Property recovery in sight

Tuesday 28th May 2013

Earlier this month, the Governor of the Bank of England said a recovery from Britain’s worst slump since the 1930s Great Depression is finally “in sight”.

Sir Mervyn King forecast that growth in Gross Domestic Product will “strengthen” to a healthy 0.5% in the second quarter of the year and will continue throughout next year.

The Bank’s surprisingly upbeat Inflation Report projection comes as research shows that optimism about the housing market is improving rapidly.

According to the latest RICS residential market survey, for instance, new buyer enquiries in April rose to their highest level in over three years, with 25% more chartered surveyors reporting that demand for property rose rather than fell.

Mortgage lending has been helped by the Funding for Lending scheme, which is opening the door to more first-time buyers who were shut out of the market by tight criteria and high deposit requirements.

Demand from buyers is also being fuelled by the government's flagship property scheme, Help to Buy.

The first part of the scheme was introduced last month, a shared equity scheme where the government will loan a 20% deposit to buyers of new build homes. But homebuyers still require a 5% deposit.

Help to Buy mortgages, which are only available in England, can be used to acquire properties valued up to £600,000.

The second part is due to be launched next January, but exact details are yet to be announced.

“It is encouraging to see government initiatives are having an impact on the property market. Help to Buy in combination with the Funding for Lending scheme appears to be giving the market a shot in the arm. Thankfully, sales are expected to pick up over the coming months, albeit from historically low levels,” said Peter Bolton King, RICS Global Residential Director.

Although there are some understandable concerns that the measures will also lead to higher prices, fuelled by the existing supply-demand imbalance, there are signs housing starts will improve.

Research conducted by Knight Frank shows that house builders are optimistic that development volumes will increase this year, and this view has been supported by their strong start to the year, with many developers reporting a surge in buyer activity after the start of the government’s Help to Buy Scheme.

The Council of Mortgage Lenders’ (CML) forward estimate is that gross lending in April reached £12.1 billion, which would have been up 4% month-on-month. The figure also represents a staggering 21% compared to April 2012, although comparison with April last year is “flattered by the temporary dearth of house buying activity immediately following the closure of the stamp duty concession”, according to CML chief economist Bob Pannell.

Nevertheless, gross lending on a seasonally adjusted basis has been running comfortably above £12 billion for several months. Although this level is not even half the average rate of lending seen in 2003-4, it does further suggest that the market is gaining real confidence, thanks to improving mortgage market conditions.

Paul Hunt, Managing Director of Phoebus Software, said: “There has been a boost in competition within the mortgage market thanks to the Funding for Lending scheme, which has encouraged banks to make mortgages more accessible to high LTV borrowers. Added to that, the Help to Buy scheme will augment the recovery even further, and help keep it firmly set on the way to a fuller recovery.”

But David Newnes, Director of LSL Property Services, owners of Your Move and Reeds Rains, believes that the path to a full recovery will be “long and winding”.

 “April’s mortgage figures are the strongest for five years, and a sign the mortgage market is gradually being reknit after being torn apart during the financial crisis,” he said.

He added: “The UK’s housing market is showing signs of growing stronger, boosted by greater consumer confidence in the market and wider economic recovery in Britain.”

But he acknowledged that gross lending is still less than half what it was in April 2008. Nevertheless, demand is improving.

“Cheaper mortgages are available and lenders are competing for business which is driving down rates and making mortgages more affordable,” he continued.

The UK housing recovery may have a long way to go, but signs are that we are on the right track.


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