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Whats really going on in the housing market

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Fri 09 Feb 2018

Whats really going on in the housing market

What are buyers doing?
Halifax data released this week shows that UK house prices fell 0.6 per cent in January compared with the previous month, and that the number of homes sold last year was lower than in 2016. Mortgage approvals also fell sharply at the end of 2017.

Ishaan Malhi, the chief executive of Trussle, an online mortgage broker, says: “Inflation remains high and household incomes are stretched, so price growth may not pick up pace anytime soon.”

Those who are house-hunting are being “very choosy”, according to a Rightmove survey. Although asking prices are higher, homes in all regions are taking longer to sell than a year ago, says Miles Shipside, Rightmove’s commercial director. Properties are taking an average of 67 days to sell, compared with 54 days in May 2017.

What is happening to house prices?
The latest research from Nationwide showed a surprise increase in monthly house-price growth in January. As a result, the annual rate of growth edged up to 3.2 per cent, but the building society does not consider this a resumption of soaraway price appreciation. “Housing market activity is expected to slow only modestly, since unemployment and mortgage interest rates are expected to remain low,” says Robert Gardner, Nationwide’s chief economist. “Similarly, the subdued pace of building activity in recent years and a shortage of properties on the market are likely to prop up prices.”

What lies ahead?
Savills forecasts that the average UK house price will be 14 per cent higher five years from now, but this masks regional differences, which can be wide. Average prices could rise by 
18 per cent in the northwest by 2022, but by 7 per cent in London. In the short term, house prices in London are expected to fall over the next year (by 2 per cent), becoming stable in 2019, before rising sharply again in 2020. “Uncertainty over what Brexit means for the UK economy and how it will impact household finances increasingly acts as a drag on house prices,” says Lucian Cook, the head of residential research at Savills. “There is capacity for growth, but this will be constrained by rate rises and the corresponding ability to get a mortgage.”

JLL, the property consultancy, also blames uncertainty over Brexit for the direction of market movement, although it says that “irrespective of the Brexit discussions, the economy is set for several years of unspectacular growth”. JLL predicts that house prices will grow by 12 per cent over the next five years, and is far more optimistic about London than some, predicting 11 per cent growth over the same period. However, it says that in the prime central London market, where house prices have already declined, there is “still some adjustment to come” as a result of stamp-duty constraints.

How are first-time buyers faring? 
The number of first-time buyers is at its highest level since 2007, despite the average deposit doubling to £33,339. Numbers reached 359,000 in 2017, a sixth annual increase. Russell Galley, the managing director of Halifax, says: “Low mortgage rates, high levels of employment and government schemes have helped first-time buyers to become a wider segment of the market, and the recent abolition of stamp duty on purchases of up to £300,000 is likely to continue stimulating this growth.”

However, the regional differences are stark. In London the number of
first-time buyers has fallen by 25 per cent in the past decade. In the north the number has also dropped (by 5 per cent), but in the southwest first-time buyers make up 16 per cent more of the market. In London the average first-time-buyer property costs £422,580. In the north it is £126,437, in the southeast it is £278,749 and in the southwest it is £205,333.

Rightmove says first-time buyers have replaced buy-to-let investors, with investors making up 17 per cent of mortgages in October 2017 compared with 20 per cent the year before.

City living
The affordability of homes in UK cities is at a ten-year low, according to Lloyds Bank. House prices as a multiple of average earnings have risen from 5.6 in 2012 to 7 last year. The average house price has risen by 36 per cent in that time to £232,945. The least affordable city is Oxford, where average house prices are more than 11 times annual average earnings.

Cambridge, London, Brighton and Hove, and Bath are also among the least affordable, and farther north, York and Leicester have very high house prices compared to earnings. Stirling, Durham, Dundee, Liverpool and Newcastle are among the most affordable. Not one city from southern England made it on to the most-affordable list.