March 2018

8 min read

Base rate increase set to worsen a flat housing market

For the month of March, overall housing market statistics for England and Wales revealed little to cause optimism, and a housing market which might be further flattened by another base rate rise.

Base rates last rose in November 2017 by 0.25% to 0.5%, a rise which, although seeming small, was significant in that rates had not changed since August 2016, when they fell to 0.25%. The signs – and sounds – from Bank of England Governor Mark Carney suggest strongly that another 0.25% rate rise is likely in the near future.

How would a 0.25% base rate rise affect first time buyers' monthly repayments?

Housing market pundits focus frequently on the plight of the first time buyer and reasonably so, given that new first time buyers are essential to the health of the market.

According to one source (see below), first time buyers on average at present have to shell out £189,840 for their first property. At present rates, with a nominal 2-year fix of, say, 1.84% for a 25-year mortgage and with a 10% deposit, a first time buyer would have to repay £709.68 each month.

If we add 0.25% to the base rate and therefore to the fix rate and keeping all other factors equal, this would become £730.04. This may seem small, but given that on balance, wage rates are not rising and further base rate rises may be in the pipeline, it indicates that potential first time buyers examining their choices may well be wise to exhibit increased caution at the present time.

Prices falling in England and Wales, sales volumes continue on flat trajectory*

In England & Wales, the average property price has fallen month-on-month; for Jan 18 it was £237,026, a mere 0.5% down on last month's £238,169, which was the highest price recorded ever. Prices were up 4.6% year-on-year.

Sales volumes fell for the 3rd month in a row, both month-on-month and year-on-year, to 68,325. This has not been the case since the period June 2008 to September 2008 (4 months). Volumes declined 7.2% month-on-month and 12.6% year-on-year.

However in contrast, for the period September 2017 to November 2017 (for which there are the most recently-available figures), prices actually rose 0.2%, whereas for the earlier 4-month period, prices fell 5.8%.

For London, prices rose between December and January, by 1.0% month-on-month and 2.1% year-on-year, to £485,830, although this price is still sort of July 2017's peak of £489,305.

The story regarding sales volumes is, however, similar to that of the rest of the country: volumes fell to 6,165, 14.4% down month-on-month and 24.6% down year-on-year, and for the 3rd month in a row. The last time volumes fell for a 3-month duration was during the months August 2016 to October 2016. During both sets of periods, prices fell; for the earlier period, by 0.2% and for the most recent period by 1.3%.

Mortgage and remortgage figures give further evidence of a slowing market

House purchase lending is down 5% month-on-month and 7% year-on-year (and down year-on-year for the 5th month in a row), with 63,910 loans being granted for February 2018 (the latest month's available figures).

Remortgages were also down month-on-month, by 4.4% but rose year-on-year by 3.9%; 46,622 remortgage loans were granted in February (volumes for both are seasonally adjusted). While we've come to expect remortgages to grow at the expense of mortgages, as people are tending to stay put and improve the houses they're living in, these have themselves fallen month-on-month for the last two months out of three, possibly reflecting a tendency by banks to restrict lending against flat wages.

Regarding buy to let lending, its share decreased to 12.7 per cent in the last quarter of 2017 – the lowest percentage for more than five years.

Wage rises cancelled out by inflation

Inflation to February 2018 was up 2.7% year-on-year and up 0.5% month-on-month. Salaries up 2.8% year-on-year and up 0.2% month-on-month to January 2018 (most recently available month's figures). On this measure, living standards are flat, with inflation wiping out any wage gains on average, so consumer spending power regarding houses has not risen to any extent.

NAEA: first time buyer percentages up...but in a shrinking market

According to the National Association of Estate Agents, sales to first time buyers rose in February – sales to this group rose to 29% of all sales in February from 27% in January. Year-on-year, sales were the best since February 2015. Last year they stood at 22 per cent and in 2016, only 24 per cent of sales were made to this group.

The NAEA presented this finding as a sign that the Chancellor’s FTB stamp duty relief was having a positive effect, although given that sales volumes fell overall by 7.2% for England and Wales (see above), it's hard to view this statistic as robust.

How will the Land Transaction Tax affect First Time Buyers in Wales?

First time buyers are set to get no relief when buying properties in Wales from April 2018 when the Welsh Revenue Authority takes over from HMRC as the organisation which sets property bands and tax levels for the new Land Transaction Tax (LTT) which takes over from Stamp Duty (SDLT).

Click if you're looking for a Welsh Stamp Duty (Land Transaction Tax) Calculator

Of itself, this may be viewed as a negative for first time buyers, and a significant one given that Wales generally accounts for around 6% of all monthly sales volumes for the whole of England and Wales.

However, there may be a rise in the number of first time buyers in Wales because of the change in the banding and charges which the land transaction tax has ushered in.

Currently, the average price of a property in Wales is £153,034 (for January 2018, the most recently-available month's figures for Wales) and the new banding system in the region means that there's no land transaction tax to pay for a property of this price because for main residential properties priced up to £180,000, LTT is set at 0%.

LTT for the next band, from £180,001 to £250,000, is charged at 3.5%, which is higher than the 2% stamp duty rate for England for this price range, however the argument follows that first time buyers might generally opt for properties priced at the average price or below it.

On balance therefore, it is difficult to forecast the overall effect of the new LTT regime for first time buyers in Wales, although the fact that there is no land transaction tax relief for first time buyers, as there is for stamp duty in England, may not cause a fall-off in purchases for the reasons explained.


NAEA: demand and supply down, but more properties being sold for asking price

Demand was down month-on-month, with the number of prospective house-hunters falling by 16% in February, from 367 registered per branch, to 309. It was also down by 28% year-on-year, agents had 425 house-hunters registered per branch in February 2017. Supply fell in line with demand.

Some 74% of properties sold for less than asking price, with just 4% selling for more than asking price and the rate of properties which sold at asking price stood at 22 per cent – the highest level since June 2016, when 26 per cent of properties went for asking price.

However, the fact is that nearly 2/3 of all properties are still being sold for less than asking price, which indicates a continuing dysfunctionality in house pricing policy.

Asking prices hit record high in the UK for first time buyers

The average asking price of newly marketed properties in the UK increased by 1.5% or £4,503 during March meaning first time buyers on average face paying an all-time high price of £189,840 according to a recent Rightmove report.

Factor in another Bank of England base rate rise and the prospect becomes even less rosy for them, as examined above.

Buy to Let Property Hotspots – Liverpool riding high

Totally Money produced a list of the postcodes with the highest yields recorded for buy to let properties, based on a survey of 500,000 dwellings.

Liverpool took the top three spots and the top 10 postcodes are as follows:

PostcodeAreaAverage percentage rental yield

Andrew Boast, SAM Conveyancing's CEO and Co-founder, said:

"There are more frequent media reports about the housing crisis from a variety of stakeholders, which is to be welcomed. However, as always, where the Government is concerned, talk is cheap. It's becoming increasingly hard to fathom why sales prices, despite these bottoming out, have not fallen further, although asking price data makes some sense of this.

"In many other markets, the phenomenon of goods generally being sold for three-quarters of the asking price, and consistently so, would raise eyebrows, and reflects the unworldliness of the current property market. It's difficult to be optimistic regarding any signs of rising first time buyer participation in the market, particularly in the face of a shrinking market overall. Housing market professionals can only hope that Mark Carney exercises extreme caution regarding the timing of any future rate rises because the housing market in particular is floundering."

* all figures quoted are the most recent from the Land Registry unless otherwise stated.

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