Confidence returns to the property market
Sentiment towards the housing market looks positive as we hit 2020, according to the latest mortgage figures.
The housing market enjoyed a late autumn bounce with mortgage approvals for house purchase rising by 7% in November.
A total of 43,589 mortgages were approved by the high street banks for people moving home during the month, according to UK Finance.
There was also an increase in the number of loans approved for people remortgaging, with these rising by 12.7% year-on-year to 34,653 - the second highest level recorded in 2019.
The figures suggest confidence is returning to the housing market, despite the ongoing uncertainty surrounding Brexit.
Tomer Aboody, director of MT Finance, said: “It is positive for the market thatremortgages and mortgages for new purchases edged higher in November.
“This reflects sentiment in the market, which has been enhanced by a strong Conservative government coming in which will support the economy and housing growth.”
Why is this happening?
The final quarter of the year is traditionally a busy time for remortgaging with competition in the market intensifying as banks and building societies cut their rates in order to meet their end of year lending targets.
As a result, not only are homeowners who are sitting on their lender’s revert rate tempted to remortgage, but people who have taken out new mortgages during this period in previous years also look for new deals as their existing one comes to an end.
The increase in mortgage approvals for home-movers is slightly more surprising, as the housing market typically slows down in the run up to Christmas.
The figures suggest that potential buyers who had previously sat on their hands due to Brexit uncertainty may now be returning to the market.
Consumer confidence is likely to have increased further since the General Election, with the Conservative’s strong majority making it more likely that the UK will exit the EU according to the current timetable.
Who does it affect?
A return of confidence in the housing market is good news for everyone.
The market is currently stuck in a vicious circle in which the lack of confidence has caused existing homeowners to delay putting their properties on the market to trade up the ladder.
The situation creates a lack of choice for people who do want to go ahead with a purchase, which in turn makes them less likely to list their own property, exacerbating the shortage of homes for sale.
The current low level of transactions is particularly bad for first-time buyers, who need people to trade up so that properties at the bottom of the ladder become available.
What’s the background?
Confidence is only one factor that affects property transactions, with affordability also playing a key role.
Affordability levels have become increasingly stretched in southern markets in the past two years following strong house price growth.
As a result, these regions saw the slowest house price rises in 2019, according to our data.
By contrast, property remains much more affordable in northern parts of the country, with property values in Wales increasing at more than twice the national average during the past year, while North West England and Yorkshire and the Humber also saw strong gains.
Housing market expected to enjoy a post-election bounce
Housing market activity continued to decline in November but estate agents expect a rebound following the General Election.
Demand from potential buyers, instructions to sell and agreed sales all continued to worsen during the month, as people put major decisions on hold, according to the Royal Institution of Chartered Surveyors.
But property professionals are more upbeat about the market’s prospects in the new year, with 12-month sales expectations reaching their highest level since the early part of 2017.
Simon Rubinsohn, RICS chief economist, said: “Confidence is critical to a well-functioning housing market and whatever happens in the general election, it is important that the new government provides reassurance both over the stewardship of the economy and the ongoing challenges around Brexit.”
Why is this happening?
Markets hate uncertainty and the property market is no exception, with potential buyers currently facing a triple whammy of uncertainty over the Government, Brexit and the economy.
But the result of the General Election will not only end the political uncertainty, but it will also offer more clarity on when the UK is likely to exit the EU.
This is expected to release some pent-up demand from people who have put moving plans on hold for months or even years while they have waited to see when Brexit will happen and what impact it is likely to have on the economy.
Who does it affect?
The lack of activity in the housing market has left the average number of homes estate agents have on their books close to a record low of 41.
The situation creates a vicious circle in which existing homeowners who may be considering trading up or down the property ladder put off listing their own home due to a lack of choice for their next move, which in turn intensifies the current shortage of stock for sale.
What’s the background?
The good news is that RICS expects the situation to begin to improve going forward.
Estate agents expect sales levels to start to pick up over the coming three months, while optimism about the number of homes changing hands 12 months from now has reached its highest level for nearly three years, with a solid increase expected in all regions.
Price growth is also expected to recover across the country, with Northern Ireland and Wales seeing the strongest gains.
