MONTHLY MARKET REPORT – JULY 2018
Hello and welcome to our July Monthly Market Insight, bringing you the latest residential market data and industry news in one place.
July has been a month of departures. England fell at the semi-final hurdle in the World Cup and the UK government has said goodbye to two high profile figures. In contrast, the housing market has seen little movement.
While the UK basks in uninterrupted sunshine and temperatures reach historic highs, the supply of unsold housing stock remains close to historic lows. But with 8.6% more properties coming to the market than in the same period in 2017, things are taking a slight upturn nationally.
London prices continue to fall and while it’s hard to know if and when an upturn will come, the summer months are probably not the best time to look for increases as this is traditionally one of the slowest times with buyers and sellers are thinking more about holidays than houses.
Here’s this month’s Market Report in more detail:
A quick look at this month’s UK-wide HPI releases...
|Nationwide||Jun 18||May 18||Apr 2018|
The Nationwide is the world's largest building society, and one of UK's largest mortgage providers. *Seasonally adjusted.
Robert Gardner, Chief Economist, Nationwide
Annual price growth has been confined to a fairly narrow range of 2-3% over the past 12 months. There are few signs of change as surveyors continue to report subdued buyer enquiries and supply. Looking ahead, subdued economic activity and pressure on household budgets is likely to drag on activity, though borrowing costs are likely to remain low. Overall, we expect prices to rise around 1% over 2018.
London: London was the only UK region to see a decline in prices over Q2 2018, having seen modest falls in each of the last 4 quarters. Prices in London were -1.9% annually in Q2, however, are still over +50% their 2007 peak, while prices in the UK overall are only 15% higher.
The Divide: For the 5th successive quarter, annual price growth in Northern England (3.3%) exceeded that in Southern England (0.5%), though most areas saw a slowing in growth.
|Halifax||Apr 2018||Mar 2018||Feb 2018|
The Halifax House Price Index is the UK's longest running monthly house price series.
Russell Galley, Managing Director, Halifax Community Bank
Prices remain broadly flat and activity levels have softened compared with the final months of 2017. Mortgage approvals and home sales have remained flat so far this year, in contrast to the continuing strength of the jobs market and pressure on household finances easing as real income growth edges up.
At the halfway stage of the year the annual rate is within our forecast range of 0-3% for 2018.
We continue to see very positive factors of low rates, great affordability levels and a robust labour market. The continuing shortage of properties for sale should also continue to support price growth.
HMRC: UK sales grew 1% to 99,590 in May. In the 3 months to May sales were -4.8% on the same in 2017. Completed sales this year have held steady, averaging circa 99,000 per month.
Bank of England: Mortgages for purchases were 64,526 in May (+2.5% on the month and -2.1% on May 2017). Ends a run of 3 consecutive monthly falls. Approvals have been 63,000 - 67,000 over the past 5 months; indicating sales are unlikely to change significantly over coming months.
RICS: Activity remains steady. After falling 26 months in succession, new instructions edged up in May and average stock on agents’ books held broadly steady, albeit close to historic lows. New buyer enquiries fell again, although the pace of decline has slowed since the start of 2018.
ONS: Annual price growth for flats in the UK hits 0% for the first time in 6 years. It is suggested this is because ¼ of the UK’s flats are in London where prices are falling. House prices rose by 3% over the same period, the lowest since August 2013.
Rightmove House Price Index
Number of properties coming to market +8.6% compared to same in 2017, but no corresponding increase in buyer numbers.
Sales agreed steady at -0.2% compared to the same in 2017.
Stock per agent branch highest since September 2015 (average 52).
⅓ sellers reduced asking prices (highest at this time of year since 2011).
Average days to sell 56 in June - same as May and similar to 55 of June 2017.
Average days to sell 67 in June - same as May and higher than 61 of June 2017.
Rightmove Asking Price Data for London
|Category||Average Asking Price (July 2018)||Monthly Change||Annual Change|
|By Travel Zone|
|By Market Sector in London|
|Second - Steppers||£708,019||1.0%||0.2%|
|Top of the Ladder||£1,362,252||-8.3%||-2.7%|
|National Average for Comparison|
|By London Borough (3 month rolling average)|
|Kensington & Chelsea||£1,709,527||-0.1%||4.1%|
|Barking & Dagenham||£318,264||0.8%||1.9%|
|Richmond Upon Thames||£854,563||-0.9%||0.7%|
|Kingston Upon Thames||£607,662||-0.4%||-1.8%|
|Hammersmith & Fulham||£913,062||-0.3%||-3.3%|
Miles Shipside, Director and Housing Market Analyst, Rightmove
Sellers are usually reluctant to come to market in the summer holiday season as they focus on packing sun-gear rather than packing away their clutter, and erecting sun umbrellas as opposed to ‘For Sale’ signs.
