campaign warns that renters pay 30 per cent of their income on accommodation, rising to 43 per cent in London.
High rents have been attributed to supply outpacing demand, thanks to insufficient home building and people renting for longer. There has been speculation that the Brexit vote, combined with changes to landlords’ tax breaks will harm the supply of private rented accommodation 
However, new analysis from the Association of Residential Letting Agents (Arla) shows that in the month following the Brexit vote rental supply rose to the highest level so far this year, up 5 per cent on the previous month.
That number is still down 3 per cent on the same month last year, but it at least seems to indicate that the situation is not deteriorating further or faster.
David Cox, managing director of Arla, says: “Supply is up, as we’d expect at this time of year, and the number of tenants experiencing rent hikes hasn’t changed in three months. While we obviously need new houses to balance the growing gap between supply and demand, what’s positive is that the situation isn’t worsening as a direct result of June’s Brexit result.”
The post-Brexit (lack of) blues
House prices have not dropped off a cliff following the Brexit vote. The latest Nationwide survey of prices shows that they edged up 0.6 per cent between July and August, bringing the annual rate up to 5.6 per cent.
Alex Thorpe, managing director of the estate agent comparison site netanagent.com, says the lack of an immediate property market reaction to the Brexit vote is because that relies on sentiment. And sentiment is positive.
“Despite warnings pre-Brexit, we have seen homeowner confidence remain steady,” he comments. “It’s easy to ignore the fact that there are a large number of people in the UK who believe Brexit will benefit the nation and, whilst predictions have been dire, we’ve seen property listings and valuation requests on site remain stable, with little to no impact on our business.”
In fact, the company recently surveyed 1,000 UK homeowners and found that 40 per cent believe Brexit will not affect property value, while 5 per cent believe their home would increase in value specifically because of Brexit.
“There’s a quick jump to pin everything on Brexit, which is understandable, but it’s also too early. The data isn’t there to support a negative outcome and until it is – if it is – consumers will retain confidence. 
“Whilst Brexit has the potential to develop into a strong headwind, we have three powerful tailwinds, namely mortgage availability which remains solid, high levels of employment, and a chronic lack of residential property stock. These three combined continue to drive the property market.”
Many analysts agree that the shortage of housing is bolstering the market, with some even suggesting it’s the only reason prices didn’t plummet as predicted. That may be good news for home owners but it’s likely to cause future problems for tenants and first-time buyers.
Ian Thomas, co-founder and director at online mortgage lender LendInvest, says: “That house prices went up last month, despite the post-Brexit uncertainty, is a reflection of the sharp imbalance between supply and demand of property in the UK. 
“The House of Lords Select Committee on Economic Affairs suggested we need to build 300,000 homes a year to have a moderating effect on house prices, but last week’s housebuilding figures from the Department for Communities and Local Government show we are nowhere near that.”

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