SDLT boom has gone, now the bust?

The record numbers of completion associated with Easter and the first time buyer SDLT rush may soon be a thing of the past as new mortgage approvals plummet.

Both Connells Survey and Valuation and LSL House Price Index report that the last few months have been very active for the conveyancing market but e.serv highlights concerns about mortgage availability.

John Bagshaw, Corporate Services Director of Connells Survey and Valuation, comments: “The rush to complete before the end of the stamp duty holiday provided a leg up to the valuations market in the first quarter of the year, but first-timers were by no means the only group to benefit. The increasing number of first-timers freed up property chains, allowing existing homemovers to move up the ladder. We’ve also seen a strong demand from buyers looking to move early, ahead of the disruption of the Olympics and the Jubilee in the summer, which has supported activity in March.”

“However, there are financial clouds on the horizon, with the increased wholesale funding costs for lenders likely to affect the recently improving credit conditions.

In their monthly House Price Index for March 2012 LSL Property Services/Acadametrics reported last week that transactions rise by 32% in March following a 10% rise in February which was reflected in the pressure that many conveyancers reported during the period.

Dr Peter Williams, housing market specialist and Chairman of Acadametrics, comments:

One of the notable features of the housing market in March 2012 has been the increase in transactions over February 2012 and indeed over March 2009,and 2011. We estimate that transactions in March 2012 exceeded 60,000 (not seasonally adjusted) a level not seen in the month of March since 2008. Monthly transactions during 2011, as a whole, equated to 64% of the long term average. March transactions equated to 75% of the long term average for the month. However, one of the main reasons for this increase was the rush to buy before the Stamp Duty Land Tax (SDLT) holiday for first time buyers on properties valued between £125,000-£250,000 ceased on 24th March. Given that this holiday was saving first time buyers between £1,000-£2,500 in Stamp Duty, it is no wonder that transactions were higher, especially in the three months prior to the cut-off date.

The March House Price Index went on to report:

“Traditionally the property market in March picks up from the low transaction levels experienced in January and February. In a typical year, property sales in March increase by around a quarter from February but, this year, our estimates show that transactions are likely to have increased by a third. The SDLT holiday was important and we estimate that an additional 4,500 properties were sold to first time buyers in March, over and above what would otherwise have been expected. We have also witnessed an increase in activity in the buy-to-let sector which has helped to increase the number of transactions for the month.

Comparing the three month period Dec 2011 – Feb 2012 with the same period one year earlier, transactions have increased by some +14.0% across England & Wales. The region seeing the largest increase in sales over the year is the South West, +18.4%, whilst the region with the smallest increase is Wales at +8.4%.

Over the last quarter, for the three months Dec 2011 – Feb 2012 compared to Sep 2011 -Nov 2011, transaction numbers across England & Wales are down -13% against an expected seasonal fall of -19%. Using seasonally adjusted figures over this period, we find that the sale of flats has increased by +11%, terraces by +7%, semi-detached properties by +4% and detached properties by +1%. The increase in the sale of flats and terraces over this period is another indicator of the recent strength of the first time buyer sector of the market. It will be interesting to observe how these statistics change in April and subsequently, as this market adjusts to the SDLT change.”

However Mortgage Monitor from e.serv the chartered surveyors last week gave conveyancers an early indication of what coming months volumes may look like.

They reported that loans for house purchase dropped to 43,450 in March and this was the lowest figure for mortgage applications since December 2010.

The Mortgage Monitor report indicates that there were 7% fewer purchase mortgage approvals than in March 2011 and this was the first year-on-year fall since May 2011. The drop also represents an 11% fall on the number of mortgage approvals in February. It is the second month in a row where mortgage approvals have fallen, suggesting the market is beginning weaken.

Richard Sexton, director of e.surv, said,

“Up until now high-street mortgage lenders have been able to absorb steadily increasing costs, rather than passing them onto the consumer. The tactic boosted activity during last autumn and early part of this year, albeit artificially, and veiled a multitude of underlying weaknesses in the market. Now that the banks can no longer afford to take on extra costs, those weaknesses are beginning to come to bear once again.”

“A challenging period lies ahead — particularly for buyers on low incomes and with small deposits. Mortgage lenders’ balance sheets are groaning under the weight of increased funding costs and it is no surprise that a range of banks are changing their SVRs. In the Bank of England’s latest survey of credit conditions, the banks reported a fall in mortgage credit for the first time since spring 2010. As a result, banks are tightening their criteria and putting up rates on some of their fixed term mortgages. We are also seeing a severely weakened appetite for interest-only mortgages, driven in part by focus from the FSA on the sustainability of these mortgages in the longer term.”

“Mortgage availability will continue to fall in the next three months, and banks have admitted borrowers with small deposits will be hit the hardest.  This has already begun to happen, with markedly fewer loans in March to first time buyers and a sharp drop in high loan-to-value lending.”

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