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April House prices

In varying degrees, all of the major lenders and professional property market bodies have been reporting signs that house price growth has been slowing during the course of the past couple of months. This isn't wholly surprising, since the majority of sector analysts had forecast that the market would soften somewhat in 2017. What is perhaps more striking is the recent extent of the downturn. Nationwide has now published its April house price index, and its findings are in keeping with this trend.

House prices in the UK are falling

The most striking figure contained in the Nationwide report was that house prices in the UK fell by 0.4 per cent in April. Nethouseprices readers will no doubt recall that the lender recorded a decline of 0.3 per cent in March. The average cost of a residential property now stands at some £207,699.

The annual rate of growth is just 2.6 per cent, down from 3.5 per cent the previous month. This represents the slowest rise in house price inflation for four years.

Lower volumes of mortgage approvals

Meanwhile, the British Bankers' Association (BBA) announced its mortgage lending statistics for February, and these were just as sobering: mortgage approvals fell from 42,247 to 41,061.

These numbers, taken at their face value, appear to run counter to the latest Council of Mortgage Lenders (CML) index, which found that mortgage lending grew by 19 per cent, to £21.4 billion in March. The disparity can be explained quite readily. The CML reports on completed mortgage deals, while its counterpart, the BBA, just reports on approvals which haven't yet been translated into actual home loans. Allowing for the typical time lapse between obtaining a mortgage approval and completing a house purchase, the CML figures for April and May will no doubt reflect more closely the BBA's February index.

Analysing the figures

The first observation is that the Nationwide report's finding that prices fell by 0.4 per cent was not predicted by the main body of economic thought. Most housing economists anticipated that the cost of residential real estate would rise in April, albeit at the minimal rate of 0.1 per cent. That prices actually declined, said Robert Gardner, economist at the Nationwide, was unexpected for the simple reason that the wider economy is remaining robust. Certainly, he conceded, factors like increased pressure on domestic finances this year were widely forecast to slow down house price growth, but they weren't really thought likely to drag prices down.

Discussing his organisation's April index, Mr Gardner said that monthly reports can reflect some temporary volatility, but the fact that we are now in our second month of decline in the property market suggests that this is a trend rather than a "one off."

Other commentary

Jeremy Leaf, a leading London-based estate agent, said that the figures simply showed that there was an overdue market correction taking place, reflecting the fact that prices have reached an affordability "ceiling" in many places across Britain.

Howard Archer, of IHS, argued that the index was compelling evidence that the market is slowing in response to pressures on consumer finances.

One feature of the market that might have been expected to buoy prices is the increasingly low cost of mortgage borrowing. In a recent Nethouseprices column, we covered the emerging consensus that a mortgage rates war is being unleashed. Cheap borrowing, goes the argument, will allow more people to spend more on housing. This, of course, is true as far as it goes, and no one would seriously deny that low interest rates have, to some extent, supported the market. That they won't result in runaway house price growth, though, is explained by the rigidity of post-Mortgage Review rules around affordability. In other words, says Jonathan Harris, a mortgage broker, lenders are required to apply strict tests to every mortgage request, in order to be sure that the borrower can realistically afford the mortgage repayments in the event that interest rates are hiked. This, in turn, means that, as low as interest rates may be, borrowers cannot overextend themselves and buy higher priced properties.


After months of mixed messages, it finally seems to be clear that the market is slowing. Uncertainty around Brexit is one of most oft-cited reasons for the sluggish performance of the sector. The upcoming general election might also induce caution among both buyers and sellers, though given the short lead time for the poll, this is unlikely to have a sustained impact on house prices. The general economy, which admittedly depends to a degree on the the outcome of the election, is believed to be key to the decline. Why?

Firstly, general price inflation is expected to rise to upwards of 2.7 per cent by the end of this year, which means that greater chunks of family finances will be used for everyday expenses, limiting both the savings and the confidence that are required to buy a house. This will be compounded by limited wage growth during the balance of 2017 and the probable contraction of the jobs market.

Secondly, the UK's economy is already showing signs of slowing, despite the fact that Brexit negotiations haven't really started in earnest. The Office for National Statistics (ONS) reported at the end of April that GDP growth more than halved, to 0.3 per cent, in the first quarter of this year. Economists had expected the figure to be closer to 0.5 per cent.

As discouraging as these figures unquestionably are, there aren't, at least as yet, any real grounds for doom and gloom. No one is suggesting that a house price crash is imminent, supported as prices are by Britain's chronic housing shortage. Equally, if the year since the EU referendum has taught us anything, it's that the country's housing market is remarkably resilient and more often surpasses than falls short of expectations.

Visit us again soon for the April statistics from other agencies, as well as the wider property market news.

Process of buying a first property research from Aldermore

New research from Aldermore has revealed the impact of the difficulties faced by first time buyers in the current housing market.
According to the findings, the process of buying a first property causes so much stress for some people it has made 35% ill or caused 34% issues in their relationship.

