Monthly Market Report - February 2018

By Steven Goovaerts

Hello and welcome to our February Monthly Market Insight, bringing you the latest residential market data and industry news in one place.

Amidst volatility in global stock markets, Ombudsman Services announced withdrawal from the housing sector this month and Sadiq Khan proclaimed a Londoners “first dibs” scheme on select homes worth up to £350,000 in the capital.  Here’s how the market performed in the meantime.

A quick look at this month’s UK-wide HPI releases...

Nationwide

Jan 2018

Dec 2017

Nov 2017

Annual

+3.2%

+2.6%

+2.5%

Month*

0.6%

0.6%

+0.1%

Avg Price

£211,756

£211,156

£209,988

The Nationwide is the world's largest building society, and one of UK's largest mortgage providers.
*Seasonally adjusted.

Robert Gardner, Chief Economist, Nationwide

Accelerating annual growth is surprising given signs of softening, and there is little evidence of imminent pickup as new buyer enquiries remain soft.  Lack of supply is likely the key factor supporting house prices.

Market performance in 2018 will be determined by the wider economy.  Brexit remains important, though hard to foresee, and modest forecasted growth of the UK economy at 1%-1.5%, alongside the ongoing squeeze on household budgets, is likely to drag on activity and growth.  

However, unemployment and mortgage rates are expected to remain low and alongside subdued building activity in recent years and consequent lack of supply are likely to provide support for house prices. 

Halifax

Jan 2018

Dec 2017

Nov 2017

Annual

+2.2%

+2.7%

+3.9%

Quarter

0%

+1.3%

+2.4%

Month

-0.6%

-0.6%

+0.5%

Avg Price

£223,285

£225,021

£226,821

The Halifax House Price Index is the UK's longest running monthly house price series.

Russell Galley, Managing Director, Halifax Community Bank

Annual house price rises have slowed to their lowest rate since July 2017. 

Although employment levels grew by 102,000 in the 3 months to November, household finances are still under pressure as consumer prices continue to grow faster than wages.  
However, despite the recent rise in the Bank of England Base Rate, mortgage rates are still very low. This, combined with an acute shortage of supply, will continue to underpin house prices over coming months.

HMRC: UK home sales in 2017 were marginally lower (-0.6%) than in 2016 at 1.23 million.  Annual sales have averaged 1.2 million since 2013, compared to 890,000 in 2008-2013.  Transactions in Q4 2017 were 0.5% lower than in the previous quarter.

Bank of England: Mortgage approvals for house purchases ended 2017 with a sharp fall, dropping 5.7% month on month in December to the lowest level since January 2015.  Over 2017, total mortgage approvals were 2% lower than in 2016.

RICS: New instructions to sell have fallen for 23 consecutive months – the worst sequence for almost 8 years.  New buyer enquiries fell slightly, having been broadly stable in previous months.

Halifax First-Time Buyer Review: The number of FTBs is estimated at 359,000 in 2017.  This is a 6% increase in the last 12 months, continuing a 6-year upward trend. FTBs now account for 50% of mortgage purchases, up from 36% a decade ago. This increase is despite the average deposit nearly doubling from £17,740 to £33,339 over that time.

 

RICS – UK Residential Market Survey

The Market

In January, new buyer enquiries fell for a 10th successive month and sales fell extending the negative run since February 2017.  As such, 3 month expectations for transactions are flat, however, 12-month projections are modestly positive in most areas.

There is no sign of an upturn in stock with 17% more respondents seeing a decline in instructions in January, the weakest since May 2017, and the pipeline does not appear to be improving, with 10% more noting valuations undertaken is down on the year.

House Prices

Price sentiment is unchanged from December with 8% more respondents seeing a rise in prices. This is consistent with further modest price growth.

Regional trends continue as London remains negative and falling prices are reported across the South East, East Anglia and North East (albeit to a lesser extent than London).  Meanwhile, the North West, Northern Ireland and Wales posted the strongest growth.

3-month price expectations remain flat, however, 12-month projections are positive in 11 of 12 regions.  London is the exception, despite the least negative results in 6 months.

