October 2016
25/10/2016
337
5 min read
October 2016 Review - Why have we stopped buying properties?
Last month we saw the effects on the housing market following the change in stamp duty for second home purchases (you can read September's review here - UK property sales in free fall) and the build-up to Brexit. What we now see from the latest data from the Land Registry UK House Price Index is a continued downward trend in overall house sales that we haven't seen since the property crash in 2009.
There were 60,683 registered property sales in England and Wales in June 2016, a fall of 32% compared to June 2015. This follows the declines seen in the previous months of April (-30.1%) and May (-33.3%). The hope that the second home stamp duty surcharge would only affect the first month after the event has instead linked up with Brexit to create an unstable housing market with sales in precipitous decline.
London saw greater falls in overall property sales with 5,966 registered property sales which is a fall of 46.7% on the previous year. This is the third consecutive month of volume decline compared to the increases observed for the same months last year and shows how extreme the London market is.
The stalling of house sales isn't linked to a shortage of properties, in fact August 2016 saw an average of 41 houses per branch registered with the National Association of Estate Agents (NAEA). It is more linked to the affordability to buy as house prices hit new heights.
There is huge concern for many of those working in the conveyancing industry as the market comes to grips with the changes to stamp duty, confusion around Help to Buy ISAs, Brexit nerves, speculation of a property crash, a fall in the pound and a move by the Bank of England to halve the base rate to 0.25% in August 2016. With everything that is going on and the slump in property sales, the question on everyone's lips has to be:
"Is this a blip, or are we seeing a realigning of the housing market?"
House prices ignore the fall in sales
If the Government's plan, by implementing the second home stamp duty tax, was to make more properties available by penalising buy to let investors, which would cause property prices to fall, thus making them more affordable for first time buyers, it can be said that the scheme has been an abject failure because while more properties are indeed available, prices have not fallen and remain stuck at very high levels.
Property prices in England & Wales reached an all-time high in August 2016 of £230,138 (8.9% higher than last year). London followed suit at £488,908 (12.1%) and neither are showing any sign of slowing down.
How long can we continue to see the average property price increase at this rate while the number of property sales decrease?
Supply of property on the up
The NAEA UK Housing Market Report for August 2016 stated "the number of houses available for buyers increased to 41 per branch in August; the highest level seen since March this year, when agents reported an average 54 properties registered per branch.". It went on to state "[the] number of sales made to first time buyers (FTBs) increased in August – from 25 per cent of total sales made in July, to 28 per cent".
Interestingly though, the number of registered new buyers looking for properties per member branch dropped from 298 to 287. This still shows a strong appetite to buy, however because average prices have reached these record heights, perhaps we have an impasse:
"An abundance of buyers unable to afford the glut of overpriced properties."
Decline in mortgage approvals
The Bank of England Statistical Release (published Sept 2016) stated that there were 60,058 house purchase mortgage approvals in August 2016, a fall of -15% compared to the previous year. This showed a similar 3 month downward trend, with June falling by -4.3% and July by -11.3%.
A fall in mortgage approvals can mean a number of things and the drop was not as marked as the overall sales decline, however the clear indication is that, by and large, the mortgage market has slowed down compared to the same time last year.
Are we still building new homes?
The answer is yes, however not at the rate being targeted by the Government. According to the Government House Building statistics there were 36,400 new developments started and 34,920 completed for the quarter April to June 2016. With an annual target of 200,000, the run rate for 2016 is set to finish on 135,120 completions; 64,880 short (-32%).
What is going on?
The housing market is in a slump with a drop in sales that many are linking to the stamp duty change and Brexit taking place too close to each other. Many experts expect to see this continue into July and August sales volumes as we see the effects of the nerves around Brexit. What is interesting to see is the continued strength of average house prices across England & Wales and in London, because the drop in sales seems to have had no effect on the matter.
In any supply and demand scenario you'd expect to see house prices fall as estate agents get to grips with the ever-increasing number of properties that remain dormant on their books. If properties don't sell, then negotiators will be going to their vendors and asking them to reassess their position on price in order to get buyers through the door. What is so curious is why it is taking so long to see price reductions.
Developers will need to pay special attention to this new housing market. It will be interesting to see if the supply of new properties continues at the current rate and if so at what sale price? Will developers follow any fall in average house price to align with the market?
It might be said that the housing market is sat stuck at the traffic lights, trying to come to terms with the green light of Brexit.
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