This stress is understandable. Aldermore’s figures show 17% of recent first time buyers took three or more attempts to buy their home, while 27% had to delay by more than two years. The impact of the buying process even resulted in 40% of respondents feeling like they have had to rebuild their life due to the compromises they had to make to get on the housing ladder.

Aldermore discovered that 9% found the actual process of securing a mortgage the biggest difficulty, and 10% cited the whole buying process as the biggest problem. For a further 8% of first time buyers it was the length of the purchase process.

When asked what could be done to improve the situation, 32% of recent first time buyers requested the issue of rising house prices to be addressed. 34% of respondents, simplifying the whole buying process would help, while three in ten (30%) believe the situation would improve if better mortgage products were available.

In the end though, the positives outweigh the negatives. 73% of recent first time buyers felt like they had reached adulthood when they got the keys to their first home, and 69% found that putting their own stamp on their new home to be an empowering experience.

75% of recent first time buyers feel they are no longer wasting money on rent, and 70% believe owning their own home gives them financial control.
Charles McDowell says:“Our latest quarterly first time buyer index reveals the issues recent first time buyers have faced when getting on the property ladder and the impact this is having on their day-to-day lives. Buying a first home is an empowering experience and can provide financial control, but our research shows the sacrifices being made by first time buyers to reach that first rung of the property ladder are negatively impacting their health and personal relationships.

The affordability ratio has doubled since 19972, demand is currently outmatching supply, and these difficulties are directly impacting first time buyers’ wellbeing. First time buyers are the driving force of the property market, but they are currently being priced out. More needs to be done to tackle these issues to ensure they have the best opportunity to buy their dream home.

Almost one in ten (9%) found the process of securing a mortgage the biggest difficulty which is why at Aldermore we are committed to helping to those who are struggling to gather a deposit by offering a range of products, including the family guarantee mortgage and 95% mortgages for customers who have a smaller deposit.”

A new survey has found

A new survey has found that many home owners do not know who is responsible for advising on the physical condition of a property prior to purchase.
Additionally, they are unclear on the purpose of a mortgage lender’s property valuation report, suggesting a need for greater clarity within the home-buying process.
When asked who benefits from the data contained in a mortgage valuation, respondents were not clear with many opting to choose incorrect answers. 65% correctly stated that the valuation report is for the benefit of the mortgage lender, yet over a third (35%) thought it is for buyers to use to determine whether the property is worth the agreed purchase price.  Just over a quarter (26%) felt it is there to provide buyers with details on the condition of the home, while 15% of respondents directly stated that they did not know what the valuation report is for.

The National Landlords Association off from incorporating in case the Government tries to clamp down on limited

The National Landlords Association (NLA) is urging members to hold off from incorporating in case the Government tries to clamp down on limited companies being formed to mitigate income mortgage interest relief changes.
Richard Lambert, chief executive of the NLA, said the Chancellor hinted in his Autumn Statement that the Treasury is concerned by the drop in tax revenues as a result of businesses across the economy incorporating to reduce their tax bills.
He warned that landlords, many of whom are incorporating to preserve mortgage interest relief, should wait to see whether a consultation is launched in next week’s Budget before making a decision.
It comes as the proportion of landlords intending to take out commercial loans to fund their property purchases has doubled over the past 18 months as they look to mitigate the impending buy-to-let tax changes.
Research by the NLA shows that the proportion of landlords planning to use commercial loans has risen from 10% in July 2015 – when the changes to taxation were first announced – to 19% at the end of last year.
The changes to taxation will take place from April and, once fully phased in by 2021, will prevent landlords with buy-to-let mortgages from deducting their interest payments or any other finance-related costs from their turnover before declaring their taxable income.
This rise coincides with increasing numbers of landlords telling the NLA’s quarterly landlord panel that they would form a limited company to preserve the mortgage interest relief perks. One per cent of landlords said they would incorporate in January 2016 and the figures now stands at 6%, which the NLA says equates to a rise from 20,000 to 120,000.
Lambert said: “Over the past year more than one hundred thousand landlords have formed a limited company in order to beat the tax changes, and this overlaps with an increasing intention to look to commercial loans to fund future purchases.
“While commercial loans are available to non-incorporated landlords, they tend to be a source of funding more commonly used by limited companies looking to expand their property portfolios, so we’d expect to see this trend develop as the year plays out.”