Sellers are a welcome sign in a stock-starved market, however, unfortunately at a quieter time of year.
Sales agreed by estate agents is consistent with the same month in 2017 and holding up well considering the uncertain political background and stretched affordability. In fact, there are signs activity is improving as the year progresses with sales agreed over 2018 now down just 3.9%, compared to 5.4% in May.
It’s well documented that the top end of the market has been struggling for the past couple of years, but asking prices in the lowest priced sector are now experiencing a larger percentage fall. Aspiring FTBs are among the greatest potential beneficiaries of the downwards adjustment over the last year.
It’s hard to know if prices will fall back further, though traditionally prices are weakest in the summer holiday period and the winter season.
RICS - UK Residential Market Survey
New instructions recorded positively for 2 consecutive months (first time since 2016).
However, appraisals by valuers is still down on the same period of 2017 nationally.
A cautious view is also justified by the 12 month sales expectations results which saw the lowest figure since October 2017.
The Survey has in the past highlighted a lack of second-hand stock. This series has edged up in each of the last 4 months, albeit very marginally. However, the average inventory of unsold supply per agent branch still remains close to historic lows at 43.
Agreed sales at -7% was the 16th successive negative month.
Suggests the softer trend compared with 2017 (-3%) will persist over coming months.
New buyer enquiries provide little reason to expect uplift in sales volumes over H2 2018.
Time to complete has edged up from circa 16 weeks spring 2017 to circa 18 weeks now.
Price balance edged up +2% in June compared with -2% in May. 13th month in a row in the range of +/– 10% and is suggestive of the flattish price picture in the near term.
12 month expectations remain positive and over 5 years points to cumulative gains +12%.
A further drop in instructions during June (-22%) marks the 21st consecutive month.
Rent expectations point to modest increases over the course of the next 12 months and a cumulative average of around +15% is projected over the next 5 years.
BCIS Private Housing Construction Price Index (PHCPI):
Costs +3.4% in the year to Q1 2018 (cited as 20% labour, 30% materials, 50% both).
Housing starts began to rise in 2013 and continued until a fall in Q3 2017, albeit still +44% on Q3 2012. Costs picked up around the same time and in Q1 2018 were +28% on 2012.
Contractors expect costs to continue to rise in Q1 2018 a further 1%.
Simon Rubinsohn, RICS Chief Economist, RICS:
It is hard to see what is going to provide much impetus for activity in the housing market in the near term.
UK Finance Press Release
UK Data for April 2018
|Type of Borrower||Value of Loans||Monthly Change||Annual Change||Number of Loans||Monthly Change||Annual Change|
|First time buyers*||£4.4bn||-13.7%||+4.8%||26,700||-14.4%||+3.5%|
|BTL house purchasers||£0.7bn||-12.5%||-12.5%||5,000||-9.1%||-5.7%|
|*The average first-time buyer is 30 and has a gross household income of £42,000. **The average homemover is 39 and has a gross household income of £55,000.|
Jackie Bennett, Director of Mortgages, UK Finance:
Remortgaging activity bounced back in April, as homeowners and landlords put their house in order by locking into attractive fixed-rate deals ahead of an anticipated interest rate rise.
The number of first-time buyers has grown year on year, outstripping the number of homemovers. This may reflect the impact of measures such as the recent stamp duty cut and the Help to Buy.
NAEA - Housing Report - May 2018
Demand increased from 337 house hunters registered per branch in April, to 351 in May.
Year on year, there hasn’t been much movement as May 2017 saw 350 per branch.
Over a 2 year comparison, demand has increased hugely (+15%) from 304 in May 2016.
Supply increased +12% in May (37 homes available per branch compared to 33 in April).
An increase has occurred every May since 2015 and is typical during the summer months.
This is down from 40 in May 2017 (10 year comparison -62% from 97 in May 2008).
Sales agreed stood at 8 per branch (for 4th month). 24% were to FTBs (for 2nd month).
This is down from 10 in May 2017, and percentage to FTBs is also down from 26%.
Mark Hayward, Chief Executive, NAEA
We see this every year. House hunters and sellers flock the market in May, hoping to get everything tied up so they can enjoy their summer holidays. But those willing to be more flexible might do well to hold off until July and August while the market is undoubtedly quieter and competition is a little less intense.
