The residential property market remains challenging, with house prices down, fewer mortgage applications being completed, a decline in land sales and planning issues all contributing to the state of flux.
However, the market is displaying some resilience with industry data showing increased activity, says Gary Jeffries, Partner and residential specialist at property consultancy Vail Williams.
In his latest published article, Residential Property Market: Summer Update, Gary looks at the current trends and analyses the factors affecting the situation.
He said: “The brief resurgence witnessed in the housing market during the first quarter of this year has dissipated as the impact of higher interest rates gradually permeates household budgets, affecting those with expiring fixed-rate mortgage agreements, in particular.
“While house prices remained relatively steady in June, the continued spike in mortgage rates is putting more strain on housing affordability and the full effects of this on the market are yet to be seen. It remains a challenging picture.”
Gary said that in June, the Halifax House Price Index reported average house prices at £285,932, down 0.1% on May. This fell further still in July to £285,044, the fourth consecutive monthly decline in a row.
He added: “This largest year-on-year decrease in house prices since June 2011 reflects the impact of the historically high house prices last summer, together with the temporary Stamp Duty cut.
“Annual house price growth is currently -2.4% with property prices down by approximately £7,500 from the peak in August 2022. Nevertheless, prices still remain £5,000 higher compared to the end of the previous year and £25,000 above the level recorded two years ago.”
He said HMRC monthly property transaction data reflected some positivity with the number of UK home sales moving from 95,150 in March 2023 to 67,730 in April, then rising back up again to an expected value of 94,690 for June.
“Despite this improving trend, the continued rise in inflation rates together with high Consumer Price Index data, is likely to put renewed pressure on the market in the months ahead, as the effects of this trickle through.”
He cited one housebuilder reporting new house reservations for the period February to June this year 25% down on the same period in 2022, with a cancellation rate up to 15%, and was therefore buying significantly fewer building plots as a result.
Nationwide’s statistics showed the annual rate of house price growth was the weakest since 2009, creating a challenging affordability picture for homebuyers, and although mortgage activity rose by 5% in June, most applications pre-dated recent interest rate rises.
Gary said that according to latest statistics from the Home Builders Federation, the number of housing projects granted planning permission in the first quarter fell by 11% compared with the last quarter of 2022 at just 3,037 – a further 2% decline on approval in 2022.
“Larger private and social housing projects and smaller-sized sites were all amongst the mix and this will likely impact housing delivery into 2024.
“Economic uncertainty, increased costs and slower sales rates have paused many land sales both regionally and in London markets.
“Although there are fewer land transactions, evidence indicates that development land values have started to fall as developer purchasers factor a greater degree of risk into their land builds.
“Planning remains one of the most significant hurdles for residential developers to overcome, with everything from water neutrality issues and biodiversity net gain targets to navigate, to the latest announcements from the Government with further changes to national planning policy.
“It makes for a complicated and challenging picture for developers, and this will remain a problem until such a time as the planning system is comprehensively and systematically reformed.”
Gary added: “Continuing upward pressure on build costs, tightening profit margins and the delayed impact of mortgage rate and interest rate rises means we are expecting the resilience we’ve seen in the market in 2023 to be tested further.
“In the context of such pressure on the market and land values, landowners must ensure they take well-researched advice on land value when selling – with developer selection and a deliverable planning strategy becoming ever more important.”
Read the full article: https://vailwilliams.com/residential-property-market-summer-update/