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”. 

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%.

 

LSL / ACADATA ENGLAND & WALES HPI

House prices up £11,219 from a year ago, fastest rate in three years

  • Prices rise by £1,400 in November, reaching new record
  • On an annual basis prices increase in all regions for the second consecutive month
  • By the end of 2013 sales set to be 16% higher than 2012

 

House Price

Index

Monthly Change %

Annual Change %

£238,839

243.2

0.6

                     4.9

David Newnes, director of LSL Property Services plc, owner of Your Move and Reeds Rains estate agents, comments: “The housing market is almost unrecognisable from twelve months ago. Not only have average prices climbed to a new record high – with an annual rise of £11,219 and a monthly increase of £1,400 – but we’ve seen an increase in every region for the second month running – a true sign that the nationwide recovery is really taking off. The LSL house price index incorporates all transactions including cash.

“Competition is strong through rising demand and supply of new instructions not growing , a factor that will continue to prop up prices in the long term. Confidence is higher throughout the market, with the Help to Buy scheme and record low interest rates contributing to the positivity. Over the second part of this year, consumer confidence has snowballed as the economic picture improves, leading to a significant rise in sales. The increased availability of mortgages, in part thanks to the government’s schemes, and the greater range of mortgage deals on offer has swung open the door to a new host of first-time buyers, making the distant dream of homeownership now a reality for thousands.

“Strong headway is finally being made towards a universal recovery. All ten regions in England & Wales experienced positive movement in prices on an annual basis for the second time in three years. Annually prices have increased in over 80% of local areas up and down the country – the highest percentage since September 2010. The trajectory is clearly upwards. Record high house prices have not only been recorded in the capital, but also in areas of the South East including Oxfordshire, Hertfordshire and Cardiff.

“However, there is still uneven growth in property values across the country. London prices continue to race ahead in a different gear with 9.2% annual growth in the capital vastly outshining the rest of the UK. Between August and October sales in London were up 27% on the same three months in 2012, reflecting intense demand for properties in London, both from domestic and abroad.

“In his Autumn Statement the Chancellor unveiled plans to unleash a further £1 billion to unblock housing development to address the critical shortage in supply. This will play a role in preventing prices rising too far too fast. But this is only the beginning, and it’s vital that house building is given greater attention in 2014 and beyond, in order to ensure the recovery rolls forward at a sustainable level.” 

Marsh & Parsons

2014 FORECAST: LONDON TO SEE HOUSE PRICES RISE BY 5-7%

  • London prices expected to stabilize in 2014 with annual growth of  5-7%
  • Prime London will continue to be a magnet for overseas buyers
  • Business confidence to boost the corporate lettings sectorImage

House Prices

London property prices will continue to dwarf those in the rest of the UK in 2014, but the rate of growth is expected to stabilize, according to estate agent Marsh & Parsons.

They forecast that Prime London house prices will rise by 5-7% in 2014, compared to 10.3% in the last twelve months[1], with the majority of growth expected to take place in the first half of the year.

Peter Rollings, CEO of Marsh & Parsons, comments: “London’s housing market saw a substantial uplift in 2013, and we expect a similarly strong start in 2014 to drive an annual rise in prices – but these won’t be as spectacular as last year. With ongoing support from Government initiatives, the rate of growth will remain sustainable.

“Following improvements in unemployment levels, we’re likely to see modest increases in interest rates next year. But with a general election coming up in 2015, any changes are unlikely to create shockwaves through the housing market.”

Supply and Demand

A lack of supply being met with high demand will continue to drive price increases in the Prime London property market. At the end of 2013, there were 18 registered buyers per available property, compared to 13.5 at the end of 2012[2], and this will ratio will remain high in 2014.

