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”. 

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FOUR IN TEN LANDLORDS EXPECT TO RAISE RENTS OVER NEXT 12 MONTHS

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  • 42% of landlords expect to increase rents in the next twelve months
  •              One third expect to increase rents by over 1% in 2014
  •              Average estimate of 3.7%, down by 0.9% compared to December 2012

Four in ten landlords anticipate they will raise rents in the next year, 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.

Overall one third of landlords expect they will raise rents above 1% in the next twelve months, with an average estimate of 3.7%, down by 0.9% compared to December 2012. Currently, average rents are rising at an annual rate of 1.5%, according to LSL’s latest Buy-to-Let Index.

Out of those that expect to increase rents, 56% indicated they will do so to cover the cost of inflation. While conversely over half (57%) expect to leave rents unchanged in 2014.

David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains, comments: “Even with an increase in rental properties available, demand in the private rental sector continues to outstrip supply in many areas, especially in London. In the months ahead, this will enable landlords to push up their rental prices when letting their properties, putting a stop to inflation from eating into their rental income. This is underlined by the fact that covering the cost of inflation is the main reason cited by landlords expecting to increase rents.

“With demand rising, greater emphasis must be on the supply of homes. While the government plans outlined are a welcome move, this is only the start of the long-term solution.”

With current yields at 5.3%, property investment is proving to be a worthwhile alternative to historically low annuity yields and a volatile stock market. Taking into account both capital accumulation and void periods between tenants, total annual returns on an average rental property increased to 8.8% in December, compared to 8.3% in November, reflecting the growth in house prices.

David Newnes, director of LSL Property Services, owners of Reeds Rains and Your Move, comments: “Rising rents are delivering strong yields to investors, making a powerful case for the rental market for those in search of a beneficial, long-term investment.

“However buy-to-let investment is not a license to print money, and it requires the same level of research and planning as any other business investment. The success of the investment depends on the property remaining occupied to deliver ongoing rental income. Before taking the plunge it is important to be aware of factors such as the location of the property, which can determine the level of tenant demand. For instance, those nearest to transport hubs will usually be of the highest demand, especially in larger cities like London.”

FALLING VOID PERIODS

December experienced annual growth in lettings activity, with new tenancies agreed across England and Wales up by 7.7% compared to December 2012. As a result, void periods in private residential property in the UK have fallen, helped by this solid tenant demand. As the UK lettings market powers ahead in 2014, landlords shall continue to benefit from falling void periods, while tenants will face intense competition for the best properties.

David Newnes, concludes: “While void periods are falling, the private rented sector gives tenants flexibility, so as tenants’ circumstances change; there are still occasions when a property might be empty.  Of course, it is in every landlord’s business interest to maintain good, long lasting tenancies and avoid voids. At a time when demand far outstrips supply, it is imperative that empty properties are filled quickly, following any necessary maintenance and improvements. Landlords can minimise void periods by talking openly with their tenants about their future plans – in order to prepare for when the property might be empty. Overall there’s an air of optimism surrounding the rental market now that inflation is firmly back on track as wage expectations start to improve. A rise in affluent tenants will help further boost the success of the private rental sector this year.”lsl-property-services-logo

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.” 

First-time buyers rise 45% year-on-year in July

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The number of first-time buyers rose 45% year-on-year in July, thanks largely to a sharp fall in mortgage rates,  according to the latest First Time Buyer Monitor from LSL Property Services.

There were 26,100 first-time buyer sales in July, 8,100 more than twelve months ago. It was the highest number of first-time buyers since November 2007, indicating the improvement in the first-time buyer market is gathering even more momentum.

A sharp increase in the affordability of mortgages drove the improvement. The average mortgage rate fell from 4.92% in July last year, to 3.99% this year, attracting more buyers to the market. Rates have now fallen every month for the last year, as banks are passing cheap credit from Funding for Lending onto borrowers.

The cheaper rates meant that mortgages were more affordable for first-time buyers. The proportion of income represented by mortgage repayments fell year-on-year from 21.6% to 20.4%.

 

Transactions

Average Purchase Price (£)

Average LTV

July 2013

26,100

£146,726

79.5%

June 2013

25,300

£146,250

79.6%

1 month change

+3.2%

+0.3%

-0.1% (from 79.6%)

3 month change

+40.3%

+8.0%

-0.9% (from 80.4%)

1 year change

+45.0%

+8.0%

 -0.4% (from 79.9%)

But there are warning signs ahead, with rapidly rising house prices threatening to price the next wave of first-time buyers out of the market. Deposits now represent a far greater proportion of the income of a first-time buyer, and are rising. The average deposit is now equal to 83.1% of annual income, up 5.0% on July last year – slowing the pace of the recovery in first-time buyer lending. This was a result of rising house prices, which have pushed average deposits skyward, despite banks’ willingness to lend to those with a smaller deposit size.

