Recovery looming in the housing market
There is further evidence of a recovery in the UK housing market following the publication by the Royal Institute of Chartered Surveyors (RICS) of statistics which show a further upturn in confidence amongst their members that prices are expected increase over the coming three months. The proportion of surveyors expecting prices to increase exceeded those anticipating a fall by 39%. This is the highest level experienced in the survey since February 2008 – the time when the financial crisis started to materialise as a major global concern.
Encouragingly, surveyors are reporting increases in both housing prices and the number of people looking to buy. A RICS spokesperson indicated that there were a growing number of vendors putting their homes up for sale as concerns about the financial situation started to ease.
The sentiment in London was strongest with a 33% gap between those expecting rises versus those predicting falls. The average for the whole of the country was just 8% demonstrating that the regional expectations vary considerably. London has always been a lead indicator of housing prices both positively and negatively.
Although exposing concerns that the market is still in a fragile state, RICS expects that the latest release of positive data will encourage further houses to come to the market. Their primary concern is that there will be insufficient mortgage funding available to be satisfy the needs of new buyers. They are also concerned about the increasing rates of both unemployment and mortgage rates.
As a complement to the RICS survey, the Council of Mortgage Lenders (CML) says that the number of loans made to help people buy homes rose by 23% in June with an increase in house prices of 2.6% compared with the previous month. Around 45,000 new mortgage loans were approved in June which is just 6% fewer than in the same month last year.
A combination of lower house prices and mortgage company requirements for higher deposits meant that the amount lent was 17% lower than June 2008 at £5.9bn. The average loan to value of the home reduced to 75% from 87% in June 2008. Encouragingly, the number of first time buyers applied for 17,200 mortgages in June which represented an increase of 26% on May.
Whilst encouraging, the CML figures indicate that the number of mortgages for June was less than half the seven year average for the period before the recession. Even first time buyer loans are less than a half of the 30,000 or so that were commonly experienced every month during better times.
A key to the market growing at a healthy and consistent rate is the availability of mortgage funding. The lenders have been battered over the past two years and now have to rebuild their balance sheets to new requirements issued by the Financial Services Authority and restore capital to compensate for losses. The number of foreign players operating in the market has been dramatically reduced as has the number of independent domestic providers. A significant number have now been acquired or merged with other players. Understandably, with housing prices falling and wholesale capital markets frozen, lenders have reacted by imposing tough deposit and credit criteria on loan applicants, increased margins and slashed the number of products available.
Following massive state intervention to prop up the banks and mortgage lenders, there is a growing sense that the worst is now over and that something approaching a more sensible (although conservative) normal service can be restored. Housing price data confirms that prices have stabilised and started to increase for a few months. Whilst unemployment continues to rise then there must be some doubt as to the strength of the recovery, but sentiment is more conductive today than at any time in the past two years.
First time buyers are now borrowing around 3 times their salary whilst existing home-owners looking to re-mortgage or buy are borrowing 2.8 times their salary. In historic terms and with low interest rates these are sustainable values.
There is evidence that consumers are expecting a higher rate environment in the next few years. The proportion of all borrowers applying for fixed rate mortgages has increased to 78% for the month of June – the highest value seen since the market peaked in June 2007.
Annual house price inflation statistics still show that prices reduced by 10.7% in the month of June – a reduction in the 12.7% annual fall for May. Housing prices are starting to recover, buoyed by increasing consumer confidence and look set to show modest gains through to the end of the year. Some analysts say that whole of 2009 may show a 0% price increase – an encouraging sentiment