London's Sales Volumes on Life Support: will the UK's follow? (Aug 2018)

Our grim headline isn't an exaggeration - London's sales volumes are flat-lining to a critical extent (see below) and, rather like the hackneyed idea that the UK follows the US in many of its activities a few years later, the worry is that what is happening in the capital will arrive at the rest of the UK's doorstep in the not-too-distant future.

With just 5,272 sales recorded for May, sales volumes for London and therefore related conveyancing-related activities in London were at their lowest since May 2009 (5,011), which was in the immediate aftermath of the property crash of 2008 which accompanied the global financial crisis.

Additionally, year-on-year volumes in the metropolis have fallen every month since last September and the month-on-month picture reveals a decrease in 7 out of the last 10 months.

Less surprisingly property prices in the capital fell to £488,574 for July - the latest month's figures available from the Land Registry - but prices have been falling both year-on-year and month-on-month for London for the last two months and month-on-month, prices have been falling in 10 out of the last 13 months.

London's price falls in the luxury end of the market have been well-documented and undoubtedly have had a considerable effect on the average. London's peak average prices were reached last July, when they hit £488,574.

Sales volumes for England & Wales, at 53,313 reached their lowest figure since April 2013 (52,528). Year-on-year, sales volumes were down for the 5th consecutive month and month-on-month, volumes have fallen for 6 out of the last 8 months.

The sales volumes for April 2013 however were recorded when average prices were much lower than they are now however, at £176,900.

Average prices in England & Wales hit £239,921, their highest ever, but the 2.8% rise was the lowest year-on-year increase since July 2013 (2.4%).

The Bank of England's latest inflation figures coupled with the latest figures from the Office for National Statistics reveal that people are, in these terms, slightly better off.

Inflation has maintained a 2.5% year-on-year rise for the last 3 months, whereas average salaries have been slightly rising, at 0.2% month-on-month for the last month.

We've frequently flagged up and mortgage lending falls in our reports in the last few months. Normally they are accompanied by simultaneous rises in lending in the remortgage market, which we've surmised as people generally choosing to stay put rather than, for example move up the property ladder.

However for July, mortgages fell to 64,768 from 65,374 for June and remortgages also fell to 44,775 from 47,395 for June. Remortgages had been rising year-on-year for the preceding six months.

Some of this decrease in applications and subsequent lending might be explained away by the time of year, as people take their annual vacations.

As stated, remortgages have generally been performing well compared to mortgage rates, however the recent fall-off in the former may well be explained by the increasing popularity of longer duration fixed rates.

In simple terms, if you've taken out a fix that lasts for say 5 or even 10 years rather than 2 or 3, you won't have to get a new fix for considerably longer and additionally you're at risk of an early repayment charge for a longer period if you close your deal before the fixed term expires. To exacerbate this further, the early repayment charges tend to be significantly higher for longer time period fixes.

The Mortgage Advice Bureau recently produced figures showing that increasing numbers were opting for longer term fixed rate mortgages. The Bureau's data showed that 2 and 5 year fixes remained popular, however 10-year fixed terms were clearly increasing. Another large mortgage lender produced figures that showed that 40% of remortgage applicants were seeking a 5-year fix.

In terms of supply, more mortgage lenders have been developing these longer fix products and this increasing number has made the lenders make these products more competitive, in order to attract attention. Whereas previously borrowers would have to pay a considerably higher interest rate to lock in for a long period, at present the difference between a 10-year fix and a 2-year fix can be as little as 1% in terms of higher interest rates.

Consumers are seeking out these longer fixes for a variety of reasons but particularly out of a belief that interest rates are due to rise. Mark Carney, the Bank of England's Governor, has stated that he intends to ratchet up interest rates gradually, without being specific as to exactly when. Brexit uncertainty may well also be a reason why people want to be more assured that their monthly repayments won't be rising for a longer period.