Survey results continue to highlight more expensive tiers experiencing challenges:  

  • £1m+: 67% of respondents said sales prices are below asking prices (compared to 71% in October).  Most reporting prices between 5% and 10% below.
  • £500k to £1 million: 56% said sales prices are below asking (compared to 62% in October), with 41% saying prices achieved were up to 5% below. 
  • £0 to £500k: 58% noted sales prices were coming in at the same level as asking prices or slightly above, although a significant 42% said they were below. 

Lettings

Tenant demand edged up in the 3 months to January, but landlord instructions fell back slightly. This imbalance prompted positive rental growth expectations for the near term.

Regionally, rent expectations are still negative in London and rents are anticipated to see little change in the South East. Over the next 12 months, however, rental projections are slightly positive across both areas.  Elsewhere they are generally expected to move higher.

Simon Rubinsohn, RICS Chief Economist, RICS

“The latest results point to housing transactions remaining subdued over the coming months despite some more sentiment.  Lack of inventory continues to provide a major challenge with the number of valuations not suggestive of a pick-up in supply anytime soon.  Divergent regional trends remain to the fore with the market in many parts of the country still behaving in a solid if unspectacular way despite downbeat headlines.  Affordability issues continue to play a key role in explaining this pattern with areas where affordability is most stretched seeing the softest markets.”

UK Finance Press Release

  • Gross mortgage lending of £256.1bn in 2017 is up 4% on 2016, however, approval activity in Q4 2017 was 3% down on Q4 2016.
  • Gross mortgage lending in December 2017 is estimated at £20.2 billion, +1.2% on the year.
  • Mortgage lending for purchases all fell in December 2017 compared to December 2016.
  • 2017 saw 365,000 first-time buyer mortgages, the highest since 2006 and up 7.4% from 340,000 in 2016.  However, those completed in December were 5.2% down year on year.

Type of Borrower

Value of Loans

Monthly Change

Annual Change

Number of Loans

Monthly Change

Annual Change

First time buyers*

£5.1bn

-8.9%

-1.9%

30,800

-11.5%

-5.2%

Home movers**

£6.5bn

-14.5%

+3.0%

30,700

-15.4%

-4.7%

BTL house purchasers

£0.8bn

-11.1%

-11.1%

5,300

-20.9%

-17.2%

Homeowner remortgage

£5.2bn

-21.2%

+8.3%

30,500

-21.2%

+7.4%

BTL remortgage

£1.6bn

-27.3%

-11.1%

9,900

-27.7%

-11.6%

*The average first-time buyer is 30 and has an income of £41,000 (up from £40,000 in November).
**The average home mover is 39 and has an income of £55,000 (up from £54,000 in November).

Arrears & Repossessions

Homeowner arrears and repossessions fell slightly between Q4 2016 and Q4 2017.

Buy to let arrears have increased.  This is particularly pronounced for those mortgages with significant arrears (10% or more of the outstanding balance) which has grown 20% Q4 2016 to Q4 2017.  Repossessions remained unchanged over the period.

Paul Smee, Head of Mortgages, UK Finance:

“2017 saw the number of first-time buyers reach its highest level in a decade, however, there is no room for complacency, with weaker December figures consistent with a subdued market forecast over 2018."

"A less buoyant buy-to-let market, continues to be impacted by recent tax and regulatory changes. This will continue to flatten gross lending volumes over 2018."

"Annual homeowner possessions currently stand at a 36 year low, with overall arrears and possessions continuing to decline. ”

 

Knight Frank - Prime Central London (PCL) Residential Market Update

Sales

Recent figures suggest a stabilising market, with declines over the last 20 months bottoming out:

  • Average prices fell -0.7% in the year to January, compared to -6.7% to January 2017.
  • Transaction levels were up 5% in the last 6 months of 2017 compared to the same in 2016.  
  • After 3 successive declines, the ratio of new buyers to new properties rose in 2017.
  • While the trend is a stabilising market, there is little uniformity across price bands and geographies as markets adapt to the changed tax landscape in different ways:
  • Stamp duty reform had an earlier pronounced impact on the high-end market, leading to quicker price adjustments and this level continues to outperform lower value markets:
  • £10 million+: Prices were up 0.2% in the year to January, the first time for almost 2 years. 
  • £5 million to £10 million: Prices rose annually for the 3rd consecutive month.  This band also had the largest rise in sales volumes, up 14.3%.