Top three takeaways
- Housing market activity continued to decline in November but estate agents expect a rebound following the General Election
- Demand from potential buyers, instructions to sell and agreed sales all continued to worsen as people put major decisions on hold
- Looking forward, property professionals’ 12-month sales expectations have reached their highest level since the early part of 2017
Private landlords sell up following tax changes
The number of homes available in the private rental sector has shrunk by more than 100,000 since tax changes impacting landlords were introduced.
The exodus comes after the Government began restricting the amount of mortgage interest tax relief buy-to-let investors could claim.
Since the change, which is being introduced in phases, was first introduced in April 2017, 103,900 more buy-to-let properties have been sold than those that have been purchased, according to estate agent Savills, which analysed mortgage data.
Lawrence Bowles, senior research analysts at Savills, said: “With tax relief on landlords’ mortgage interest shrinking, it’s become harder to make a profit from a mortgaged buy-to-let property.”
The situation means that demand in the private rental sector is already outstripping supply.
Why is this happening?
Since April 2017, the Government has been steadily reducing the amount of mortgage interest tax relief landlords can claim from 100% to just 25% now.
The relief will be phased out completely in April next year, when it will be replaced by a 20% tax credit for mortgage interest.
The move not only leaves landlords facing higher tax bills, but it has also pushed some basic rate taxpayers into the higher rate band.
The combined changes have made it less profitable to be a landlord, leading to many investors selling up.
Who does it affect?
The situation is bad news for people who rent in the private sector, which is already struggling to keep pace with demand.
The Royal Institution of Chartered Surveyors has reported that the number of new homes coming on to the market to let has been in steady decline, while the number of people looking to rent a home has reached its highest level since the end of 2016.
It warned that the situation was putting upward pressure on rents.
But the fall in buy-to-let landlords has been better news for first-time buyers, as the two groups typically compete for properties at the bottom of the housing ladder.
What’s the background?
Savills said the number of landlords selling properties was most acute in southern regions, such as London and the south east, where property prices are higher and yields are lower.
They are instead purchasing properties in northern regions where the higher yields cover their increased costs.
But high house prices in the south means demand for rental property is greater there as it takes people longer to get on to the housing ladder.
Top 3 takeaways
- The number of homes available in the private rental sector has shrunk by more than 100,000 since tax changes impacting the sector were introduced
- The exodus comes after the Government began restricting the amount of mortgage interest tax relief buy-to-let investors could claim
- Demand in the private rental sector is already outstripping supply.
Help to Buy hotspots revealed
Wakefield in Yorkshire is England’s top Help to Buy hotspot with more people there using the scheme to buy a home than in any other local authority.
A total of 2,732 properties have been purchased in Wakefield, where the average new-build home costs £221,740, using the equity loan scheme since it was first launched in 2013.
It was followed by Wiltshire, where 2,725 equity loans have been advanced, and County Durham at 2,515, with Central Bedfordshire and Leeds completing the top five.
Wakefield was also the most popular area in which the scheme has been used during the past 12 months, followed by Central Bedfordshire and Tower Hamlets in London.
The findings come after separate research showed many first-time buyers were using the Help to Buy equity loan to buy larger, more desirable homes than they would otherwise be able to afford.
Why is this happening?
The Help to Buy equity loan scheme enables people to purchase a new-build property with just a 5% deposit with the Government topping this up with a five-year interest-free equity loan.
While the initiative is often seen as helping first-time buyers, it can be used by anyone trading up the property ladder.
Laura Howard, consumer expert at Zoopla, said: “Whilst it might be presumed that first-time buyers only use Help to Buy in markets with stretched affordability such as London, our analysis shows that its popularity actually spans the entire country.”
In fact, average house prices for the top 10 most popular locations in which the help to buy scheme was used in the past 12 months ranged from £196,783 in County Durham to £520,408 in Barnet in London.
Who does it affect?
As well as helping first-time buyers purchase a home, research shows the Help to Buy scheme has also enabled them to leapfrog the first rung of the property ladder and buy a larger, typically three-bedroom, property.
By entering their household income, preferred mortgage term and interest rate, it shows the maximum property value they could buy, how much they would need to save for a 5% deposit, estimated monthly mortgage repayments and monthly charges on the equity loan once the interest-free period comes to an end.
What’s the background?
