Sales growth picks up speed as solid demand begins to filter through
- Agreed sales rise at the fastest rate since May 2014
- Prices increase further across all parts of the UK
- New buyer demand continues to outweigh fresh instructions to sell
The September 2015 RICS Residential Market Survey results indicate sales growth gathered a significant amount of momentum over the month, as strengthening demand finally appears to have filtered through into a greater pick up in activity. Nonetheless, the lack of new sales instructions and limited stock on the market are still seen as substantial restraints, and may dampen transaction growth going forward.
At the headline level, agreed sales picked up notably with the latest data suggesting transactions rose at the quickest pace since May 2014. Furthermore, the series has now been in positive territory for five consecutive months, albeit previous readings had only signalled a marginal rate of increase. When disaggregated from the headline level, the North, East Anglia and Scotland posted the sharpest rise, while the East Midlands was the only region to see sales drop back materially during September. Looking ahead, transactions are anticipated to rise at a robust pace across all areas of the UK over the next twelve months.
The stronger sales performance has come on the back of the sustained upturn in demand seen since April. Indeed, new buyer enquiries improved for a sixth successive month although the rate of increase did moderate a touch in the latest results. Within this, almost all parts of the UK are seeing rising demand with the pick up particularly strong in the West Midlands, the North and Wales. The firm demand picture chimes with recent lending data reported by the Bank of England – which showed mortgage approvals at an eighteen month high and up 12% compared to a year ago.
Notwithstanding the acceleration in activity during September, anecdotal evidence still suggests the subdued level of inventory currently on surveyors’ books remains a challenge. What’s more, new instructions to sell dropped back yet again, meaning the number of new listings has now fallen in thirteen of the previous fourteen months. In an additional question, 40% of respondents feel the biggest factor behind this ongoing shortage is the lack of stock for sale deterring would be movers. The next most cited influence was economic uncertainty, with 12% stating this was holding back supply, while 11% believed stretched affordability was the issue.
As a result of the persistent supply demand imbalance, national house prices continue to rise at a significant pace. Moreover, all parts of the UK were reported to have seen some degree of growth for the second straight month. East Anglia continues to exhibit the sharpest house price inflation (in net balance terms), with the West Midlands and Northern Ireland not far behind. Twelve month price expectations remain elevated, pointing to further sizeable price gains across all areas of the UK.
Despite the prolonged period of rising values, 68% of respondents in total still consider prices to be at or below fair value (unchanged over the past two months). Again, London is an exception to this trend with 59% sensing residential property to be somewhat overpriced, while 28% feel the capital is very expensive (up from 20% last time). Although no contributors believe prices are ‘very expensive’ in East Anglia, a significant majority of 62% do believe the market is overpriced to some extent. Likewise, 57% take this view in the South East (up from 53% in August). Conversely, Northern Ireland, Scotland and the North display the largest share of respondents who deem property to be fair value.
In the lettings market, tenant demand increased smartly once more, thereby extending a run of uninterrupted growth stretching back to December 2014 (non seasonally adjusted data). While new landlord instructions did post a marginal uptick for the third month in a row, they were still significantly outstripped by fresh demand. Given the deficiency in supply, near term rent expectations remain firm and continue to signal an increase in rents across all areas. Over the next twelve months, members are forecasting rents to rise by around 3% at the headline level. The strongest projections continue to come from the West Midlands where rents are anticipated to increase by a little over 4% (three month moving average).
Finally, the average composite ‘perceived’ LTV ratio (which encompasses all categories of buyers) edged up to now stand at 78.9% when taken as a three month average – in keeping with generally easing credit conditions reported by lenders. First time buyers have seen credit conditions relax noticeably according to the latest reading.
Andy Sommerville, Director of Search Acumen, comments:
“Record low interest rates and lenders’ eagerness to hit their year-end targets have both been key factors in the surge of agreed property sales, along with the improving economy. The backdrop of a potential base rate rise in the future is also likely to propel more eager buyers to the market before the end of 2015.
“It’s especially encouraging for first time buyers to see credit conditions improving – a second piece of good news to accompany this week’s government pledge to get private sector developers on board with building affordable homes for purchase.
“It looks like the rest of the year will keep conveyancers busy, with properties flying off the shelves almost as fast as they appear on the market. On the flip side, price increases and a supply shortage in both homeowner and rental markets continue to cast a shadow over the long term prospects for growth in property activity. The reality is that the government will need a lot more than its Starter Homes initiative to fulfil the promise of its homeownership agenda.”