Peter Rollings continues: “Many sellers will remain cautious of putting their property on the market as they are not confident that they will be able to find somewhere to move to, therefore supply is unlikely to improve considerably next year.  As a result, property will continue to sell for close to or at the asking price and we may see our average success rate of 98% of the sale price currently being achieved in Prime London increase even further.[3]

 

Overseas Buyers

Changes in policy announced in George Osborne’s Autumn Statement mean that foreign property owners who sell second homes in the UK will have to pay Capital Gains Tax from April 2015.  But with overseas buyers and foreign nationalities making up just 28% of all Prime London purchases in Q3 2013[4], this change in policy is unlikely to have any dramatic effect on prices in 2014.

Peter Rollings continues: “With the change only being introduced in April 2015, we may find a short-term rush for tax-free sales before the policy comes into effect, helping to boost supply and fluidity at the highest level. However, even with yet more tinkering from the Chancellor, London remains a more attractive and easier place to buy property than many other cities around the world, and providing that the politicians don’t ‘kill the golden goose’, demand for the best properties will remain fierce.”

 

The Rental Market

Based on current trends, Marsh & Parsons expects rents in Prime London to hold steady in 2014, with rises of 2-4% in 2014, as opposed to the generally static rent levels recorded in 2013.

Peter Rollings continues: “The improved economic mood has eased anxiety among city firms and as a result, the corporate lettings sector will flourish next year. Based on current trends, we expect the greatest rental increases to be found in two-bedroom properties in central areas such as Kensington & Chelsea, which are popular locations for visitors from abroad. As competition heats up, void periods will continue to fall, and 2014 tenants will face intense competition for the best properties.”


[1] Annual price in Q3 2013 in Prime London, according to Marsh & Parsons’ latest London Property Monitor

[2] Data from Marsh & Parsons’ London Property Monitor

[3] Marsh & Parsons’ sales data

[4] Marsh & Parsons London Property Monitor, Q3 2013

Wriglesworth Paper Summary 20/11/13

Economics

The Paris-based Organisation for Economic Co-operation and Development (or OECD) has revised down its expectations for global growth – to 2.7% this year, from 3.1% expected back in May. OECD economists cite the trouble in the USA over levels of government debt and the resulting shutdown, alongside the United States federal reserve and the effects of slowing down their digital money printing tactics. In the Financial Times, Martin Wolf discusses the limits on global growth and, perhaps controversially, puts the blame on an excess of savings across the world. (FT p.15)

However, for the UK, the OECD report was flowing with more optimism – for the time-being at least – as the British economy is set to grow by 1.4% in 2013, and by an expected 2.4% over the course of next year. (FT p.3)

Personal Finance

In today’s Independent, the front page blares the warning of “Britain’s next debt time-bomb”. As if the current struggles with government overspending weren’t enough, it seems that a new threat is developing from levels of personal debt. According to the Centre for Social Justice, 3.9 million British families lack savings to cover even one month’s mortgage or rent. In total, households owe the equivalent of 94% of the UK’s economic output, according to the CSJ. Meanwhile Andrew Grice, political editor at the Indie, says some ministers are concerned that excessively low interest rates are not encouraging people to pay down debt as fast as in some other countries.
(The Independent, p.1, p.14)

Property

Yorkshire Building Society is today announcing 36 new mortgage offers, adding to the spate of new 95% mortgages coming onto the market. According to the Daily Mail (page 10) , the number of 95% mortagges on the market has now reached over 100, up from 64 yesterday and 42 last month. But – there is still some way to go until lost ground is made up – the number of these 95% mortgages stood at 986 back in August 2007.

Recruitment

This morning’s City A.M. leads with the headline “Too many grads not enough jobs” –covering statistics released yesterday from the ONS on graduates in the labour market. Almost half of the UK’s recent graduates now in employment are not making full use of their skills, with 47% working in “non-graduate jobs”, where their work does not require a degree. Despite recent economic growth the graduate unemployment rate has also barely fallen since 2009, now standing at 8.82% compared to 8.99% four years ago in the brimstone of recession. In the Daily Telegraph, Andrew Hunter of jobs search engine Adzuna puts this in the context of wider improvements in the job market – with just 1.9 jobseekers now competing for each vacancy, compared to 2.3 at this point last year, though he adds, “But for those who are fresh out of university, the prospects of finding that first job remain gloomy”.

