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Improving supply fuels positive sentiment
Tuesday, July 19, 2022
The UK housing market is beginning to show signs of a rebalance in supply and demand while buyer and seller confidence remains high. That’s according to data from the largest monthly consumer sentiment index for buying and selling residential property in the UK, just released by OnTheMarket. Their data shows an increase in new instructions, indicating the start of rebalancing supply and demand within the property market. Data from OTM shows that sentiment remained positive in May with 82% of sellers confident that they could complete a sale within three months. Serious buyers within the study showed they are keen to proceed and to take advantage of low mortgage rates while they still can.
Jason Tebb, CEO at OTM, said: “As we gradually move towards a more rebalanced market in terms of supply and demand, agents’ expertise and experience will be needed to hold complex chains together and maintain buyer and seller motivations throughout the coming months. The value of a good agent shouldn’t be underestimated and while sentiment remains undented for now, those who are the most prepared for their pending transaction will have the advantage.”
Tebb’s comment hints strongly at the need to be as financially and legally prepared as possible at a time when more than half a million homes are currently sold subject to contract (SSTC), creating a conveyancing log jam, according to Rightmove. Their data suggests the average time from SSTC to completion is now 150 days, 44% higher than in 2019. The portal has even suggested that a vendor needs to get on the market in the next few weeks to maximise their chance of completion by Christmas! There are of course ways to streamline the process, and by talking to your estate agent you can get expert advice on preparing any necessary paperwork and information on how to do so.
The average asking price of property coming to market in the UK recently hit a record high of £368,614 although the pace of price growth is now slowing, according to Rightmove. After a very strong start to the year, it is likely that affordability constraints will start to affect market behaviour in the second half of the year, with further interest rate rises anticipated. Rightmove predicts this will result in house price growth over the year of around 5%.
UK interest rates rose again on 16th June from 1% to 1.25% in an attempt by the Bank of England to stem the rate of inflation. Homeowners on Standard Variable Rates or tracker mortgages will feel this most in the short-term. However, even with the rise, interest rates are still low in a historical context and, as long as buyers are able to obtain and afford a mortgage, rate rises will not deter those buyers who actually need to move. Most homeowners will be unaffected by the latest interest rate rise as many are mortgage free, whilst 75% of those with outstanding mortgages are on fixed-rate deals. In addition, mortgage regulations since 2014 mean that buyers have had to show the ability to make repayments at interest rates 3% higher than expected, so are still likely to be able to accommodate these increases. If you are on a fixed rate, it is important to keep track of when your mortgage is up for renewal and be prepared to secure a new deal. Research shows that approximately 1.5 million fixed-rate mortgages are scheduled to end this year and next, and interest rate rises will come into effect when the time comes to renew. If you need mortgage advice, please contact your local Frost office and we can put you in touch with expert advisers who can answer all your questions.
Gráinne Gilmore, head of research at Zoopla, has suggested that the high levels of buyer demand will continue to sustain the property market; “buyer demand in the housing market has remained strong all through the start of this year, and is still 50% above the five-year average - so those looking to sell should consider making a move while demand is at this level.”
Similarly, rental demand continues to outweigh supply of private rental properties in our network area, but there are indications of more private rental properties coming to the market. Some landlords have been drawn back to the lettings market by rising rental figures and with property price increases recently offering a better return in the medium term than financial investment options.
For lettings, the impact of the most recent interest rate rise is that it has turned the balance of rental costs versus buying a property. Since the last rate increase, it has become cheaper to rent than to buy a property in terms of monthly payments and first-time buyers also need to have saved for a deposit which may be a significant barrier. This is likely to remain the case for the foreseeable future with further small interest rate rises expected over the next couple of years.
New data highlights an ongoing increase in the buy to let sector. Data relating to additional property purchases during the financial year 2020/21, showed a 3.2% increase in the number of additional homes being bought mainly for the purpose of buy to let. This should help with increased levels of tenant demand. With a 6.6 % annual increase in additional home transactions, the South East has seen the second largest increase in additional property investment in the UK. Investors it seems have not been deterred by changes to stamp duty tax thresholds on second homes and additional property purchases still account for around 20% of all residential transactions. It is not just the number of transactions that has increased, the value of these portfolios has also risen considerably ensuring that buy-to-let remains an attractive proposition, particularly for the right area and the right property.
If you would like professional advice on the property market in your area, whether for sales or lettings, or any property related matters, please contact your local Frost office and our expert teams will be happy to help.
