A "flat" housing market and "subdued" growth appear to be the watchwords of 2018 outlooks. Brexit is seen as largely to blame, with uncertainty causing would-be buyers and sellers to adopt a wait-and-see position.
However, as UK Finance points out, the domestic housing market is relatively well insulated from the effects of Brexit compared with other parts of the economy. Property transactions are widely acknowledged to have remained stable in 2017.
Table 1 shows that in December 2016, the Council of Mortgage Lenders (CML) predicted 1.17m property transactions in 2017. The real figure was nearly 4 per cent higher at 1.22m, albeit 1.5 per cent lower than the 1.24m transactions of 2016.
John Charcol’s mortgage guru, Ray Boulger, points to three key factors influencing the volume of housing transactions: the state of the economy, particularly unemployment; interest rates; and mortgage availability. At 4.3 per cent, unemployment is at its lowest since 1975, but is undermined by persistently weak wage growth. Mortgage interest rates are likewise close to all-time lows, while mortgages, he observes, are freely available to those who meet lenders’ criteria.
Major factors
Nevertheless, Mr Boulger seeks to explain the low number of transactions compared with the 1.6m in 2007, just before the financial crash of 2008. He points to the lack of 100 per cent home loans and the stricter mortgage regime. Most would-be first-time buyers (FTBs) say their biggest hurdle to entering the housing market is the deposit required.
Figures from Savills suggest that in the south-east the average household income of FTBs is more than £50,000, the average mortgage is more than four times that figure, and the average deposit is around £48,000. There are regional variations: the equivalent figures in the north-west are £35,000, with mortgages of 3.24 times that amount and an average deposit of £19,000.
Mr Boulger also says existing homeowners with a large amount of equity in their property and an unblemished mortgage payment record may struggle to meet lenders’ criteria under the stricter mortgage regime and are more likely to stay where they are.
Missing movers
His comments align with a report issued in 2017 by the CML, now part of UK Finance. The report, ‘Missing movers. A long-term decline in housing transactions?’, attributed 80 per cent of the shortfall in transactions to “mortgaged movers” – those already on the housing ladder who are unable or unwilling to move, largely due to insufficient equity or borrowing capacity. It found little prospect of a rise in the number of mortgaged movers over the next 10 years.
Clearly, the weakness in activity lies largely at the feet of home movers, whose numbers have increased by only 42 per cent compared with a 130 per cent rise in FTB numbers. Future sales will be driven by FTB activity, although their numbers are expected to grow at a slower rate than in recent years. Nevertheless, they have enjoyed the support of the government through initiatives such as Help to Buy and the stamp duty reductions announced in the last Budget.
The impact of interest rate rises is also a consideration. Savills suggests any rise in the base rate, “no matter how gradual or limited, will increase the cost of borrowing for households with a variable-rate mortgage”. It will also affect new mortgages as lenders must apply a stress test to ensure borrowers can afford repayments, should rates rise.
