Average prices up £1,384 in January, setting a new record high

LSL Property / Acadata England & Wales HPI 

  • Monthly sales set to reach 73,000 – the highest in a January since 2007
  • Sales only 4% below January average in the decade before the credit crunch
  • 90% of Unitary Local Authorities now experiencing house price growth

House Price

Index

Monthly Change %

Annual Change %

£241,101

245.5

0.6

5.2

 David Newnes, director of Reeds Rains and Your Move estate agents, owned by LSL Property Services plc, comments: “The UK housing market is roaring further back to life in 2014 as the recovery weighs in across the board.  Prices are now up 5.2% annually, driving the price tag for the average home to a new high. Mostly this is due to much increased activity, with increased demand for property buoyed by low interest rates and Help to Buy, combined with hot competition for homes. This boost in sales has seen an air of optimism encapsulate the market. While 2013 was a turning point in the recovery, 2014 is set to be a watershed year if the next few months continue in the same vein.

“Last month saw the largest rise in sales over the past year, up 67% annually, with transaction levels crucially only 4% below the January average seen in the decade before the credit crunch. This astounding turnaround can largely be pinned down to the resurgence of the first-time buyer. The wide range of attractive mortgage deals on offer, cheaper rates and wider product choice has been pivotal. Such rises in new buyers has spurred on activity further up the ladder and inspired movement among second steppers, which will prove vital in sustaining a healthy rate of sales activity.

“The recovery has now been rolled out far and wide, with the good news coming in from more and more Your Move and Reeds Rains branches up and down the country. Price rises have now spread to 90% of unitary local authorities – the greatest number since August 2010. With mortgages still historically cheap and interest rates set to remain stable for the time being, we’ll continue to see new buyers will rush to the market nationwide. However, even so, price growth and sales levels are still behind their pre-crisis peaks so we’re still some way from the ill-fated ‘bubble zone’.

“Regionally, we’re seeing a ripple effect emerging from London. Heat from the capital is emanating out further with traditional hotspots being the first to reap the benefits of recovery; particularly southern England and East Anglia before moving north through the Midlands. Although we’re still seeing a North-South divide, this is gradually being eroded. The West Midlands has this month broken the mould as growth has surged past the rate seen in the South West region, with Reeds Rains branches across the region reporting a large jump in prices in January compared to the preceding month.

“With greater economic prosperity, confidence between banks and lenders has been cemented further which will no doubt fuel the engine of recovery in the months ahead. While similarly first-time buyers are set to swim further across the sea of adversity to secure a home. But it is crucial both aren’t scuppered and that the Government’s housing plans come to fore with a continued focus on supply. This will ensure the recovery reaches the finish line and a generation doesn’t get priced out of the market”. 

Scottish house prices up by £2,146 in November – highest monthly rise since June 2007

LSL / ACADATA SCOTLAND HPI

  • Over three quarters of Scottish regions see price rises in November
  • Average prices in Aberdeen set another record high

 

House Price

Index

Monthly Change %

Annual Change %

£146,238

198.3

1.5

2.6

Donald MacLellan, Chairman of Walker Fraser Steele Chartered Surveyors, part of LSL Property Services, comments: “The property market in Scotland is powering on ahead like a freight train. Price rises of £2,146 in November reflect the largest increase in a single month, since June 2007 when prices were up by 1.7%. This is down to the vast influx of first-time buyers, who have stirred up activity from the lower realms of the housing market – accelerating the rate of recovery. Such momentum means there’s cause for renewed optimism in 2014, as the Scottish property market shows it’s making solid progress on all fronts. Prices have picked up at a healthy pace across the country and sales are rising swiftly, as mortgage conditions continue to improve. 

“Strong demand has been pivotal in improving the outlook for the Scottish housing market as confidence has been growing exponentially in the past six months. With lending levels following suit, there are sure signs the Scottish property market is on the fast track to full health. More than three quarters of the country saw price rises in November, showing the recovery has now become nationwide.

“In particular the journey for first time buyers is drastically better than a year ago, reinforced by Government schemes such as Help to Buy. While an enticing circle of mortgage products, low interest rates and higher LTV mortgages have propelled the market to another level, with sale volumes from June to November 2013 up by 22%. The rise in first time buyers has been key as activity from this end of the market has reverberated higher up.

“However, beneath the surface it’s also clear the number of homes on sale falls far short of the level needed to meet demand, which is resulting in climbing house prices. The blatant imbalance between the lack of housing supply and the pent up demand needs to be tackled to allow the market to continue to recover at a sustainable rate.

