belt, particularly where there are the best transport ... prices will increase at unsustainable rates, worsening .... po
Market Insight
Moving Millions
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Market Insight
January / February 2014
Million Pound House Bonanza
Homes Sold for More Than £1 Million in 2013
Nearly 10,000 homes sold for more than £1million in England and Wales in 2013. That is the largest number ever and 10 per cent higher than the previous peak in 2007 despite overall levels of market activity still being about half 2007 levels. While all sections and regions of the housing market are beginning to recover, performance among the higher value properties has been much stronger. It’s not just the general rise in house prices that is responsible for more sales drifting into this category either. Land Registry data confirm that the average house price in England and Wales is still nine per cent lower than in 2007. It’s a cocktail of factors that have boosted activity in the higher priced segment of the market. Lower dependence on mortgage finance is a major contributing factor to this extra buoyancy as is the higher proportion of foreign investors and wealthier buyers less touched by the recession than the mainstream. Led by London, where seven in ten of all £1 million plus sales happen, the strong performance of the £1 million plus market has been evident in every region in the UK except for the North East and Wales. Beyond the M25, activity hasn’t recovered quite as much, and many of the most active £1 million plus markets in the South enjoy close ties to the capital. London Top Five Areas for £1 Million Plus Sales
Prime London districts dominated the £1 million plus property sales last year, but it was Fulham that actually topped the list in 2013 with 335 sales. The shift reflects the slowdown in the prime central markets of Chelsea and Westminster and the much stronger performance of markets in the surrounding areas. Outside of London, the £1 million plus market is concentrated in the South of England commuter belt, particularly where there are the best transport links to the Capital. Henley on Thames shot up the list, making it into the top most active areas in 2013, while Farnham, a strong performer in 2012, didn’t quite make the cut this time around. While many of the most expensive areas of the housing market enjoyed sales numbers approaching peak levels in 2013, as sentiment continues to improve on the back of a recovering economy and improving credit availability, 2014 is likely to be characterised most by increasing activity across the country, led by the more mainstream markets. 2014 may well be the year activity in the rest of the market catches up with prime areas.
Top Five Areas for £1 Million Plus Sales – Excluding London
2013
2013
2
Source: Land Registry OS Crown Copyright and database rights 2014
Postcode
Area
AV. Price
YTD Sales
Postcode
Area
AV. Price
YTD Sales
SW6
Fulham
£1,779,323
335
AL5
Harpenden
£1,451,857
70
SW1
Belgravia
£2,718,000
287
HP9
Beaconsfield
£1,665,129
66
W1
Mayfair
£2,718,000
223
R69
Henley-onThames
£1,649,047
43
NW3
Hampstead
£2,265,976
223
OX2
Oxford
£1,793,680
41
SW3
Chelsea
£3,175,936
202
SL5
Ascot
£1,860,828
39
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Homes sold in London accounted for 70 per cent of the £1 million plus market in 2013. © Hamptons International 2014
3
Market Insight
January / February 2014
A Grade II Listed View on Housing Supply
Happy New (Pre-Election) Year! Last year was the best for the UK economy since 2007 – and there is every reason to believe that 2014 will be better still. The labour market – key to the performance of the housing market – is still performing well. Not everyone is working as many hours or for the wages they want, but employment is rising at its fastest rate for three years. Unemployment fell to 7.4 per cent at the last count and the Bank of England expects it will fall to seven per cent by Q1 2015. That doesn’t mean rates will rise though. Governor Carney is always keen to point out that seven per cent unemployment is a threshold to consider rising rates, not a trigger to do so. It still seems likely that rates will stay where they are until at least mid 2015. But, as economic conditions improve, it does focus the mind on the fact that interest rates only have one way to go. In the meantime confidence in the economy is feeding into looser credit conditions. Credit availability for mortgages has been improving for some time and lenders continue to be comforted about lending by the rise in house prices. For the economy as a whole though, better news came from the result that the overall availability of
credit to companies, increased significantly in the last quarter and this is expected to increase further in 2014. The fact that corporate sentiment is beginning to improve is key to the sustainability of the recovery and will assuage some fears that up until now the boost to the UK’s economy has primarily come from consumer spending rather than increased investment or productivity.
