Housing market volumes and prices stalled in the early months of 2017. Seasonally adjusted residential property transactions climbed from 98,000 in December 2016 to 102,000 in January 2017, but then remained almost static in February (101,000), March (103,000) and April (100,000).
Over this same period, seasonally adjusted mortgage approvals for house purchase recorded a gradual decline since the start of 2017: from 69,000 in January 2017 to 68,000 in February, 66,000 in March and 65,000 in April. However, with an average of 67,000 per month for the first four months of 2017, the number of mortgage approvals for house purchase matches the average of 67,000 per month in both 2015 and 2016.
It is very striking that the stability of housing market volumes extends back several years. Residential transactions months February, March and April. The Halifax house price index rose by 2.0% between December and March, with a 1.1% fall in the seasonally adjusted index, with price falls in January (-1.1%) and March (-0.1%).
Reports from the Bank of England’s business agents, based on information gathered over the period late March to mid April, reflect the statistical evidence of a stalled market: “Housing market activity had remained muted. Both the demand for, and supply of property was subdued, but broadly in balance overall.”
Weak London Market
The London market stands out as particularly weak. According to the latest Royal Institution of Chartered Surveys (RICS) housing market survey, London house prices have been falling for the last 14 months. London agents reported an average of 8 sales over the three months to April, well below the average for most other regions and less than half the England & Wales average of 17 sales. The South East (11 sales) averaged 102,000 per month in 2014, 103,000 per month in 2015, 102,000 per month in 2016 and 102,000 per month across the first four months of 2017.
Although the number of overall transactions remain broadly static, data from the Council of Mortgage Lenders (CML) show a stark contrast between firsttime buyer transactions, which were up 10% in Q1 2017 compared with Q1 2016, and transactions by home movers (down 16%) and buy-to-let buyers (down 39%). The number of first-time buyers in the 12 months to March overtook the number of home movers for the first time since 1996. First-time buyer demand has been boosted by several factors: record low interest rates, help from the Bank of Mum and Dad and the Help to Buy Equity Loan scheme in the new homes sector.
The year-on-year collapse in buy-to-let purchases was at least in part a and East Anglia (12 sales) also displayed relatively weak markets. In its March Trading Update, Berkeley Group, one of the largest London new home developers, reported a 16% year on-year fall in reservations in the post-Brexit seven months August 2016 to February 2017. The reduction was experienced across all price points.
New home sales buoyant
New home sales have been more buoyant than sales across the market as a whole. While there are no official transaction statistics for the new homes sector, a number of indicators point to relatively strong sales, supported in particular by the Help to Buy Equity Loan scheme.
Most of the large house builders have reported increases in sales, with strong forward order books. For example, Barratt, the largest UK house builder, is on track to achieve 17,350 sales in the year ending June, the highest for nine years. The company’s forward sales, up 12,7% in early May on a year ago, were at a record level. consequence of the surge in sales in March 2016 as investors rushed to beat the introduction of a 3% SDLT surcharge for investment and second-home buyers. However even after allowing for this short-term distortion, buy-to-let sales were sharply lower, year on year, throughout 2016.
This suggests that the SDLT surcharge has had a more permanent negative impact on demand. Changes to the tax treatment of mortgage interest payments by investors, to be introduced between April 2017 and 2020, seem likely to have a further depressing impact on buy-to-let demand.
House prices have also been broadly static in the early months of 2017. Between December 2016 and April 2017, the Nationwide house price index rose by a very weak 1.4%, while the seasonally adjusted index fell by 0.2%, with small price reductions in each of the three Growth in new home sales has translated into very strong growth in house building activity. First-quarter private housing starts and completions were both up a remarkably strong 22% on a year ago. In addition, private housing recorded the strongest growth of any sector in the RICS 2017 Q1 construction workload survey. This has been the case since 2013 Q1.
Housing Market Outlook
The market is likely to remain subdued during the rest of 2017. Real incomes, a key economic driver of housing demand, are being squeezed. Affordability is very stretched in many areas of the country. The SDLT surcharge and changes to the tax treatment of interest payments will continue to depress buy-to-let demand. However historically low interest rates, a continuing shortage of supply in both the new and second-hand sectors, and the highly successful Help to Buy Equity Loan scheme in the new build sector, should put a floor under prices.