“Many buyers are understandably unclear over which direction the economy will take over the coming twelve months, with some opting to sit tight in the meantime. The withdrawal of the Funding for Lending scheme is in part responsible for this air of uncertainty. While another obstacle may be the referendum this year on Scottish independence, which could cause a slowdown as potential buyers delay their home purchase in order to await the outcome.”

LSL England & Wales HPI:

House prices up 5.2% or £11,920 in 2013 – the highest yearly rise since 2007

  • Average prices rise £1,489 in December to £240,134, a new record for England & Wales
  • West Midlands shows second highest regional price growth after London

House Price

Index

Monthly Change %

Annual Change %

£240,134

244.5

0.6

5.2

David Newnes, director of LSL Property Services plc, owner of Your Move and Reeds Rains estate agents, comments: “As we step into 2014, the recovery of the property market shows no sign of slowing down, with buyer demand growing swiftly and competition rising. Average prices reached a new record high in December after a yearly increase of £11, 920, the highest since 2007, along with a monthly increase of £1,489. Without doubt, the market is moving full steam ahead towards widespread recovery. However we’re certainly not in the bubble zone here, with price growth and sales both still some way off their pre-crisis peaks.

“Momentum is sweeping across the board with new record high house prices in areas beyond the capital, ranging from the West Midlands to East Anglia. Attention is moving away from the north south divide and other regions are stepping out of the shadow of London’s more buoyant property market. Now the universal recovery is really taking flight. For the fourth successive month all ten regions in England & Wales witnessed positive price rises over the past twelve months.

“The coming year looks bright for the UK market thanks to the government’s schemes and record low interest rates. Cheaper mortgages, along with an easing of availability of high LTV mortgages and wider product choices to consumers, have made life drastically easier for new buyers looking to get a foot up on the property ladder. The rise in prices is matched by an impressive boost in sales with a 34% increase in sales since December 2012, which is keeping confidence levels up. There are scores of first-time buyers moving towards the market at lightning pace to explore the raft of attractive mortgage deals on offer.

“Record low mortgage rates combined with the boost in activity from first time buyers at the bottom end of the market, has unlocked chains higher up. The rise in activity among second steppers in recent months, with 16% of home movers taking out mortgages compared to a year ago, suggests sales growth will continue at a healthy pace.

“On closer inspection by regions, East Anglia and the North West saw the greatest rise in sales over the past year, over 26%, but London ranked as the third lowest, despite being the area with the largest rise in prices. This shows the underlying issue that many first-time buyers are unable to afford to live in the capital, as properties are moving into a league of their own. This is not helped by growing demand from domestic and overseas buyers left unmatched due to the gross dearth of housing supply in London.

“The departure of the Funding for Lending scheme, and the arrival of the new mortgage market rules in April, might have a slowing effect further into 2014. However the Help to Buy scheme will become even more pivotal in the coming months and the Government’s ability to stimulate housing development will be crucial to address the chronic shortage of housing supply.”

LSL PROPERTY SERVICES: SIX IN TEN LANDLORDS PREDICT GROWTH IN TENANT DEMAND NEXT YEAR

  •  58% of landlords predict tenant demand will grow in the next twelve months
  • Four in ten landlords reported growth in tenant demand in last six months
  • Nearly a fifth expect to expand their portfolios in 2014
  • Three quarters of landlords believe now is a good time to buy or sell rental properties

Prospects are bright for the rental sector in 2014, with growing tenant demand boosting confidence among landlords, and rising prices making properties attractive investment opportunities, according to a landlord sentiment survey conducted by LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

In the past six months, 41% of the 2,195 landlords polled reported a rise in tenant demand, with just one in sixteen seeing a fall.  Such growth in demand has been the driving force behind the series of rent rises seen during 2013. The majority of landlords (58%) predict demand will increase further in 2014, with just 10% expecting demand to shrink.

Nearly a fifth (18%) of landlords therefore anticipates growing their portfolio of properties over the coming twelve months, while 16% already expanded in 2013.

David Newnes, director of LSL Property Services, comments: “The rise in house prices is evidence of the underlying buoyancy in the property market and the stabilising of rent rises is an indication of the current healthy state of the rental sector. Landlords are therefore in a prime position to benefit from the strong yields on properties and aspiring buy-to-let investors can be encouraged by the climbing tenant demand, as not only does it signify the excellent long-term investment opportunity, but also demonstrates the continued appetite for rental homes.”

 

“Demand for rented accommodation is strong, exemplified by the fact that the number of lettings, new viewings and applicants are all rising. There are strong foundations for prosperity in the rental sector, fuelled by increased economic optimism and future job creation. Against the backdrop of growing economic stability, more confidence is driving people forward in search of the attractive deals on offer across the buy-to-let mortgage market, which will allow them to benefit from the attractive returns.”