The average purchase price for a first-time buyer rose by 8% year-on-year in July, and is now £146,726. This was 0.3% higher compared than in June, when the average purchase price was £146,250 and 6.0% higher than the average price so far this year, which was £138,353.

And the average LTV for a first-time buyer remained broadly flat – down 0.4% year-on-year to 79.5% in July, and down just 0.1% from June.

First-Time Buyer Affordability

 

Average deposit (£)

Deposit as proportion of income

Average mortgage rate

Mortgage repayment as proportion of income

July 2013

£30,109

83.1%

3.99%

20.4%

June 2013

£29,845

83.2%

4.06%

20.7%

1 month change

+0.9%

-0.1%

-0.07%

-0.3%

3 month change

+13.1%

+6.7%

-0.25%

+0.1%

1 year change

+10.0%

+5.0%

-0.93%

-1.2%

David Newnes, director of LSL Property Services, owners of estate agents Your Move and Reeds Rains, said: “Mortgages are much more affordable for first-time buyers compared to last year, which has opened the door to thousands of would-be buyers who were shut out of the market. Economic confidence is returning, nudging many more buyers in the direction of property, and nudging lenders to offer more loans to buyers with smaller deposits. Rates have fallen sharply, and there are good deals to be had for savvy first-time buyers, which has made a mortgage much easier to come by. The uptick in confidence, beneficial to both parties, is contagious.

“But there is a down-side to the good news. There is simply not enough housing stock to match continued demand. If supply fails to keep pace with demand the housing market will become increasingly unsustainable. Prices will rise sharply, and future first-time buyers will be left in the lurch. There is a desperate need for further cheap property in order for the run of success to continue.”

The Aspiration Gap

In July, 98% of registered tenants wanted to become a homeowner, up 2% from April, and 9% higher than in December, but only 12% are expecting to buy before the end of the year. Almost half (49%) are expecting to buy in the next five years, a significant increase from the start of the year. In December, only a third (36%) of tenants expected to buy in the next five years.

And tenants currently unable to become first-time buyers named the inability to save for a deposit as the biggest stumbling block to homeownership. More than half (46%) are unable to buy as they can’t save for a deposit, and a growing number of potential first-time buyers (19%) are concerned that rising costs like stamp duty will get in the way – up by a third from just 13% in December 2012.

London & the South East VS the rest of the UK

The concerns over building a deposit are even more apparent in London and the South East. In this region, 55% of tenants who can’t afford to buy are prevented by high deposit requirements, 12% higher than in the rest of the UK. This is a result of prices in the capital rising more quickly than the rest of the UK. The latest England and Wales house price index from LSL shows that house prices in London have risen by 7.1% over the year to June, whilst prices in England and Wales as a whole rose by just 2.2%

Transaction costs such as legal fees and stamp duty are more of a concern to tenants in London and the South East, with over a quarter (27%) naming these costs as a key factor blocking them from purchasing property, compared to just 16% in the rest of the UK. Worries about having enough income for repayments played a lesser role than in the rest of the UK, concerning just 8% of potential first-time buyers.

David Newnes continues: “It remains a huge challenge for first-time buyers to purchase property in the capital. House prices are more expensive, and the size of deposit required dwarfs that in the rest of the country. It’s the reason why six out of tenants in London can’t afford to buy. And there are further concerns for the London market. Higher legal fees and stamp duty costs are turning further first-timers off buying.”

The profile of a first-time buyer

The average first-time buyer in July was 30 years old, with an annual salary of £36,299 per annum, 4% higher than in July 2012, when the average salary was £34,936.

The number of first-time buyers who were able to self-fund their purchase fell to 41% in July, from 51% in April. 36% of all first-time buyers in the UK received financial help to put together a deposit from parents or relatives, whilst 9% benefitted from an inheritance, and 2% received familial help with mortgage repayments. 4% received financial help from a government scheme such as Help to Buy, up from 1% in April.

Once again, Londoners need the most help to get onto the ladder, with 44% of all first-time buyers in London receiving help towards a deposit, compared to just 33%, and just 36% of buyers able to self-finance.

44% of all first-timers were looking for houses with three or more bedrooms, and the second most popular property type were two bedroom houses (31%). Flats continue to attract far fewer first-time buyers – with just a quarter of buyers looking for flats rather than houses.

Why buy now?