Housing supply will be an important issue in the general election next year. The recovery of the housing market and strong house price growth in London and the South has focussed commentators’ attention on supply in recent months. Many fear without significant improvements to housing supply, prices will increase at unsustainable rates, worsening affordability and inflating a bubble.
This is all great news in the run up to an election, but the Chancellor’s most recent statement on the economy was considerably less upbeat. He plans to cut another £25 billion from public spending after the election. How much of a brake this will put on the pace of recovery will depend on how much the private sector takes up the slack. That’s uncertain, but with improved confidence in the recovery and signs that the corporate sector may be getting back on its feet, it may not be so bad after all.
There seems to be cross party agreement that new housing supply is a problem, but a definitive solution is still lacking. Even Labour’s pledge to double completions to 200,000 homes a year falls short of estimated household growth. The story of housing supply has not always been so woeful. Remarkably, between 1801 and 1901 the number of dwellings in England quadrupled! In the 20th century, political drive to build new homes meant supply peaked at 350,000 in 1968.
Last year was the best for the UK economy since 2007.
Labour Market
Source: ONS
It isn’t all about new build though. Homes can be demolished as well as built and converted into multiple dwellings, so we should really look at the total net additions to the housing stock each year to get a clearer view of the true housing supply landscape. Using these data confirms that the fifties and sixties saw the largest additions to stock, despite
Private Enterprise
9
5
4
Q3 2013
Q1 2013
Q3 2012
Q1 2012
Q3 2011
Q1 2011
Q2 2010
Q1 2010
Q3 2009
Q1 2009
Q3 2008
Q1 2008
Q3 2007
Q1 2007
Q3 2006
Q1 2006
Q3 2005
Q1 2005
28,000
Housing Associations
4
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250,000 200,000 150,000 100,000 50,000 0
1946 1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
28,500
Local Authorities
300,000 Homes Built
6
Unemployment Rate, %
Employment, 000’s
7
Source: DCLG House Building Live Tables
350,000
8
29,500
The supply problem in Britain has been 40 years in the marking so the solution is unlikely to be as simple as just building large estates of new homes. Ultimately we need to be more innovative in our approach. Options such as build to let, local authorities, registered providers, encouraging conversions and self-build are important but so too is taking a different attitude to space and design. While there’s a finite number of Grade II listed buildings, there’s plenty of room for grand designs.
400,000
30,000
29,500
Before the most recent downturn, net additions had started to rise. Indeed, the total increase in housing stock in 2007 and 2008 actually reached numbers just short of those seen in the fifties. 260,000 homes were added to the dwelling stock in 2008, but supply then collapsed and net additions fell to just 160,000 in 2011 the lowest number since the Second World War.
Who’s Been Building Homes from 1946 to 2012
Unemployment Rate, %
Employment, 000’s
high numbers of demolition. The net addition of dwellings between 1951 to 1961 contributed an additional 250,000 dwellings per year, an 18 per cent increase in the total housing stock. Since the seventies, however, the net number of new dwellings has hovered around 200,000 per year, bottoming out in the nineties at 180,000 per year.
© Hamptons International 2014
5
Market Insight
January / February 2014
A Christmas of Plenty for the Housing Market
Difficult Choices
17 per cent year on year. The trend remains most acute in London where stock levels are 30 per cent down compared to last year, but stock in the country is following a similar route where stock is 12 per cent down.
The number of transactions in the sales market has been growing steadily over 2013. The latest mortgage approval data from the Bank of England reflects this, showing steady growth in new mortgages being approved. In November, loans for house purchase were up a third compared to the previous year and four per cent up on the previous month. This leaves 2013 year to date 20 per cent ahead of the same period in 2012, which will likely translate into a similar growth in total transaction numbers for the year.