 

Over three quarters of landlords (77%) believe now is a good time to buy or sell rental properties. Of those who think now is a good time to buy, 71% cited attractive property prices and half highlighted the better capital returns on offer compared to other forms of investment, while 47% pointed to strong tenant demand as a key investment driver.

 

MORTGAGE FINANCE REMAINS A STUMBLING BLOCK

Despite the stark improvements in the mortgage market recently, just one in six landlords believes the availability of cheap finance is a key reason for why now is a good time to invest – although this is up from one landlord in eleven in December 2012.  In fact 35% of landlords say that it is more difficult to raise mortgage finance compared to a year ago, highlighting that for some mortgage challenges remain a deeply embedded issue.

David Newnes concludes: “While the level of buy-to-let lending has been rejuvenated and is now climbing out of the doldrums, this is still short of historic levels. Securing mortgage finance is therefore not just a concern exclusive to first-time buyers, but remains a real and serious challenge for many landlords. Lending to first-time buyers and those without large deposits has itself seen a pick up but still has a long way to go, and the proportion of UK households is only increasing. It is the rental sector that will be continually needed to pick up the slack.

 

“Filling the chasm between supply and demand is also reliant on the rising number of buy-to-let investors accessing the affordable mortgages required, thus allowing them to further widen the pool of rental accommodation on offer.”

First-Time Buyers Rise 28% Year-on-Year in November as Average Mortgage Rates Fall to Lowest in Three Years

Image

The number of first-time buyers climbed 28% year-on-year in November thanks in part to the lowering of mortgage rates by lenders, according to the latest First Time Buyer Tracker from LSL Property Services.

 

Transactions

Average Purchase Price (£)

Average LTV

November 2013

27,800

£149,404

81.3%

October 2013

26,800

£149,375

81.1%

1 month change

+3.7%

+0.0%

+0.2% (from 81.1%)

3 month change

+5.3%

+1.7%

+1.0% (from 80.3%)

1 year change

+28.1%

+11.4%

 +2.2% (from 79.1%)

There were 27,800 first-time buyer sales in November, 6,100 more than a year ago, showing improvements in the first-time buyer market are gathering even greater momentum.

The average first-time buyer LTV rose to 81.3%, the highest since September 2011, in a sign of the increased availability of mortgages as banks become more willing to lend to those with smaller deposits. As a result the average deposit size fell to £27,942, a 3.4% fall in the past three months, attracting more aspiring buyers back into the market.

Deposits consequently now represent a smaller proportion of first-time buyer incomes, with the average deposit of a new buyer equalling 76.6% of annual income, a 5.8% fall over the course of the last twelve months.

The increase in first-time buyer activity has also been fuelled by the improved affordability of mortgages. In November the average mortgage rate fell to 3.93%, down 0.8% since last year, with banks having being able to pass cheap credit from Funding for Lending onto borrowers.

But there are warning signs ahead, with rising house prices potentially threatening to price the next wave of first-time buyers out of the market. The average purchase price for a first-time buyer rose by 11.4% year-on-year in November, and now stands at £149,403 – up £15,340 in the last twelve months.

Similarly, although the cheaper rates meant that mortgages were more affordable for first-time buyers, the proportion of income represented by mortgage repayments is starting to creep up as house prices rise. Mortgage repayments have increased 0.1% in the past month and 0.4% over the past three months, despite consistently falling mortgage rates.

First-Time Buyer Affordability

 

Average deposit (£)

Deposit as proportion of income

Average mortgage rate

Mortgage repayment as proportion of income

November 2013

£27,942

76.6%

3.93%

21.0%

October 2013

£28,243

77.5%

3.94%

20.9%

1 month change

-1.1%

-0.9%

-0.01%

+0.1%

3 month change

-3.4%

-3.6%

-0.02%

+0.4%

1 year change

-0.4%

-5.8%

-0.79%

-0.2%

David Newnes, director of LSL Property Services, owners of estate agents Your Move and Reeds Rains, said: “There has been a revival in the first-time buyer market over the past twelve months, with sales increasing by nearly a third. Mortgages are much more affordable, which has opened the door to welcome in thousands of aspiring homeowners who had previously been locked out of the market. A boost in economic confidence has attracted more buyers back to bricks and mortar, while banks have equally been far more prepared to lend to those with smaller deposit sizes.