While the Help to Buy equity loan scheme has helped thousands of people to get on to the property ladder, it is not suitable for everyone.
Potential buyers considering using the initiative need to weigh up the pros and cons, and while it may enable them to afford a bigger home, they are limited to purchasing a new-build property, while they can only use certain lenders.
Studies also suggest Help to Buy has inflated the cost of new-build properties, with first-time buyers in some areas paying a premium of up to 22% to use the equity loan scheme.
Remortgaging soars as homeowners cash in on competition among lenders
The number of people remortgaging has soared to a two-year high as homeowners take advantage of lenders’ end-of-year price war to lock into a good deal.
A total of 37,769 mortgages were approved for people switching to a new deal in October, 12.7% more than in the same month of last year, according to industry body UK Finance.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “As we head towards the end of the year, and lenders jostle for what business there is out there, there are some incredible deals on the market to attract borrowers.”
There was also an increase in the number of mortgages approved for house purchase, with these rising 3% year-on-year to 46,631, despite the uncertainty caused by the General Election.
Why is this happening?
The final quarter is traditionally a busy time for remortgaging as banks and building societies try to entice homeowners with competitive deals in a bid to meet their annual lending targets by the end of the year.
This situation not only encourages people who are sitting on their lenders’ standard variable rate to remortgage, but it also means a higher volume of mortgages tend to expire during this period, due to people previously taking out fixed term deals in the run up to the end of the year.
The surge in remortgaging typically helps to offset a more subdued market for lending to people buying a new home, with house-hunters typically putting moving plans on hold until after Christmas
Who does it affect?
End of year competition among lenders is great news for anyone looking to remortgage.
Halifax is currently offering a two-year fixed rate mortgage of 1.08% for people with a 40% deposit, while NatWest is offering a two-year deal of 1.25% for those with a 25% deposit.
Rates ate only slightly higher for homeowners who want to fix for five years, with Virgin Money offering a deal of 1.46% for people borrowing 65% of their home’s value.
Nationwide, Halifax, NatWest and Royal Bank of Scotland all have five-year fixed rate loans with rates below 1.6%.
What’s the background?
The housing market has shown signs of enjoying a slight autumn bounce, although the lift has been more muted than in previous years.
Subdued transaction levels are partly due to the current uncertainty caused by both Brexit and the General Election.
But high house prices and stretched affordability in many areas are also acting as a drag on the market, particularly in southern regions.
Even once Brexit is finalised, activity levels are not expected to pick up significantly, with house price growth also expected to remain low.
Top 3 takeaways
-
The number of people remortgaging has soared to a two-year high as homeowners take advantage of lenders’ end of year price war
-
A total of 37,769 mortgages were approved for people switching to a new deal in October, 12.7% more than in the same month of last year
-
There was also an increase in the number of mortgages approved for house purchase, with these rising 3% year-on-year to 46,631
Gardens and kitchens on a par for home-hunters
Half of Britons think a well-designed garden is as – or more – important than a designer kitchen or bathroom when it comes to their quest for a perfect home.
House-hunters are prepared to pay a premium of nearly £15,000 for a garden when purchasing a property, and put the importance of outside space up there with a top-end kitchen or bathroom.
A further 40% would consider hiring a professional garden designer in order to transform their outside space, according to research by Zoopla and the Society of Garden Designers.
Gardens are considered to be so important that 74% of homeowners have either already spent money on their outside space or would consider doing so in a bid to increase the value of their property.
At the same time, house-hunters are prepared to pay a premium of £14,448 to purchase a home with a garden.
Sarah Morgan, chair of the Society of Garden Designers, said: “We know from our members that having a garden designed by a professional designer can add significant value to a property. But, quite apart from the overall ‘wow’ factor, a good garden design can also add something really special to a home.”
Why is this happening?
Both buyers and renters put a high emphasis on having outdoor space, with 86% of both groups saying having a garden was very or extremely important.
People are also prepared to spend significant sums to create their dream garden, with homeowners willing to splash out an average of £7,339.
But the outlay does not end there, with the typical person spending £678 a year maintaining their garden.
Which regions value a garden most?
People living in the south east are prepared to pay the biggest premium for a property with a garden at an average of £21,925, followed by house-hunters in the north west at £18,425.
