Strongest July for home sales since 2007
- Monthly sales surpass 2014 levels for first time this year – following 13% boost in July, and driven by growth in North
- House price rises accelerating across six regions – and East Anglia leads the way with 6.3% annual increase
- Crossrail investment pushes Reading property prices up by 15.2% in the past year, the fastest rise across the country
Peter Williams (Chairman) and John Tindale (Housing Analyst) of Acadata comment on the latest LSL England & Wales House Price Index:
The Housing Market
“The July Budget highlighted the Government’s continued focus on housing, with further announcements about rents and benefits in the social rented sector and moves to restrict tax benefits in the Buy-to-Let (BtL) sector, while increasing inheritance tax thresholds. The Government is focussing upon housing supply and home ownership as was evident with the Starter Homes initiative and extensions to the Right to Buy. Whether all of this will lead to a reversal in the decline in owner occupation evident since the start of the decade is less clear. The moves on the Buy-to-Let sector reflect concerns about the expanded role that BtL has been playing in the last few years. The Treasury is currently undertaking a review of the BtL market and the Bank of England has been tracking it closely.
“The latest MPC minutes and related discussion indicate that at present the Bank is not seeing the housing market as a significant threat to the economy, albeit it will be tracking developments. The MPC minutes stated;
” ‘The lower cost of mortgage finance was likely to have contributed to renewed strength in the UK housing market, signalled by survey information from the Royal Institution of Chartered Surveyors suggesting stronger demand, and by house prices rising at an annual rate of around 7%. Alongside this, mortgage approvals for house purchase had picked up to around 67,000 in June and now appeared to have more momentum in the near term. There was a possibility that these developments would add to consumer confidence and provide further impetus to household spending. Against this, banks’ funding costs, an important influence on mortgage rates, had risen since May and it was possible that mortgage rates would shortly begin to rise.’
“The recent Knight Frank Markit House price sentiment index suggests that households remain positive across the UK with Londoners being the most positive regarding price inflation. The index suggested that some 5.3% of UK households plan to buy a property over the next 12 months. With London and the South East dominating transaction numbers, the strength of those sentiments in these areas is important.
“As this suggests, we have both positives and negatives with respect to the market. The Government continues to support the market in a variety of ways but at the same time has introduced measures that bear down on certain buyer groups/market segments. This adds to the complex and diverse picture across England & Wales. The averages we discuss hide considerable variation, and this must be borne in mind. The recovery in transactions must be seen as encouraging against a period in which these seemed destined to remain well below historical averages. Structurally with fewer and later first time buyers, increased longevity and a bigger rented sector we do expect transaction numbers to remain lower than in previous rising markets, possibly aided by the tax changes discussed. The CML has uprated its forecast for transactions in the UK to 1,210,000 for 2015 (from 1,180,000), and edged its 2016 forecast to 1,230,000 (also from 1,180,000). Given the scale of interventions in and around housing and mortgage markets there must be some uncertainty as to how this will work out in practice. We will continue to track and report on developments.”
“We estimate that the number of housing transactions in England & Wales for the month of July 2015, as recorded by the Land Registry, will total some 90,000. This is 13% higher than the level seen in June 2015, compared to a typical seasonal increase of 5% for this time of year. July 2015 is the first time this year that transactions have been higher than the equivalent month in 2014. Total transactions in July 2015 are at their highest level for the month since 2007, when the market was last reaching a peak, albeit there was a total of 120,845 sales in July 2007, some 35% higher than the current levels.
“The figures for July 2015 are encouraging, and suggest that a number of buyers had been waiting for the results of the General Election before committing themselves to a house purchase. Perhaps surprisingly to some, as we illustrate below, the major growth in the housing market in terms of transaction numbers has been occurring outside of London and the South East, which had been the mainstay of the housing market for the previous five years.
“The percentage change in transactions from Q1 to Q2 2015 by region…varies from 10% in Greater London to 29% in the North. We should caution that the transactions figures…are not seasonally adjusted. The typical seasonal change in transactions between Q1 and Q2 is 25%, a figure which has only been exceeded in the current year in Yorkshire and Humberside and the North.
“[The market has also witnessed] a marked North / South divide, with the number of sales in the north of England increasing at a faster rate than that seen in the south of the country. The one exception to this rule is the South West where sales have increased by 22%, with record prices being seen in the region in Bournemouth, Poole, Bristol, Devon and Dorset.
“Greater London has seen the lowest increase in transaction numbers between Q1 and Q2 2015, at 10%, which is half that seen in the top five regions of the country. Greater London has been the hardest hit of any of the regions in terms of the new rates of SDLT that were introduced by the Chancellor in December 2014. The new graduated rates of Stamp Duty introduced in December are mainly lower than had previously existed under the ‘slab structure’, except for those purchasing a house in excess of £1.125 million where the tax is progressively higher as the purchase price increases. The majority of such properties are concentrated in the Greater London area, which may explain some of the disparity in the growth rates between the regions (though even in this area, 85% of transactions have benefitted from the changes according to Nationwide BS).”
Richard Sexton, Director of e.surv chartered surveyors, comments:
“Overall home sales reached 90,000 in July, a boost of 13% from the previous month. This marks the first time this year that sales levels have overtaken the equivalent month in 2014 – and is actually the strongest July since 2007, when the market was building up to its pre-crisis peak. Sales were 35% higher then, standing at 120,845 in July 2007, but activity today is certainly making inroads after being mired in the General Election.
“Turning the North-South divide on its head, the strongest sales growth has been taking part outside of London and the South East. The North and Yorkshire & Humberside have seen the fastest sales growth, with Q2 sales jumping 29% and 25% respectively on the previous quarter. It is purchases of detached properties which have seen the biggest quarterly boost – in the North, sales of this type of home increased by 41%.
“However, first-time buyer sales have hit the brakes since the start of 2015, and sales of flats have seen the slowest improvement, rising just 12% during Q2. The current review of the Buy-to-Let market and measures to reduce the tax relief for landlords may help grease the wheels for first-time buyers in future, easing some of the competition with property investors. But cheap mortgage finance has been the most significant catalyst behind much of the housing recovery, and this won’t last forever. For many post-recession first-time buyers, a Bank of England base rate of 0.5% is all they’ve ever known. Rate rises will be gradual, but they are coming. Savvy buyers should be looking to make the most of them while they last, and fix for as long as possible.”