Savills - The Savills Housing Sector Survey 2018
A majority of the industry (64%) believe the main priority for the housing sector is to build more homes (36% to prioritise managing existing homes).
94% say the number one priority is one of 3 groups: working households unable to afford the market; the homeless; and vulnerable people.
86% believe the sector is not doing enough to solve the crisis. Of these, 75% say there is appetite in their organisation to do more, suggesting inefficiencies hampering progress.
As a whole, the sector thinks social rent is the right tenure to meet need in most cases.
Housing association leaders recognise the challenge of increasing the supply of homes and 73% say it has become more of a priority over the past year. But significant barriers to growth include access to land (85%) and a need to change financial arrangements (43%).
Brexit is only a minor worry. Minimal impact is expected on most aspects of businesses, except construction capacity and costs, including an ageing workforce and skills shortage.
Competition for development land is hotting up as housing associations large and small are increasingly entering the market as an alternative to acquiring stock through section 106.
Savills - Market in Minutes
New homes and first time buyers
First time buyers have increased their share of the market, but are limited by affordability.
Average size of a new build flat has decreased 14% over the past 2 years.
365,000 first time buyers completed on a mortgage in 2017.
The average mortgage for a first time buyer is now 3.6x average income.
A key buyer group for new homes
A series of government-led initiatives have resulted in first time buyers forming an increasingly important buyer segment for new build homes.
UK Finance: FTBs were responsible for over 50% of new residential mortgages in Q1 2018. Translates to 81,000 mortgages with a value of £13.2 billion (+6% on Q1 2017).
Around 365,000 FTBs completed on a mortgage in 2017 – the highest number since 2006.
Since 2009, average income multiple for a FTB mortgage is +16% from 3.1x to 3.6x.
UK Finance: Average household income for a FTB is now £41,760.
Affordability: the limiting factor
Affordability, both raising a deposit and securing a mortgage, is impacting the kind of home and age at which FTBs can buy.
During the past 3 years, 59% of Savills new build FTBs were under 29. In the South East and East of England, 41% were between 30-39, reflecting the longer time it takes to save a deposit where prices outstrip incomes (in the South West only 14% were in this bracket).
People are increasingly looking to future-proof their homes as moving becomes more expensive, however, affordability limits availability to many. In 2015, the average new flat bought by a Savills FTB was 700 sq ft. By 2017, this had decreased by 14% to just over 6oo sq ft. During the same period, the average purchase price increased 22%.
The importance of Help to Buy
NHBC Foundation: Help to Buy is the top priority for FTBs purchasing a new build property, with 58% rating it as a very important reason for buying their home.
Since the scheme launched in 2013, it has supported 36% of new build home sales in England, with 81% of these sales going to FTBs.
Help to Buy and exemption to SDLT for most FTBs can provide a solution to future-proofing by allowing buyers to purchase larger homes only requiring a 5% deposit.
Help to Buy: beyond 2021
Uptake of Help to Buy has been highest in the Northeast (lowest prices in England).
The markets with lower levels of Help to Buy sales are typically those at the higher end of the affordability range for FTBs. In London, for example, although take up has increased, much of the stock delivered is above the £600,000 cap.
Help to Buy continues to grow. Loans issued in 2017 using Help to Buy increased by 20% on the previous year, with the total value of these loans increasing by 39% over the year.
The projected end date of Help to Buy is 2021.
Knight Frank - UK Residential Market Update
UK average prices rose +0.5% in June, but annual growth slowed to a 5 year low at +2%.
Transaction levels dropped slightly at the beginning of the year.
Stock coming to the market remains near record lows, but is edging up in some areas. This is unlikely to ease current constraints, which is underpinning pricing in many areas.
The UK’s economic prognosis has improved in recent months, despite political uncertainty, suggesting the lower than expected 0.1% Q1 GDP growth will not repeat in Q2. A lull in inflation with slightly stronger wage growth also means spending power is on the rise.
Knight Frank - Prime London Residential Market Update
The current period of price declines has lasted almost as long as that of the early 1990s.
Demand remains price-sensitive and increasingly driven by buyers with a need to move.
Supply has risen as more landlords attempt to sell. Some properties have gone back to the lettings market as asking prices are not met but the trend may still weigh on sales prices.
The number of £1m+ properties listed for sale rose in May (highest in over 4 years).
The ratio between new buyers and new listings rose to 5.7 in May. The trend highlights the underlying strength of demand despite rising supply levels.
Annual rental change turned positive for the first time since January 2016.