Those in the south east are also most likely to rate having a garden as being important at 91%.
At the other end of the scale, buyers in Yorkshire and Humber will pay the smallest premium for outside space at an average of £9,068, despite 84% of people rating having a garden as being important.
Homeowners in the East of England are prepared to spend the most in order to transform their outdoor space into their dream garden at £10,882, nearly double the amount people in Wales are prepared to spend at £5,832.
Regional breakdown of garden spending
| Region |
Average premium willing to pay for a garden |
Average current spend per year |
Average spend transforming current garden |
|
South East |
£21,925 |
£812 |
£7,822 |
|
North West |
£18,425 |
£518 |
£5,860 |
|
East of England |
£13,974 |
£753 |
£10,822 |
|
London |
£13,388 |
£554 |
£7,434 |
|
East Midlands |
£12,803 |
£734 |
£8,440 |
|
South West |
£11,935 |
£674 |
£6,899 |
|
Wales |
£11,268 |
£733 |
£5,832 |
|
North East |
£10,569 |
£732 |
£7,257 |
|
West Midlands |
£10,552 |
£731 |
£7,812 |
|
Scotland |
£10,207 |
£700 |
£6,646 |
|
Yorkshire and Humber |
£9,068 |
£619 |
£6,435 |
|
Britain |
£14,448 |
£678 |
£7,339 |
What’s the background?
When it comes to creating a dream garden, having somewhere to sit and relax was ranked as the most important feature, cited by 36% of people.
It was followed by having south-facing outdoor space or a design that allowed the maximum amount of sunlight throughout the day, which was key for 15% of people.
Both of these features were considered to be more important than having somewhere for children to play or space for pets, cited by 12% and 7% respectively.
Around 8% of people wanted flowers or shrubs to be part of the design, while 6% wanted somewhere to entertain and 4% of people wanted to be able to grow their own fruit and vegetables.
But water features appear to have fallen out of fashion, with only 0.4% of people considering this an important feature of a garden design.
The 9 most important design features of a garden according to Brits:
- Somewhere to sit and relax (36%)
- Maximum sunlight throughout the day / south facing (15%)
- Somewhere for the children to play (12%)
- Flowers / shrubs (8%)
- A space for pets (7%)
- Somewhere to entertain (6%)
- Growing my own fruit/vegetables (4%)
- Extra storage space/shed (2%)
- A water feature (0.4%)
Top 3 takeaways
- Half of Britons think a well-designed garden is as important or more important than a designer kitchen or bathroom
- A further 40% would consider hiring a professional garden designer in order to transform their outside space
- House-hunters are prepared to pay a premium of £14,448 to purchase a home with a garden
Time to let a home falls to record low of 20 days
Growing demand for rented property, combined with a falling supply has meant tenants must move quicker than ever to seal the deal.
The average time it takes to let a home dropped to a record low of 20 days during the first seven months of the year.
A combination of increased demand from tenants and falling supply as landlords exit the sector led to rental properties being snapped up quickly, according to Hamptons International.
While one-bedroom properties took the least time to let between 2014 and 2018, three-bedroom homes were moving quickest during the seven months to the end of July, suggesting a shift in tenant mix.
Unsurprisingly, the mismatch between supply and demand is pushing rents higher, with the cost of being a tenant rising by 1.9% in the year to July to average £982.
Why is this happening?
The rental market is currently experiencing strong demand as stretched affordability prices many people out of buying a home, while uncertainty over Brexit is causing others to put moving plans on hold.
Hamptons said it had seen a 5.6% increase in applications from potential tenants during the seven months to July.
At the same time, a combination of tax and regulatory changes have caused landlords to exit the sector and sell their properties, with Hamptons seeing a 5% fall in stock levels so far this year.
The fact that more tenants are chasing fewer properties has led to homes being let quicker.
Who does it affect?
The amount of time taken to find a tenant fell in every region of Great Britain during the first seven months of the year.
Finding tenants was quickest in the south west and East Midlands, at an average of just 18 days.
Landlords had to wait for the longest to find a tenant in the north east, but even here the process only took 24 days, and was still four days faster than it had been a year earlier.
London saw the biggest decline, with it taking just 19 days to let a property in the capital, six days quicker than during the same period of 2018, with properties in Hillingdon let within 9.5 days on average.