Rentals

  • Average rental values in PCL fell 2.1% in the year to January (the lowest rate of decline since April 2016) suggesting falls over the last two years are bottoming out.
  • Falling rents are due to high levels of stock, meaning a tenant lead market.  However, new lettings listings in Q4 2017 fell 19% from Q4 2016, the largest such fall in 7 years.  This may indicate the market is poised to tip back in favour of landlords as stock moderates.
  • Recent high levels of supply are largely attributable to a 49% year-on-year increase in Q2 2016, following the introduction of a 3% stamp duty surcharge for landlords.  It was the biggest jump since 2008 and kept stock levels comparatively high over the next 12 months.
  • Moderating supply and growing demand have lead to a 5% increase in tenancies agreed in 2017 over 2016 according to LonRes. Knight Frank saw a 12% increase over the same.
  • As supply continues to re-balance, the rental forecast is +0.5% over 2018, reflected by an increase in viewing numbers at +17% over 2017 and tenants registering also up +16%.

Yields

Knight Frank PCL Residential Yield Guide

Sector

Reported Yield

February

2018

January

2018

Market Sentiment

Zone 1 Prime Central London

GIY*

3.25%-3.50%

3.25%-3.50%

STABLE

Zone 1 Prime (Outside PCL)

3.75%-4.00%

3.75%-4.00%

STABLE

Zone 2 Prime

NIY**

3.50%-3.75%

3.50%-3.75%

STABLE

Zones 3-4 Prime

3.75%

3.75%

POSITIVE

Greater London Prime

3.75%-4.00%

3.75%-4.00%

POSITIVE

South East Prime

4.00%-4.25%

4.00%-4.25%

POSITIVE

*Zone 1 is reported gross in line with market practice with no allowance for operating costs.
**NIY - Where reported an appropriate discount has been assumed for operating costs.

NAEA – Housing Report – December 2017

Activity

  • Demand fell 20% in December (268 buyers registered per branch from 333 in November).
  • Sales agreed per branch fell to 5 (lowest since December 2014, down from 7 in November).
  • FTB sales increased to 32% of total (highest since September 2016 and up 5% monthly).

Supply

  • Stock remained fairly stagnant in December, falling from 34 to 33 on average per branch. This is down 20% from December 2016 when the average was 41 per branch.
  • Time from offer acceptance to exchange of contracts fell marginally in December:
  • 4% went through in under 4 weeks, compared to an average 1% in 2016.
  • Transactions taking longer than 17 weeks fell to 4% from 7% in November.

Mark Hayward, Chief Executive, NAEA

“We see this year in, year out. Buyers take a back seat in December to enjoy the festivities, while sellers keep their homes on the market in the hope that someone will take interest and make an offer.  What we don’t usually see is FTBs capitalising on this slump and using it to their advantage – 44% of members think the stamp duty cut for FTBs will encourage more to make offers.  Hopefully this enthusiasm won’t falter when second and third time buyers come back onto the market and competition hots up again.”

The English Housing Survey - Home Ownership & Private Renting

Nationwide

  • The Ministry of Housing, Communities & Local Government revealed homeownership held stable in 2017 at 62.6% (62.9% in 2016 and down from a 2003 peak of 70.9%).
  • Over the past decade, there has been a marked decline in ownership amongst young adults aged 25-34, with just 37% owning.  The fall amongst those aged 35-44 has also been pronounced, suggesting rather than buying later, some would-be FTBs are not buying at all.
  • Consequently, the private rental sector has continued to absorb growth in households, with the number reaching a record high of 4.7 million, up 75% over the past decade.  20% of households in England are now privately rented, up from 13% in 2007.
  • Within the 35-44 age group, households renting has increased 126% over the past decade whilst there has also been a significant increase in the 45-54 age group.
  • There has been a rise in outright ownership for owner occupiers, standing at a record 7.9 million (up 1.4 million over the past decade, and nearly all amongst homeowners aged 65+).

 

Jonathan Gorvin, Head of Regulatory Policy and Development, RICS

A note on the withdrawal of Ombudsman Services

Ombudsman Services has announced it will no longer offer alternative dispute resolution (ADR) services with regard to building surveyors, managing agents, estate agents and letting agents, and their services, from 6th August 2018.