There is some talk of a building sentiment to sell, Halifax’s sentiment survey reports that more people now think it’s a good time to sell than don’t, which is a first since the survey began in 2011. However there is little evidence that this is likely to translate into a surge in supply over the coming weeks, leaving the balance of the market remaining resolutely in favour of the vendor. Perhaps as house prices continue to grow and recovery continues though, but stock in the country is following a similar route with numbers down 12 per cent year on year.
This trend carried through to December sales activity in London and the South of England. Overall December was unseasonably busy, with strong purchaser activity translating into sales. Across the Hamptons network we saw more sales than any December since 2006, a significant increase from last year.
December was unseasonably busy with high purchaser activity boosting sales numbers.
The trend of declining stock which started in the Spring continues, with both November and December seeing more sales agreed than new instructions coming to market. The number of properties available to buy now is down
Number of Mortgage Approvals
Source: Bank of England
There are difficult choices to make in today’s housing market. On the one hand improving credit conditions and government help have made buying more accessible. On the other, relative to renting, buying is still more expensive for many, particularly younger people. That’s not to mention the trade‐offs between the flexibility offered by renting versus the perceived security of buying. Indeed, our research shows that renting is cheaper than buying with a 95% LTV mortgage in all but two regions of England and Wales. So how to make a choice? An individual’s choice of whether to rent or buy depends on having sufficient income to service a loan, but also crucially on the amount of deposit available. The combination of these and prevailing rents, means there is an affordability ‘tipping point’, where for a particular deposit size the monthly cost scales weigh in favour of buying. For England and Wales, the scales tip at a 24 per cent deposit. This means a buyer of an average two bedroom home would need to raise a £32,000 deposit to make the monthly costs of owning lower
Deposit Required for Renting to be Cheaper than Buying
Source: Hamptons International Research
Remortgage
House Purchase
12,000
£60,000
10,000
£50,000
8,000
£40,000
6,000
£30,000
4,000
£20,000
2,000
6
A sizeable deposit is the key to keeping mortgage costs low, but this has to be weighed against the several years it takes to save up. For many, the advantages of renting outweigh this, particularly in the years when mobility is essential for career progression. House prices are rising again and so deposits are increasing too. This combined with the fact that interest rates can only go in one direction, raises the question of whether renting will be a more, rather than less important tenure in the future?
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© Hamptons International 2014
North East
North West
Y&H
East
East Midlands West Midlands
South East
£0
South West
01-Jun-13
01-Nov-12
01-sep-11
01-Apr-12
01-Jul-10
01-Feb-11
01-Dec-09
01-Oct-08
01-May-09
01-Mar-08
01-Jan-07
01-Aug-07
01-Jun-06
01-Apr-05
01-Nov-05
01-Sept-04
01-Feb-04
01-Feb-04
01-Dec-02
01-July-03
01-Oct-01
01-May-02
01-Mar-01
01-Jan-00
£10,000 01-Aug-00
0
London
Approvals
14,000
Perhaps surprisingly Londoners need a smaller percentage deposit, 22 per cent, to make the scales tip towards buying. That’s because rents are higher in the capital. But, at £57,200 , the relatively low deposit in percentage terms far outstrips the amount of cash needed anywhere else to tip the scales towards buying. In contrast, the smallest deposit required is in the North East, where a £17,160 (equivalent to 25 per cent) would mean cheaper monthly outgoings for a buyer over renter in the area.
A buyer of a typical two bedroom home would need to raise a £32,000 deposit to make owning cheaper than renting.
16,000 £70,000
than renting; this is despite the lowest interest rates on record.
7
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©Hamptons International 2013. This report was published for the purpose of general information and Hamptons International accepts no responsibility for any loss or damage that results from the use of content contained therein, including any errors or negligence from third party information providers. It is your sole responsibility to independently check and verify the facts contained within this report. All opinions and forecasts within this report do not in any way represent investment or other advice. Reproduction of this report in whole or in part is not allowed without the prior written consent of Hamptons International.
Johnny Morris
Head of Research
[email protected] +44 (0)207 758 8438
Fionnuala Earley
Residential Research Director
[email protected] +44 (0)207 758 8465
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