What’s the background?
Strong demand from tenants led to rents rising in nearly all regions of Great Britain.
Scotland saw the strongest year-on-year rise with rents increasing by 5.2%, followed by the south west at 4.7% and the south east at 4%. The Midlands was the only region to buck this trend, with rents decreasing by 2.7% in the past 12 months.
In terms of property types, the cost of renting a one-bedroom home rose by 2.8% year-on-year, compared with a 1.3% rise for three-bedroom homes.
Hamptons said this trend had contributed to more tenants looking to rent a larger property as a group, rather than a one-bedroom flat on their own.
Is the new-build premium worth it?
New-build homes are selling for a premium of £65,000, according to the Land Registry. We take a look at what is driving the price difference and ask whether it's worth paying.
New-build homes are selling for a premium of more than £65,000 compared with existing housing stock.
The average UK new home sold for £290,176, compared with a typical sales price of £224,729 for older properties, according to the latest figures from the Land Registry.
The premium buyers pay for a new build home has increased by £5,000 during the past year.
Historically, the price of new build and existing properties has been much closer, with buyers more likely to pay a premium for a home that is being resold.
Why is this happening?
A number of different factors are likely to be behind the strong price growth for new-build homes in recent years.
On the one hand, the higher price of new builds is likely to reflect the fact that housebuilding activity is currently concentrated in southern regions, particularly London, where property values are higher.
In fact, figures from the NHBC show that in the three months to the end of June 6,000 properties were built in London and 6,584 in the south east, compared with just 1,226 in the north east and 1,954 in Yorkshire and Humberside.
Some of the premium can also be accounted for by developers targeting the high-end of the market and building luxury homes in some locations.
But there are suggestions that the Government’s Help to Buy equity loan scheme is responsible for driving prices up in the new build sector, as the initiative only applies to new build properties.
Some studies claim the popularity of Help to Buy has created a mismatch between supply and demand, driving up the cost of new builds.
What advantages do new-build homes offer?
Potential buyers will have to think carefully about whether or not paying the new-build premium is worth it for them.
For first-time buyers who want to take advantage of the Help to Buy equity loan scheme the lure of a five-year interest-free loan worth up to 20% of their home’s value may well make it worthwhile.
This is particularly true if it enables them to purchase a bigger property, meaning they will need to make fewer moves up the housing ladder.
New-build homes come with other advantages too, as they are typically more energy efficient than older properties, while they require less maintenance and have a 10-year building warranty from the NHBC.
As a result of these factors, they tent to have lower running costs compared with existing housing stock.
Some new builds, particularly apartments, also come with significant amenities, such as gyms, swimming pools and even cinemas.
Finally, new developments may offer property types that are not currently plentiful among the existing housing stock, such as starter homes or detached family properties.
What are the downsides?
Unfortunately, new build properties do have some downsides as well.
While in theory no decorating should be required, in practice many homeowners have to go through the process of snagging with the developer, to sort out issues that may have been overlooked.
New build properties are also more likely to be leasehold than existing ones, which, particularly in the case of houses, tend to be freehold.
It is worth noting, however, that the Government is currently consulting on whether the majority of new-build houses should be sold as freehold.
Finally, new build properties are often smaller than their older counterparts as developers try to fit more units on to a site.
Homeowners appear to be shunning moving in favour of improving their property
High levels of equity being withdrawn by people remortgaging suggests homeowners are investing in significant improvement works.
Growing numbers of homeowners appear to be opting to extend or improve their current property instead of trading up the housing ladder.
Around 16,880 people increased the outstanding size of their loan in June when they remortgaged, borrowing an additional £56,100 each on average, according to figures from UK Finance.
While the group does not track what homeowners are using the money for, commentators speculated that it was being used for substantial home improvements.
Adrian Anderson, director of mortgage broker Anderson Harris, says: “Many borrowers are taking on extra borrowing when they come to remortgage.
“This is a clear sign that homeowners are staying put and improving or extending, rather than paying the hefty cost of moving home.”
The number of people who took on additional borrowing outstripped the 15,320 homeowners who switched loans without increasing the size of their mortgage.
The total was also 8% higher than it had been in June 2018, suggesting it represents a growing trend.
Why is this happening?