Four in ten (41%) first-time buyers said they were choosing to buy now as they had only recently been in  a position financially stable enough to purchase a property, while a quarter (26%) chose to buy to own a house with their partner, and a second quarter (25%) feel it is time for them to settle down. Only 8% bought for investment purposes,  expecting house prices to rise, down from 11% in April.

And first-time buyers are confident that the value of property is set to rise. Almost half (46%) of UK first-time buyers think that house prices will rise by up to 5% in the next year, while a further two in ten (18%) believe prices will rise between 5% and 10%. Only three in ten (28%) first-time buyers believe prices will remain flat in the next year, while less than 4% believe prices are likely to fall.

LSL / Acadametrics Scotland HPI

Scottish house prices up £1,648 in 2013
• Sales in Q2 2013 are 7.7% higher than last year
• First-time buyers accounting for a larger percentage of sales

Alan Penman, of Walker Fraser Steele chartered surveyors, part of LSL Property Services, comments: “Scottish house prices have gently taken a tumble in the past three months – the latest figures show prices fell by £627 in June compared to May. But the housing market is bearing up well under a sea of adversity. Prices are down slightly month-on-month, yet they are higher than they were at the start of the year.

“There are some green shoots of recovery, with house sales 7.7% higher in Q2 this year than the equivalent period last year. The rise in sales is powered by increased sales to first-time buyers. But homeowners and prospective buyers are wise to be cautiously optimistic. Although the availability of mortgages is noticeably better, sales levels in the first half of 2013 are still low in contrast to 2007 (only 48% of the level). Sadly there’s still an unhealthy dependency on wealthier borrowers and landlords when looking closely at sales levels.
“Without doubt, the main barrier to a full recovery in the housing market is mortgage lending, which is still low compared to its pre-financial crisis levels. The high cost of rented accommodation is a drain on personal finances, but plenty of first-time buyers have decided to bite the bullet and start saving up for the large deposit needed for a mortgage. Now the economy has crawled out of the badlands, the banking sector is improving rapidly. Lending, particularly to buyers with small deposits, has been boosted thanks to the support of the Funding for Lending and Help to Buy initiatives.
“More first-time buyer activity is needed to ensure the housing market fully rehabilitates. There is volatility in Scottish house prices depending on the distribution of the majority of first time buyers, with cities such as Glasgow and Sterling seeing significant rising prices in June, and more remote parts, such as Orkney and Falkirk experiencing the largest monthly falls in prices. The government must continue to support first time buyers, if the market is to successfully inch its way towards a more sustained recovery. As the economy expands and employment improves, the property market too will perk up.”

LSL/ACADAMETRICS ENGLAND & WALES HOUSE PRICE INDEX

House prices hit another record high in July
• Beats previous peak in 2008
• House prices up £5,796 in the past twelve months, reaching a high of £232,969
• With first-time buyers accounting for 45% of all house purchases

David Newnes, director of LSL Property Services plc, owner of Your Move and Reeds Rains estate agents, comments: “House prices have never been higher. 2013 has marked the time when the property market recovered from the 2008 financial crisis. Prices are up £5,796 over the past year, thanks largely to a significant increase in mortgage lending to first-time buyers. House prices are growing steadily; signifying long term recovery is becoming a reality. Mortgage lending in May was up by over a fifth compared with April and 17% stronger than a year ago, while the number of first-time buyer mortgages are at the highest since 2007.

Typically the property market flourishes in the summer, and July sales are the highest so far this year. But the improvement is more than just a seasonal trend. The market is palpably stronger than a year ago and confidence is returning to lenders and buyers. The Funding for Lending scheme can take plenty of the credit, as can Help to Buy. Both schemes have helped banks boost first-time buyer lending by providing them with credit to offer more loans to new buyers and reduce rates on house purchase mortgages. Funding is more accessible for lenders, while banks are more confident than they were six months ago – which bodes well for the future.

But this improvement continues to be powered by the strong performance in the capital, where prices are rising far faster (7.1%) than other parts of the country. Domestic and foreign buyers’ interest for bricks and mortar in London appears to be undiminished. Supply is restrained, and without a sudden rush of properties hitting the market, prices will rise even more over coming months. The bottom line is that the divide between London and the rest of the UK housing market is deepening, with parts of London operating at an entirely different level from the rest of country, and even the rest of the capital.
Despite this overall improvement in the market, the level of first-time buyer activity is still around half a fraction of what might be considered normal levels. Both the lack of housing supply and rising competition in the property market are supporting prices, but at the same time making it more difficult for first-time buyers. The Government urgently needs to address housing supply if it is serious about boosting home ownership levels. One way would be to remove stamp duty which is a disincentive to buying for both home movers as well as first time buyers.”