January 2018

6 min read

House prices to fall in 2018! First Time Buyers Rejoice!

London shows the way...

London's prices are the bellwether, we think, of a general property price fall in England and Wales, to address the first part of our headline.

London's property prices have declined to an average of £481,915 for November (the latest month's figures available from the Land Registry) and have fallen for the last 5 months from July 2017's peak of £489,618.

Sales volumes (the most recently available month's figures from the Land Registry are for September 2017) for the capital give no indication that this trend will change. There were 6,494 sales in the capital in September, down 20.1% from August 2017 and down for the last 4 months out of 6 month-on-month.

Year-on-year figures for volumes for the capital give even more foundation to the current trend. Sales were down 21.5% compared to September 2016 and down in 15 out of the last 18 months: this last statistic being shared with the year-on-year sales volume picture for England and Wales.

...and England and Wales follow

Prices once again rose to their highest levels ever in England and Wales - £237,990 for November. The actual rise, however, was barely perceptible and month-on-month, prices have been broadly flat since September.

Prices rose 5.3% year-on-year for the two countries for November and year-on-year rises have remained at between 5 and 6% since November 2016.

But the sales volume picture argues for a possible turning point coming for England and Wales, as has happened in London. Volumes, at 68,598, fell month-on-month in September, by 14.3%, and this fall has been observed for the 2 out of 3 of the last 3 months.

The fall was a similar percentage year-on-year, at 14.4%: the stark fact is that volumes were some 80,168 for September 2016, 11,570 higher. And year-on-year falls, as stated, have been observed in 15 out of 18 of the preceding months.

First time buyers rejoicing already?

We hope that first time buyers, as others, will enjoy price falls and greater volumes of property available as the year goes on, all other things being equal, helped by the turning point that looks imminent. Many commentators, perhaps in despair at the continuing dire news in the UK housing market, have greatly played up the increase in proportion of first time buyers observed in December.

'First time buyers 'take advantage' says NAEA report

The National Association of Estate Agents' December housing market report stated this, about first time buyer numbers:

"First Time Buyers took it upon themselves to take advantage of the quieter month, as the percentage of sales made to the group increased to 32%...This is the highest rate seen since September 2016 when it stood at 32% again, and up from 27% in November."

The increase in first time buyer share of the total market is cause for optimism and a number of market observers have stated the importance of Chancellor Hammond's introduction in November of first time buyer stamp relief in encouraging this.

The NAEA report itself provided further context however, stating that demand for housing fell by 20% in December, with 268 prospective home-owners registered per member branch, down from 333 in November.

"Housing demand shrank 20% in December." (NAEA)

We're buying later and borrowing for longer: English Housing Survey

The recent English Housing Survey (Headline Report 2016-17) gave evidence of some stark changes in the nation's housing habits.

In 2016-17, the average age of first time buyers was 33 years, up from 30 in 2006-07, according to the survey. Alongside this, 52% of first time buyers now have a mortgage of 30 years or more, up from 40% last year.

The latter figure indicates that mortgage lenders are starting to adjust to the reality of people buying later, working to a greater age and living longer. Those at this hypothetical average first time buying age who've recently taken out a 30-year plus mortgage will, on present projections, be subject to a retirement age of 68, giving them in theory enough time to pay their mortgages off.

Huge drop in home ownership levels for under-45s

The English Housing Survey revealed that the number of under-45s owning their own homes has dropped by more than a million since 2010.

In 2009/10 some 4.4 million under-45s owned a property in England; that figure fell to 3.41m by 2017.

Owner occupation by those in the 25 to 34-years-old age group has gone from 57% in 2006/7 to 37% 2016/17
Source: English Housing Survey January 2018

And people are staying put...

The survey also revealed that whereas 10 years ago, people on average stayed in the same property they owned for 15.8 years, they are now staying in it for 17.5 years.

As we've reasoned in a number of our previous reports, this trend is clearly evidenced by both mortgage and remortgage data.

And house buying is only for the richer first time buyer

The survey also stated that only those first time buyers in the upper two quintiles of wealthiness have sufficient resources, including those from parents and inheritances, to get on the housing ladder.

Mortgages AND remortgages fall: Bank of England

Mortgage numbers continued to fall in December and for the 3rd month in a row, according to the most recent Bank of England statistics.

There were 61,039 mortgages granted in December, which is the lowest mortgage approval rate since February 2015.

While remortgages have seen rises in recent months, they actually fell in December for the first time in 9 months, when some 46,975 were granted.

It seems not only that people are continuing to stay put rather than move, but also, for the moment, people are even 'drawing in their horns' when staying in the same property, perhaps in response to November's 0.25% Bank of England base rate rise.

Clear trouble in the upper reaches of the market

News also emerged of a relative crisis in the luxury property market in London.

It transpires that half of London's new build luxury flats fail to sell, with developers having some 420 towers in the pipeline despite there being up to 15,000 high-end flats still on the market, according to media reports.

According to one prominent estate agent, 58% of property demand in London is for homes priced at below £450 per square foot, but only 25% of homes are being built at this price.

Additionally, those in the middle of the market are also suffering, according to many observers. Another prominent property market professional estimated in media reports that some households would have to spend £250,000 to move 'up the ladder' to a larger house, once transaction costs were added to the property price.

It looks almost as though the key to solving the horrendous impasse in the UK housing market is, all other things being equal, for prices at the top to continue to fall, creating room for the middle to trade upwards which in turn leaves room the first time buyer to get on the ladder. Perhaps 2018 will prove to be the time of the great correction in the UK housing market!

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