A number of factors are likely to be driving the decision among homeowners to extend rather than move.
As house prices have risen, the associated costs of moving – many of which are charged as a percentage of a property’s value, have also increased.
In its most recent survey, Lloyds Bank estimate the average person now spends more than £12,000 on taxes, surveyors’ and estate agents’ fees and moving costs when they buy a new home.
At the same time, growth in property values has increased the gap between the cost of a starter home and a family property, leading to many people finding their second step up the property ladder harder than their first.
Meanwhile, the current shortage of homes for sale, means those looking to buy a new property have only a limited choice.
As a result, it appears that many people have decided they are better off staying put and finding a way to extend their current home.
Who does it affect?
While improving their property may make sense for homeowners instead of moving, it is bad news for the housing market as a whole.
In order to function efficiently, the property market needs a steady stream of people to be trading up the ladder to free up properties for those lower down.
The current subdued level of transactions has led to a shortage of homes for sale, which has in turn deterred existing homeowners from moving, creating a vicious circle.
What’s the background?
For homeowners considering extending or improving their property, it is worth weighing up the costs of the work involved against the likely value it will add to their property.
A study carried out by Anglia Home Improvements earlier this year found that while a loft conversion typically adds an average of £24,255 to a home’s likely sale price, building an extension had far less impact at £6,456.
Those considering adding a conservatory in order to get more space, may only see the value of their property rise by £3,155.
What are Boris Johnson’s pledges on stamp duty?
New Government, new era for stamp duty? We take a look at the Prime Minister’s pledges to overhaul the property tax.
Increase the stamp duty threshold to £500,000
While campaigning to be leader of the Conservative Party, Johnson announced he was considering increasing the threshold at which stamp duty kicks in to £500,000 from its current level of £125,000.
The move, when combined with the properties that are already not liable for stamp duty, would mean an estimated 770,000 homebuyers would not pay the tax each year, according to think tank Onward.
Winners: Anyone buying a home for between £125,000 and £499,999, with those purchasing at the top end of this range saving nearly £15,000 compared with the current system.
Losers: HM Revenue & Customs. The change could reduce the stamp duty take by around £3.3bn a year, according to Onward.
Reduce the top stamp duty rate to 7% from 12%
The Prime Minister also suggested he could reduce the top rate of stamp duty from 12% to 7%. The 12% rate, which kicks in on homes sold for more than £1.5m, was increased by the then-chancellor George Osborne in 2014. But it has been widely blamed for leading to a sharp fall in transactions at the top end of the market.
Winners: People buying a home costing more than £1.5m who will save considerable sums if the change goes ahead.
Losers: HMRC would see a further fall in revenues, although some of this drop could be offset if the change leads to more high-end homes changing hands.
Sellers pay stamp duty instead of buyers
Perhaps the most radical change Johnson is understood to be considering is changing who is liable for stamp duty so that the seller rather than the buyer pays the tax.
Such a move, which was not announced when he was on the campaign trail, would ease the burden on people trading up the property ladder, while those selling would be able to tap into their equity to pay the stamp duty they owed.
But the change could prove unpopular, as it would mean existing homeowners effectively having to pay the tax twice, having already paid it when they purchased their home.
Winners: First-time buyers purchasing a home for more than £300,000, people trading up the property ladder.
Losers: Those downsizing as they would face higher stamp duty bills on the home they are selling, rather than the one they are buying.
Anything else?
One aspect of stamp duty that Johnson has not been reported to be considering reforming is the 3% surcharge for buy-to-let investors and those purchasing a second home.
This additional tax has contributed, along with other tax and regulatory changes, to a fall in landlords entering the sector and those expanding their portfolios. It has, however, helped first-time buyers through reducing competition for homes at the bottom-end of the housing ladder.
It is also worth noting that there has not been an official announcement or timeline for the reforms published since Johnson became leader.
This uncertainty could lead to temporary distortions in the market if people delay purchases in the hope of paying less stamp duty if they wait.
Top 3 takeaways
-
The Prime Minister has promised to increase the threshold at which stamp duty kicks in to £500,000 from its current level of £125,000
-
Johnson is also expected to reduce the top rate of stamp duty from 12% to 7%.
-
Under the reforms, the tax could be paid by the seller rather than the buyer.