On a less gloomy note for graduates, a degree might still seem like a good idea compared to other routes – those with a degree still have much better chances than those without. On the other side of the fence, those with just GCSE qualifications have to wait until the age of 32 before their wages “level out at £19,000”. (The Guardian, p.7)

Late Rent Lowest Since 2008

  • Levels of late rent healthiest since 2008 – tenant arrears drop by £50 million in October
  • Comes despite new high for rents across England and Wales – at £758 per month
  • Rents rise 0.2% in month since September, up 1.9% from a year ago
  • Demand for tenancies remains strong, up 7.4% since October 2012

Tenant arrears are at their lowest since 2008, despite a new record for rents across England and Wales, 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 rose to £758 per month in October, after a monthly increase of 0.2% (or approximately £1) since September.

Annually, this leaves rents 1.9% higher than October 2012 – and at a new all-time high.

October also saw lettings activity accelerate on an annual basis. The number of new tenancies agreed across England and Wales increased by 7.4% compared to October 2012. This was despite a minor slowdown on a monthly basis, with 1.6% fewer new lettings than in September.

While as a whole rents across England and Wales rose on a monthly basis, seven out of ten regions saw rents fall between September and October.

The fastest monthly fall was in the West Midlands, with rents down 3.6% since September. This was followed by a fall of 2.4% in the East Midlands and a monthly drop in Yorkshire and the Humber of 1.7%.

However, the South East experienced rent rises of 2.4% between September and October, while rents in the South West rose 1.5%, and London saw rents rise on a monthly basis by 1.3%.

On an annual basis, London saw by far the sharpest rent rises – 4.9% higher than in October 2012. While this was followed by a 3.1% annual increase in the South East, Wales matched this figure, with Welsh rents also 3.1% higher than a year ago.

Meanwhile, rents in the East Midlands have fallen over the last year by 3.9% (or £30). This was followed by a 1.5% annual drop in the North East, while rents in the West Midlands are now 1.2% lower than in October 2012.

David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, comments: “At a time when a seasonal slowdown would usually be expected rents are up again. The lettings market appears to be experiencing an extended Indian summer. Normally we can expect the rush of early autumn to fade into a late autumn hibernation. Even as the nights draw in, demand for homes to rent seems unabated, and still well ahead of a year ago. While buying a home is certainly getting easier, it’s the private rental market which is taking the strain for the majority of new households. With below inflation rises it is renting which is still relatively affordable in the face of struggling wage growth and rock bottom savings rates.”

Gross yields on a typical rental property remained steady at 5.3% in October, the same as in September. However, taking into account capital accumulation and void periods between tenants, total annual returns on an average rental property rose to 9.7% in October. This compares to 8.4% in September – with the increase due to accelerating house price rises. In absolute terms this represents an average return of £15,837, with rental income of £8,277 and capital gain of £7,560.

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 14.5% over the next 12 months, equivalent to £24,921 per property.

David Newnes comments: “Rents are still rising, but the pace of change is stabilising – a sure sign of health for the lettings market. Even before the latest wave of price rises, plain rental yields are stable and set to grow. Moreover, with tenant finances improving, those yields on paper will be more easily realised. Yet on top of rental income, surging capital accumulation is delivering another source of confidence. As prices rise, not only does the importance of a relatively affordable rental market increase, but the incentives for landlords to expand their portfolios are growing too.”

Tenant finances saw a rapid improvement in October, with the total amount of late rent across England and Wales falling by £49 million since September – to £245 million. As a proportion, this represents 7.1% of all rent, down from 8.5% in September. On an annual basis tenant arrears have also improved, with the total amount of late rent down by £28 million since October 2012, and also down as a proportion on an annual basis, from 8.1% of all rent in arrears in October 2012.