As supply has declined, the relative strength of demand has risen. The ratio between new prospective tenants new lettings listings rose to 4.6 in May (highest in more than 10 years).
The proportion of landlords registering as new prospective buyers has fallen over the last 4 years in both POL and PCL (13% in May 2018 compared to 20% in May 2014).
Stock in the year to May 2018 was -14% on the previous year, pushing up rents.
In other news…
Scientists in France have constructed a single-story home that measures only 20 microns (millionths of a meter) across. That’s about 1/5 the width of a human hair.
The microscopic house has a tiled roof, seven windows, a door and a chimney.
It was made by a robot controlling a tightly focused beam of ions.
The scientists behind it say the capability to create such intricate nanostructures could one day transform industries ranging from aerospace to medicine.
In our opinion, however, it is unlikely to aid the housing crisis any time soon.
Land Registry research by the BBC revealed 2017 sales of £1m-plus homes hit a new high - but in 16 areas of England and Wales no property topped the £1m mark since 2007.
The 16 areas are clustered primarily in the North West of England (7), and Wales (3).
Previous research showed that, during the past decade, most £1m-plus properties were sold in London, but sales have doubled in the East of England - the biggest of any region.
University cities such as Cambridge and Bristol also saw £1m-plus sales surge.
A total of 125,898 sales completed in England and Wales for £1m or more since the start of 2007. The local authority with the most sales during the period was Westminster (12,917).
Longer Terms for Tenants
A minimum tenancy term of 3 years would be introduced under government proposals to give people renting homes in England more security.
80% tenants currently have contracts of 6 or 12 months, however, figures show renters stay in a property for an average of 4 years.
Tenants would be able to leave earlier under the plans while landlords would get more financial security. Exemptions could apply to some types of tenant.
The proportion of 35 - 54 year-old private tenants has nearly doubled in 10 years as home ownership in the UK has dropped from 72% a decade ago to 63% last year.
Labour says the plans do not go far enough and rent rises should be capped.
A consultation on the minimum tenancy term will run until the end of the August.
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
|Halifax House Price Index||Halifax||06/07/2018||Find out more|
|Nationwide House Price Index||Nationwide||July 2018||Find out more|
|Rightmove - House Price Index||Rightmove||July 2018||Find out more|
|HMLR - House Price Index (May 2018)||HMLR||18/07/2018||Find out more|
|RICS UK Residential Market Survey - June 2018||RICS||12/07/2018||Find out more|
|Remortgaging bounces back as borrowers put their house in order||UK Finance||14/06/2018||Find out more|
|Housing Report - May 2018||NAEA||June 2018||Find out more|
|Prime Central London Sales Index - June 2018||Knight Frank||June 2018||Find out more|
|Prime Central London Rental Index - June 2018||Knight Frank||June 2018||Find out more|
|UK Residential Market Update - June 2018||Knight Frank||June 2018||Find out more|
|The Savills Housing Sector Survey 2018||Savills||26/06/2018||Find out more|
|7 take-outs from our housing sector survey||Savills||26/06/2018||Find out more|
|The nature of need||Savills||26/06/2018||Find out more|
|The reality of supply||Savills||26/06/2018||Find out more|
|The 100,000 home challenge||Savills||26/06/2018||Find out more|
|Rents and income: the missing link||Savills||26/06/2018||Find out more|
|Brexit fears building||Savills||26/06/2018||Find out more|
|Meeting development aspirations||Savills||26/06/2018||Find out more|
|Market in Minutes: New homes and first time buyers||Savills||21/06/2018||Find out more|
|Housebuilders’ costs respond to increased workload||RICS (BCIS)||25/06/2018||Find out more|
|Prices of flats stay unchanged for a year, says ONS||BBC - Business||18/07/2018||Find out more|
|Properties taking longer to sell in sluggish market, says RICS||BBC - Business||12/07/2018||Find out more|
|House prices: The areas where homes never cost £1m or more||BBC - Business||06/07/2018||Find out more|
|UK house prices grow at slowest rate for five years||BBC - Business||06/07/2018||Find out more|
|Purplebricks losses grow on international expansion||BBC - Business||05/07/2018||Find out more|
|A quarter of estate agents 'in financial distress'||BBC - Business||02/07/2018||Find out more|
|Renters would get longer tenancies under government plans||BBC - UK||01/07/2018||Find out more|
|UK housing market lull drags into summer, says Nationwide||BBC - Business||27/06/2018||Find out more|
|Why scientists created the world's smallest house||NBC MACH - Denise Chow||30/05/2018||Find out more|