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The property market-where now?
(Blog dated 27 June 2008)
The United Kingdom has had a growing property market for the last decade. Whether or not previous rising prices can realistically be credited to the current government is a moot point, but Mr Brown is reaping the whirlwind of his boast that the ‘boom and bust’ cycle was over. Schadenfreude is the order of the day, with the East Lothian question unresolved and the 1707 Act of Union under stress.
The market is currently being hit by a number of factors, most of which have been examined at great detail in past, but are summarised here.
First, the banks have been trading in a number of dodgy loan portfolios. It will still take some time to unravel the mess. The banks’ corporate fingers have been burnt and much prefer to lend to individuals who are good credit risks, which restricts how much they are prepared to lend.
Secondly, and with the perfect vision which hindsight bestows, secured loans at 125% of the value of a property, and lending on six times an applicant's salary does not seem the good idea it once was.
Thirdly, inflation is rising for the ordinary voter at a rate far and above that calculated by the government or the Civil Service, the government actuaries being required to ignore rising tax bills and mortgage payments.
Due to a long and distinguished record of spinning news to suit the next day’s headlines, there is now a distinct lack of credibility in government announcements or statistics.
Assurances that the problems encountered in the 1990s will not return are taken with a pinch of salt. There is a lack of willingness to take on significant loans for many years in the future while the market is so unclear of its future direction, and the threat of negative equity hangs over us like the sword of Damocles.
Properties between £250,000 and £1,000,000 are struggling to sell unless vendors are prepared to consider offers or drop their asking prices.
In the Thames Valley -- and in Reading in particular -- there is a glut of flats on the market. This has been caused by a deliberate and sustained planning policy, chasing government targets for newbuild properties, and irrespective of the demand for these types of dwellings.
The small Buy to Let investor has all but disappeared, with demand for properties vanishing with him - but with capital values falling and rental demand increasing, he may yet return.
We are aware of some Thames Valley agents who are struggling to achieve sufficient turnover / sales per month to allow their businesses to survive.
For the immediate future, we do not see the market improving until confidence returns in the economy, and perhaps more importantly, trust in the government. It is unlikely that there will be a general election until two years’ time, after which the market is likely to draw breath and come alive.
Meanwhile, and somewhat surprisingly, the compulsory Home Information Pack is assisting the market. They do not assist the flow of pre-contract information (solicitors and buyers ignore them to a man), but they do impose a costly barrier to entering the market, thus reducing the supply of properties against weak demand.
There are however some bright spots on the horizon.
We know of a central Reading agent who has completed at least 22 sales this month -- not bad in a good market, let alone in today's. (and yes, we have seen the sales ledger).
There is still market activity, at the lower end of the market and on properties over £1,000,000.The market fundamentals are all about supply and demand. There are not enough properties to meet the UK ’s housing aspirations. The fact that the economy is going through a bad patch is unfortunate, but history has shown that the market will recover.
We predict that when confidence does return it will do so with a vengeance – and the current lack of starts on new development projects will act to reduce supply, thus further stimulating the market, which will be then chasing an unnaturally reduced amount of stock.
Those with the confidence and the cash will be able to purchase some bargains. The rest of us will have to wait for better times.
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