RICS has approved several ADR providers for consumer dispute resolution. These providers resolve consumer complaints against RICS regulated firms without the costs associated with seeking redress from the courts.

Ombudsman Services is currently the only provider covering the full range of surveying activities.  The RICS are therefore working closely with other approved providers to ensure suitable and sustainable arrangements for firms and consumers going forward.

While RICS agree the UK residential property market is fragmented, it is important to ensure consumers continue to have access to redress during any transition.

As the leading body for setting and enforcing standards in property and the built environment, RICS are working with government, and redress providers, to ensure any future regulatory regime for the UK residential sector is fit for purpose.

 

In other news…

Do you believe in “The One”?

Paul McClean, the architect behind Beyoncé and Jay-Z's $88 million “home”, is building a new $500 million mega-mansion in LA called “The One”.

Arranged over a modest 100,000 square foot, it is set to come complete with 20 bedrooms, 7 pools, jellyfish lounge, casino, beauty salon, nightclub and master suite of some 5,500 square feet.

Nile Niami bought the hilltop property in 2012 for $28 million and gutted the original paltry 10,000 square foot house to make room for the mega-mansion.

Due to launch this Spring, Niami expects the eventual buyer will purchase the mansion as a fifth or sixth home and use it like a private hotel when they're in town. 

The house will be one of the largest private residences in the US and, if it achieves its price-tag of $500 million, will be the most expensive private residence ever sold.

The most expensive home sold to date in the US went for $137 million, while the most expensive home in the world, Chateau Louis XIV in France, sold for a reported $300 million in 2015.

 

We hope you find this market insight informative, however, should you have any queries or recommendations on this or any of our other articles, please contact us

 

Sources & Further Reading

Article

Source

Release Date

Link

Halifax House Price Index

Halifax

07/02/2018

Find Out More

Nationwide House Price Index

Nationwide

January 2018

Find Out More

Rightmove - House Price Index

Rightmove

February 2018

Find Out More   

RICS UK Residential Market Survey - January 2018

Royal Institution of Chartered Surveyors

02/02/2012

Find Out More

First-time buyers in 2017 reach decade-high but market cools in December

UK Finance

13/02/ 2018

Find Out More

UK Finance Update on Lending for December 2017

UK Finance

25/01/2018

Find Out More

Mortgage Arrears and Possessions Update – February 2018

UK Finance

February 2018

Find Out More

Prime Central London Sales Index - January 2018

Knight Frank

January 2018

Find Out More  

Prime Central London Rental Index - January 2018

Knight Frank

January 2018

Find Out More

UK Residential Investment – Yield Guide - February 2018

Knight Frank

February 2018

Find Out More

Housing Report - December 2017

NAEA

January 2018

Find Out More

Ombudsman Services announces withdrawal from the surveyor market

RICS -

Jonathan Gorvin - Head of Regulatory Policy and Development

06/02/2018

Find Out More

Most new home buyers since ‘06 but London sags

City AM -

Emma Haslett

14/02/2018

Find Out More

Mortgage approvals at the lowest for five years

BBC -

Business

25/01/2018

Find Out More

Borrowers ignoring mortgage timebomb, says FCA

BBC -

Business

30/01/2018

Find Out More

Sadiq Khan: 'Londoners to get first dibs on new homes'

BBC -

London

05/02/2018

Find Out More

Ombudsman abandons 'broken' housing market

BBC -

Business

06/02/2018

Find Out More

Jump in landlords facing serious mortgage arrears

BBC -

Business

08/02/2018

Find Out More

First-time buyers 'at 11-year high'

BBC -

Kevin Peachey

13/02/2018

Find Out More

The architect behind Beyoncé and Jay-Z's $88 million house is building a new $500 million LA mansion with 7 pools, a jellyfish lounge, and a casino

Business Insider UK -

Tanza Loudenback

02/01/2018

Find Out More

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About the author

Steven Goovaerts avatar

Steven Goovaerts

Steven is a Graduate Surveyor and versatile member of the team, currently undertaking an MSc in Real Estate Management at the University of the West of England and enrolled on the Assessment of Professional Competence.

Read more about Steven Goovaerts

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