“Rates have fallen, and there is now an array of attractive deals on offer for shrewd first-time buyers, which has made mortgages far easier to secure. The spark has been government schemes like Funding for Lending and the equity loan first phase of the Help to Buy scheme. Although Funding for Lending has been cut back, the mortgage guarantee scheme, second phase of Help to Buy introduced in October, will really kick into gear in the next few months. It will be this that will carry the torch through into 2014.”

“However there is a flipside to the coin. Prices are rising and there is simply not enough housing stock to match continued demand, meaning this will continue well into 2014. If demand is not satisfied by supply, then sustainable growth will be hampered and future first-time buyers will once again be left out in the cold. We need far more homes, particularly at the lower end of the spectrum if we are to sustain a healthy property market.”

On a regional level, there continues to be disparity across the UK with stark differences throughout the country in property values, deposits required and mortgages taken out for those entering the property market. In the three months to November the South East saw the greatest number of first-time buyers, with 15,600 sales across the region, closely followed by London at 13,400. This is despite the fact that first-time buyer properties in the capital and the South East have required the largest average deposits, at £67,623 and £37,788 respectively.

By comparison, in the North West first-time buyers only require an average deposit of £15,791 with an average purchase price of £112,820. This therefore means that new buyers in these Northern regions only have to take out an average mortgage of £97,508, whereas by comparison those in London have an average mortgage of £208,448.

Wales in particular has experienced uplift in first time buyer activity, largely to a required average deposit of just £11,683 and purchase price of £107,038.

David Newnes, director of LSL Property Services, owners of estate agents Your Move and Reeds Rains, concludes: “Although a flag has been planted in the nationwide recovery, up and down the country we are seeing contrasting fortunes for first-time buyers eager to enter the property market. Price rises in the capital and South East are surging ahead of those in the rest of the country, and the resulting deposits needed to get onto the ladder are following suit. Buyers in the North are faring better in this respect. They have less of a mountain to climb to reach the summit of the required deposit.

“However, while potential homeowners in Northern region have smaller deposits to accrue, they are – as a whole – less cash-rich than those in the capital and the surrounding areas, which therefore necessitates them taking out higher LTV mortgages. With many anticipating a rise in interest rates next year, many new homeowners across the country will feel a greater pressure on their finances – especially with repayments as a proportion of income starting to creep up.

“It is startlingly evident that while the UK-wide latest phase of the Help to Buy scheme is having a positive effect, a more tailored and less of a ‘catch all’ approach is needed.  One that meets the varying needs of aspiring buyers across the regions. This will be crucial in alleviating the regional disparity and preventing the wall of obstacles that first time buyers have to scale from mounting further.”

News Headlines – Sunday 22nd December

Property

The Royal Institution of Chartered Surveyors predicts average house prices will rise in Britain by 8% next year and last Thursday the Council for Mortgage Lending revealed that the amount of money lent to borrowers in November rose to £17bn, up by more than 30% on the same period last year. Andrew Bailey, deputy governor of the Bank of England warned homebuyers there will be a clampdown on house purchases if there is any evidence that rising prices are spiralling out of control. Mortgage lending is overseen by the Prudential Regulatory Authority (PRA) which has the power to make banks hold back more money on balance sheets for every mortgage offered and can reduce loan-to-value ratios, making products such as 95% mortgages more expensive for homebuyers. Mr Bailey said controls could include strengthening the tests buyers have to go through before acquiring a mortgage and increasing the amount of capital banks have to hold against household lending.

Economy

Advanced economies will get their ‘mojo’ back in 2014 as the UK wins back medal as the fastest growing major European economy next year according to recent headlines. PwC said Britains; brighter growth prospects could also move it in line to be the fastest growing economy in the G7. The UK economy is expected to grow by 3% next year which would move it closer in line with America for the title of the strongest growing advanced economy in the world. There’s an air of optimism, as improving consumer confidence is expected to result in higher business investment. Despite the long journey towards recovery, for the first time people feel things are really starting to pick up.

Personal Finance

Shoppers are expected to splash out more than £5 billion in just four days in a boost for flagging retailers. Last weekend was said to be the busiest of the year for the high street with 31 million visits over two days. Barclays predicts that £5.2 billion will be spent on credit cards between yesterday and Christmas Eve and more than £1.1 billion will be spent on Tuesday alone as a vast proportion of people have left their Christmas shopping late due to the fact Christmas falls midweek.