October’s measure of tenant arrears – at 7.1% of all rent – represents the healthiest month for tenant finances since LSL began recording this data in November 2008. During that month five years ago, 13.1% of all rent in the UK was in arrears.

David Newnes concludes: “Until we can boost homebuilding to the tune of an extra 200,000 a year, rents will keep rising on an annual basis. Yet annual rises are still below inflation. Without a doubt households don’t have cash to burn at the moment. So the fact tenants have paid down late rent to such an extent is testament to the professionalism of landlords, the availability of advice for tenants, and the stability of the entire industry.

“The first rung of the housing ladder is still a big step up. Despite a healthier circulation of mortgages, even a 5% deposit is fast becoming a challenge for many would-be first-time buyers. For the foreseeable future a healthy private rented sector will be as critical for the UK economy as it is for those besieged every month with other household bills.”

Daily Paper Summary: 11th November

Property

Over 2,000 people have put in offers on homes during the first month of the Help to Buy scheme, under which the taxpayer guarantees up to 15% of mortgages. David Cameron will welcome today the early interest in the scheme. On average applicants have requested to borrow £155,000 but only three quarters are first-time buyers. In the Times, it has been reported that almost a quarter of those using the scheme are trading up rather than buying their first home. Though the rules do not enable homeowners to purchase a second home, the mortgage can be used to buy a more expensive home with loans that require a deposit of between 5% and 20%. And the maximum value of a property bought with a help-to-buy mortgage is £600,000. The majority are couples applying with a joint salary of under £50,000 to borrow about £159,000. What is surprising is that 31% of people in Britain spend more than a third of their income on mortgage or rent, according to a poll commissioned from Ipsos Mori for BBC One’s Panorama. If people spend 35% or more of their disposal income on rent or mortgages that means they may not be able to afford other basic needs such as food.

Personal Finance

The coalition is  searching for new ways to find £1.6 billion a year by means of tax rises or spending cuts to fund measures to reduce household energy bills. George Osborne is thinking about shifting the cost of government-backed insulation schemes away from bills in a step that would reduce household energy prices by up to £75 a year. However any decision to instigate the switch with the Energy Companies Obligation (Eco) and the smaller Warm Home Discount off bills will require £1.6billion a year to fund it. The issue is said to be brought into the limelight in the Mr Osborne’s Autumn statement in early December which will discuss his announcements in more detail. It’s clear the coalition is under pressure to identify measures to cut household bills after Ed Milliband’s pledge to freeze energy prices if Labour wins the forthcoming election.

Economy

A handful of official data, positive surveys and reports are due out today, offering further evidence that the business community is increasing its sights and pushing Britain on track to run the US close to achieving the fastest rate of growth in the world’s developed economies next year.  There are fresh new signs of recovery: rising business confidence, a boost in economic growth, a further fall in unemployment and an expected slowdown in the inflation rate. These factors are expected to offer further light and optimism for the Chancellor and the Bank of England to be more upbeat about the outlook for the economy. Lloyds Bank is reporting a record rise in business activity in the English regions among its customers and a new peak in job creation in both England and Wales. Official figures tomorrow are thought to show the consumer price inflation rate down to a six month low of 2.5% followed by an appreciable fall in employment on Wednesday.  Lloyds bank showed that in a recent survey that job creation remained robust in England and Wales last month to reach a 13-year peak and five regions reported record growth in new business.

Recruitment

The UK’s short-term jobs outlook is at its strongest for five years a survey of 1,000 employers has found as the Bank of England gets ready to show a faster fall in unemployment this week. Optimism for employment prospects is highest in manufacturing and retail, among small and medium sized companies and in southeast England according to the Chartered Institute of Personnel and Developments quarterly labour market outlook.