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It was speculated that the investor activity drop-off after the April 1st stamp duty deadline would act as a brake on prices at the lower end of the market. However, intense investor activity – with March transaction numbers up a massive 80% on last year – has exacerbated the property drought in this sector and is now causing upwards price pressure. The modest overall 0.4% rise (+£1,118) in the price of property coming to market in the last four weeks, to a new record of £308,151, masks a price surge of 6.2% (+£11,298) in the lower-end sector (properties of two bedrooms or fewer excluding Inner London).

Miles Shipside, Rightmove director and housing market analyst comments:

“If you were expecting a long period of price doldrums at the lower end of the market following the mass exit of the buy-to-let brigade, this month’s 6.2% price rise will come as a big surprise. Properties at the lower end of the market were the most common target for the investor community, and the immediate aftermath of the tax deadline saw new seller asking prices drop in this sector for just one month. The 1.4% fall reported in April’s index appears to have been a very short-lived knee-jerk, with an average price surge of £11,298 this month for properties coming to market with two bedrooms or fewer. It remains to be seen if these prices can be achieved and there may be some over pricing in the market; it is also a reflection of better quality property coming to market in this sector which is now targeting owner-occupiers rather than landlords.”

In the period between the November announcement of a stamp duty rise and its implementation at the end of March, the price of property coming to market in this first-time buyer/investor sector increased by 3.0%. In just four weeks it has now risen by 6.2%, the highest monthly rise recorded for this sector since February 2012. Demand for typical entry-level property remains high, with searches on Rightmove specifying two bedrooms or fewer being up by 47% this April compared to April 2015 in spite of waning investor interest. In contrast, fresh supply for this sector is down by 1.5% in the last four weeks compared to the same period a year ago. While the price of a first home is accelerating, motivation to get on to the housing ladder is buoyed by the increasing cost of renting, better availability of mortgage products, and deposits gifted by family.

Shipside adds:

“Buy-to-let investors have had a bricks and mortar feast between the Chancellor’s announcement in November and the tax deadline at the end of March, and the result is a famine of suitable property and higher prices. First-time buyers are still eager to secure some of the very limited suitable supply in many parts of the country. Estate agents have perhaps been focused on getting investor sales through to completion before the tax hike, and some may have been surprised by the continuing momentum and scarcity of stock to meet ongoing demand. The net effect is eye-watering increases in asking prices in some towns, and is further stretching first-time buyers’ affordability even though they are competing against fewer buy-to-let investors in the market.”

Regional first-time buyer hotspots

The biggest increase in the price of property coming to market compared to a year ago in the typical first-time buyer sector is in Croydon in Greater London, up by 18.6%. In regions outside London, but still very much in commuter-belt territory, Dartford in the South East has recorded an 18.5% jump, with Luton in the East of England up by 18.4%. Agents report that all of these areas were the focus of considerable buy-to-let investor activity. Conversely, six out of ten regions contain some towns which have seen falls in average asking prices, with the largest drops in Llandudno at 7.5% and Darlington down 3.0%.

Shipside observes:

“The country’s top price-rise hotspot is Croydon, where Londoners priced out of some other parts of the capital have sensed a combination of convenience and value, aided by some serious regeneration. Dartford has also been a very popular and affordable area for London buyers prepared to commute from the South East region and also good for rental yields for investors. With 5% less property coming to market in Dartford in the last four weeks compared to the same period in 2015, limited fresh supply is also a big factor. Luton has been a low-priced town for some time with easy London access, and has now come into play in the past twelve months. Not all towns are seeing these annual hikes; for example a typical first-time buyer home in Llandudno is down 7.5%, and Darlington is now 3% cheaper. The health of local economies have a big influence on demand and affordability, and consequently the amount you can ask for a property.”

Looking at the latest house price statistics from the various indices this month there appears to be something of a slowdown in price rises, particularly after the somewhat frenzied first quarter of the year.

The newest house price index – from the Office for National Statistics with data from the Land Registry – reported that UK average prices had increased by 8.2% in the year to the end of April, so perhaps that slowdown is not as evident as we might have thought.

And yet, look beyond the national picture to the regions, and you’ll see there are big discrepancies across the country – for instance, in the North East the annual increase was just 0.1%, and if we come right up to date there were house price falls in three regions - the North East, Wales and the South West - between March and April this year.

The anticipation has to be, and I’m expecting a significant drop in transactions between the first two quarters of the year, that prices are likely to (at best) stay where they are, with most commentators suggesting we might see further falls in the months ahead. How big those falls might be seems to depend on some rather large questions being answered.

The big question is of course how prices might react should the UK vote to leave the EU on the 23rd June – an outcome which just a few months ago seemed far-fetched but, according to the opinion polls, seems to become ever more certain as each day passes. While the referendum may still be decided by the ‘don’t knows’ who seem to number at least 12% in every poll, those in favour of a ‘Brexit’ appear to have grown in number and one only need look at the value of sterling and the Footsie in recent days to see how the markets are reacting to such a potential result.

This, of course, despite the repeated warnings from the ‘Remain’ camp about what leaving the EU could mean for the UK’s economy and, of great interest to us, what it might mean for the UK’s housing and mortgage market. House prices, we have been told, could fall by as much as 10-18%, which should be worrying not just for those who own their own home, but also all of us who are employed in one way, shape or form within this market.

Some have suggested this outcome would be good for first-time buyers – and for a select few it might well be – but we must also consider the sector ‘in the round’ not just in terms of one purchaser group. There is some debate, for instance, within the lending community about what a ‘Brexit’ might mean for lenders’ appetite – amid some substantial market uncertainty the suggestion is that lenders could well retreat into themselves in order to see how the new environment plays out.

Why risk significant sums of lending on potentially riskier mortgage borrowers and sectors? What about the fear of sustained house price falls over a much longer period of time than we would normally anticipate? Wouldn’t this curb appetite to lend to customers, especially at higher LTV levels, who could quickly find themselves in negative equity? And what about employment levels – it has been suggested that unemployment could rise, inflation could rise, standard of living costs will rise. All this will have an impact on borrowers’ ability to pay and could well make lenders think again about lending into an environment where arrears could also increase significantly.

For agents, this might well impact further on transaction levels. I say ‘impact further’ because anecdotally many agents I speak to are already talking about the ‘EU Referendum’ impact in the lead-up to the vote as many purchasers decide to wait for the result. What might happen post-23rd June if we are leaving the EU? The negotiations to extricate the UK could well take a number of years – a period of uncertainty lasting this long might well have a serious impact on transactions, which would obviously leave agents on something of a sticky wicket.

Property Portals