July 2018

Housing market practitioners have reason to be optimistic in terms of the Land Registry's latest figures for house prices and sales volumes with both metrics showing rises. 

The Bank of England has, however, raised interest rates by another quarter of a per cent, to 0.75%, which on face value makes all borrowing, particularly mortgages, more expensive. But how much is the rate rise likely to put off a would-be borrower?

According to the Bank of England, some 43% of homeowners are on variable or tracker rates, so most of these will see a rise in their monthly repayments resulting from the Bank's move (those who won't include those on capped rate mortgages).

However that leaves a much larger 57% of borrowers who are on fixed-rate deals, which will not be affected immediately, meaning that any pain is going to be offset for the present.

Additionally a massive 90% of new home owners are on fixed deals, with these taking on the largest loans. They will, however, face higher repayments eventually when their fixes come to a finish.

The following graph, from Nationwide, estimates how much more people will have to pay in mortgage repayments given the rate rise. It's worth bearing in mind that the average first time buyer loan (not including those using Help to Buy) is currently around £217,000 according to Money Supermarket; the actual rises might not seem significant, but many people's household budgets are already stretched.

Average house prices in England and Wales have hit a new peak, at £237,884 for May (the most recently month's available figures), and, notably, sales volumes have also recovered by 6.1% month-on-month, to 61,571 for March (the most recent month's available figures). However this volume increase must be treated cautiously: these are the fourth lowest monthly sales volumes since January 2017. Year-on-year, March's sales volumes were down 21.4%.

Average house prices in London rose to £478,853, a marginal rise of 0.1% month-on-month and still considerably lower than July 2017's peak of £487,225 as well as being 0.4% down year-on-year. Sales volumes, however, showed a considerable 4.9% month-on-month rise, to 6,180 for March – the largest since June 2017 (14.2%) – but still down 28.6% year-on-year.

Wages are marginally increasing, to £26,884 (gross) per year (for March, the most recently available month's figures, from the Office for National Statistics, and inflation is currently steady, with the consumer price index for June, 105.9, unchanged from May (the most recently available month's figures from ONS). Consumer buying power might therefore be recovering, if weakly.

Mortgages have shown a small monthly increase (1.4%), with 65,619 approvals for June (most recently available figures for the Bank of England) whereas remortgages have declined 4.5% month-on-month, falling back to 47,895. This is the largest month-on-month fall since December 2017 (14.4%). However, the year-on-year trends must be taken into account: by this measure, mortgages have fallen for the 9th month in a row and remortgages have increased for the 6th month in a row.

SAM Conveyancing and many other commentators have taken the view that an increase in mortgage lending tends to run alongside an increase in sales activity in the housing market and equally that remortgage activity represents the inverse i.e. people staying put rather than moving.

Once again, in parallel with this month's sales volume and price increases in both England and Wales and the capital, these mortgage/remortgage figures may indicate a recovery of sorts in the industry, however the trend would have to be continued and with greater amplification.

The National Association of Estate Agents' most recent housing market report, for June, flagged up that the proportion of sales to first time buyers had increased, by 5%, to 29%, the highest amount recorded since February.

According to figures from UK Finance, a lobby group for the financial services industry, there were 32,200 new mortgages completed for first-time buyers over the month of May, an increase of 8.1% year on year, and the £5.4bn of new lending was up 12.5%.

However, the number of new buy-to-let mortgages fell by 9.8% in May compared with a year earlier to 5,500. Lending was £700m, 22% lower than for May 2017.

The NAEA's report, while providing further evidence that sales volumes were increasing, also noted that demand from prospective buyers decreased from 351 in May, to 308 in June. This was the lowest number of buyers recorded by the NAEA since March this year and 20 per cent lower than June 2017, when 384 buyers were registered per branch.

The NAEA also noted the continuation of the trend for most houses being sold at less than asking prices, with some 79% falling into this category.

A prominent large UK lender noted that mortgage products it had sold to self-employed applicants doubled during the six months to 30th June 2018, giving more evidence that lenders have successfully started to develop products to this growing sector.

Additionally, 40% of all mortgages on offer are now arrangement fee-free, up from 33% two years ago, according to Moneyfacts.

Radical proposals for leaseholds from Law Commission

• options for reducing the price that leaseholders pay to the landlord such as by changing the formula used to calculate the cost, following the Government’s request to set out ways that the price could be reduced
• improving the right for leaseholders of houses to buy the freehold from their landlord
• introducing an alternative right to purchase unlimited longer lease extensions without a ground rent – of (say) 125 or 250 years
  
• making the enfranchisement procedure simpler to understand, to minimise disputes and prevent leaseholders falling into legal traps
  
• removing the requirement that leaseholders must have owned the lease of their house for two years before making a claim
  
• potentially scrapping whether leaseholders should contribute to their landlord’s legal costs, and if not, capping the contribution at a fixed maximum amount
  

Subscribe here to get our monthly Housing Market Update:

Email Address *

First Name

Last Name