The traditional 25-year mortgage could be on the way out

The traditional 25-year mortgage could be on the way out, with growing numbers of first-time buyers opting for deals lasting 30 or 35 years – suggesting that many will still be burdened with home loan debt in their 60s and 70s.
The Halifax said that in 2016, about 28% of all first-time buyers with a mortgage opted for a 30- to 35-year term – up sharply from 11% in 2006.
Meanwhile, the average price first-time buyers are paying hit a new high last year, passing the £200,000 mark for the UK as a whole, and rising above £400,000 in London.
With high house prices, student debts and a rise in the age at which couples have children, many people are tending to buy a home later and opt for a longer repayment term. According to the Halifax, the average age of a first-time buyer is now 30, though this disguises regional variations. The average figure for London is 32, but in certain boroughs, such as Barnet and Ealing, and locations such as Slough in Berkshire, it is 34.
Stretching the term of the loan reduces monthly payments, which can seem attractive to those with tight finances. The Halifax offers mortgage terms of up to 40 years and said that with a repayment mortgage, the longer the term, the lower the monthly payment. 
However, it warns potential borrowers: “It will take you longer to pay off the loan, so you will pay more interest. This means it will cost you more over the life of your mortgage.”
This trend means that mortgages that last into retirement are becoming more common. Traditionally, many lenders would only grant a mortgage up to an individual’s planned retirement date.
In its report, the Halifax said that as the cost of a typical first home has risen, there has been a growing trend towards mortgage terms longer than the traditional 25 years.
In 2006, almost two-thirds (64%) of first-time buyers opted for a term of between five and 25 years, while the remaining 36% were over 25 years. Ten years on, the picture is dramatically different: 60% of first-time buyer mortgages involve a term of at least 25 years.
In 2016, the average price paid by someone who had never owned a property before was £205,170 – the highest on record. At the height of the housing downturn in 2009, the figure stood at £135,254.
In London, first-time buyers have seen the average price rise by 81% since 2009 to reach £402,692 – again, the highest on record.

rent increases in 2017

Letting agents are anticipating rent increases in 2017 ahead of the tenant fees ban.
ARLA’s November Private Rental Sector Report found the number of tenants experiencing rent increases continued to decrease, at 16%, from 18%, but this could all be set to change.
Following the Chancellor Philip Hammond’s announcement to ban letting agent fees for tenants during his Autumn Statement, eight in ten agents expect to see rent hikes in 2017.
The report found the number of rental properties managed per branch was 185, an increase from 180 in October, but lower than the 193 recorded in September.
Demand from prospective tenants fell again in November to 32 prospective tenants registered per letting agent branch, compared with 34 in October, however 53% of agents expect to see a rise in demand next year.
David Cox, managing director of ARLA, said: “The number of rent hikes reported by letting agents continued to decrease in November, and it’s a shame the ban on letting agent fees will have the opposite impact on rent prices when the measure comes into force.
“The buy-to-let market is becoming less attractive for investors as the ban on fees, combined with the scrapping of mortgage interest relief and the stamp duty increase on second homes push costs up for landlords. So unfortunately, regardless of the uplift we saw in supply this month, we expect to see the number of properties available to rent fall next year.”

Sales volumes sharply reduced!

Sales volumes of prime homes right across the country have been hit hard, cutting the Government’s take from Stamp Duty Land Tax by millions. Asking prices have also been sharply reduced, as the top end of the London market has crashed.
In the six months from May to October there was a 75% reduction in sales of properties above £10m – down to just 15 from 61 in the same period last year.
There was also a 51% reduction in sales between £5m and £10m – a fall from 201 to 99.
There was also a 33% drop in sales between £1m and £2m (7,285 falling to 4,913) and a 36% drop in sales between £2m and £5m (down from 1,473 to 947).
Worst affected was the prime new-build sector where there was a 83% reduction in the number of sales of new homes above £5m. This equates to a fall from 52 in the same period last year to just nine in the six months from May to October.
According to analysis of Land Registry figures by investment firm London Central Portfolio, the reduction in sales activity above £1m between May and October could have cost the Exchequer nearly £500m.
The firm says that the fall could be as much as £1bn by the end of the financial year.
London Central Portfolio CEO Naomi Heaton said: “This slowdown in the luxury property market – a big contributor for the Exchequer and UK economy in general – is very concerning, particularly as the Government faces wider economic and financial instability in the face of Brexit.
“With an already increasing deficit to address and the Government’s declared intent to increase tax revenues, these statistics should make some worrying reading for Chancellor Hammond.
“Having missed the opportunity to reconsider Osborne’s strategy at the Autumn Statement, we hope the Government will now look to relax some of these measures before there are detrimental knock-on effects for developers, the Exchequer’s balance sheet and the wider UK economy.”
Most of Britain’s most expensive homes are concentrated in London, where high-end agents have made job cuts and developer Berkeley Homes has slashed its prices  by around 10%.
Separate research, by Propcision, has also shown huge cuts, of up to 46%, in asking prices of some London properties.
Michelle Ricci, co-founder of analyst firm Propcision which has an ‘add on to Rightmove’ which is neither approved nor authorised by the portal, said some of these properties had ambitious pricing to begin with. Her research shows that since June, the price cuts became more concentrated in central London as the Brexit vote compounded pre-existing problems in the market.
The blame on the central London housing market crash has been put on an increasingly harsh tax regime scaring off wealthy purchasers.
While there might not be much sympathy for this segment, there must nevertheless be concerns about a market that needs to flow freely from top to bottom.
Specifically, as agents know, what historically happens at the top end of the market tends to ripple down – and that what happens in London, tends to spread out.