LSL BUY-TO-LET INDEX: RENTS RISE TWICE AS FAST AS WAGES OVER PAST YEAR

  • Rents rise 1.6% in twelve months – compared to 0.8% annual growth in weekly earnings
  • Average rent in England and Wales now stands at £753 per month, despite seasonal dip
  • Landlords see record 8.9% total return over last twelve months, or £14,592
  • Tenant finances improve in time for Christmas, as proportion of late rent drops to 6.6%

Rents have risen at twice the annual rate of weekly earnings, according to the latest Buy-to-Let Index from LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

Average rents across England and Wales now stand at £753 per month as of November, up 1.6% compared to November 2012.

By comparison wages have risen by just 0.8% on an annual basis.  Average regular pay before tax stands at £1941 per month, according to the latest official figures.[1]

Rents across England and Wales remain significantly higher than a year ago, despite a recent seasonal drop of 0.7% (or approximately £5) in the month since October 2013.

November also witnessed annual growth in lettings activity. The number of new tenancies agreed across England and Wales increased by 1.5% compared to November 2012. This was despite a slowdown on a monthly basis, with 6.3% fewer new lettings than in October.

David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, comments:Economic reality now resembles the most optimistic dreams of last year.  But for so many households, the dream of homeownership is still relegated to the imagination.

“It’s not just wages.  Savings rates have been swamped by inflation for half a decade – so building up even a 5% deposit is a real struggle.  Help to Buy is having a perceptible impact, with thousands of first time buyers benefiting already.  Yet millions of new households have joined the queue at the bottom of the housing ladder – and private renting is the only tenure to have taken up much slack.”

Rents by region

Eight out of ten regions saw rents fall on a monthly basis between October and November, in line with a monthly fall across England and Wales as a whole.

The sharpest monthly drop was in the West Midlands, with rents down 2.6% since October. This was followed by a fall of 1.8% in the South East and a 1.3% monthly decrease in the East of England.

However, the South West experienced rent increases of 1.1% between October and November, while rents in Wales also rose slightly on a monthly basis, up by 0.2%.

On an annual basis, London saw the steepest rent rises – 4.4% higher than in November 2012. This was followed by a 3.4% annual increase in the South West, while rents in the South East are 3.2% higher than twelve months ago.

Meanwhile, rents in the East of England have fallen by 5.5% (or £42) over the last year. This was followed by a 2.8% annual drop in the West Midlands, while rents in both the North East and Yorkshire and the Humber are 2.0% lower than November 2012.

David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, comments: “Economic recovery is spreading throughout the UK.  And the property market is the leading edge of that wave.  As the home purchase situation heats up, the effect on the rental market is even less uniform – with rises accelerating in some areas and slowing in others.  Across the UK, every town and city is its own market, and requires local knowledge.”

Yields and Returns

Gross yields on a typical rental property remained steady at 5.3% in November, consistent with the past three months.  However, taking into account capital accumulation and void periods between tenants, total annual returns on an average rental property rose to 8.9% in November. This is up from 8.1% in October – with the increase due to accelerating house price rises. In absolute terms this represents an average return of £14,592, with rental income of £8,243 and capital gain of £6,349.

If rental property prices continue to rise at the same pace as over the last three months, the average buy-to-let investor in England and Wales could expect to make a total annual return of 10.5% over the next 12 months, equivalent to £17,294 per property.[2]

David Newnes comments: “Over twelve months the availability and affordability of buy to let finance has achieved a quiet revolution – with a very real effect on the private rented sector.  Demand for homes to rent is still soaring, yet heavy investment by landlords in 2013 has brought rent rises in most areas below inflation.  In 2014, one thing will remain certain – demand from new tenants will continue to grow.  Supply of new homes to rent will be critical in maintaining relatively affordable annual rent rises, compared to rampant house prices.”

Tenant Finances

Tenant finances improved in November, with the total amount of late rent across England and Wales reaching a new record low of £228 million.  Since November 2012 the total amount of late rent has fallen by £20 million. As a proportion, such tenant arrears now represent 6.6% of all rent, down from 7.1% in October, and significantly lower than 7.4% of all rent in arrears in November 2012.

David Newnes concludes: “Homes of all tenures have become more expensive for most people.  That’s partly because the UK is poorer than it was five years ago, with wages only gradually struggling to recover.  But more fundamentally, housing is also becoming more expensive because there aren’t enough homes to keep up with an expanding population.

“Building more homes at a serious pace is the only way to avoid the risk of stagnation in the housing market – the property industry cannot grow by competing ever more fiercely over fixed resources.  But to make new homes affordable they will also need to be purpose built for all tenures.  Private renting has been growing for decades, and new supply will need to cater for the sector for decades to come.”


[1] Office for National Statistics data, updated 18/12/13: http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/december-2013/index.html

 

[2] Assuming house prices change at the average rate of the last three months and they achieve the average yield of 5.3%.