This spring has delivered signs for cautious optimism.
The number of mortgages approved by lenders in March was 61,330; up from 60,400 in February and an 18-month high. The market is outpacing the expectations of most economists.
There are other causes for guarded celebration: effective interest rates are down to their lowest since last summer, and wage growth is outpacing house prices.
It seems likely we will edge back towards ‘business as usual’, except with slightly fewer amateur buy-to-lets
Does this mean that things are back on track for spring/summer 2024? Closer examination of the figures suggests that growth, while there, is unevenly spaced. This may not come as a surprise to mortgage professionals, for whom the official narrative on, say, house prices may not reflect what they are seeing.
Part of the challenge is the measurement boundaries. For example, Office for National Statistics data shows that average house prices fell in the year to December 2023. But, in March, Halifax figures showed they had dropped for the first time in six months. Where you measure from, and to, clearly makes a difference.
Then there is inflation. Zoopla’s April 2024 House Price Index showed a year-on-year drop of 0.2%, but this does not take into account the effect of inflation, which has masked the true scale of price falls. Adjust for this over the past 18 months and nominal rises can turn into real-terms cuts. So, what is going on?
Sector detail
The real answer is that individual sector detail is more important than ever. There are some universal pressures on prices — such as greater borrowing costs, a higher cost of living and buyer caution.
Where you measure from, and to, clearly makes a difference
Equally, some of these are changing, as real-terms wages increase and the jobs market improves. But there are other, more interesting, pressures on certain market sectors that may be more relevant.
For example, just two years ago average house prices in the home counties were booming, even compared to London. Hertfordshire, Surrey and West Sussex had price increases of around 50% between 2010 and 2022, while Buckinghamshire property went up 70% on average. London, by contrast, rose just 34%.
But we are now seeing the reverse. Greater London and the commuter belt are outperforming everywhere else. And, far from higher-value homes holding steady, they are seeing the greatest dips — often with discounts of 10% or more. Suddenly, proximity to London is key, and people are moving — or returning — to the city; almost one in eight London buyers is from outside.
For mortgage professionals, the official narrative on, say, house prices may not reflect what they are seeing
It’s not hard to see why. The pandemic and resulting boom in home working forced prices up in attractive locations. High-flying professionals realised they could do their job just as well in airy studies in old vicarages, or somewhere with a sea view. But today large corporates are increasingly requiring their staff back in the office at least three days a week, and suddenly the threat of those long commutes is taking its toll.
Second homes
Another important sector is second-home ownership. In the March Budget, the chancellor hammered those with multiple properties, with a jab-cross of abolishing holiday-home tax relief and lowering taxes on second-home sales. Meanwhile, some local councils — such as Gwynedd in Wales, or Thanet in Kent — are going further still, imposing eye-watering rate rises on second residences.
Growth, while clearly there, is unevenly spaced
This is exacerbating a pre-existing trend, which saw smaller landlords decide that increased regulations and costs were making it uneconomic, and sell up.
Of course, this has mixed results; it is great news for professional landlords, for example. Handelsbanken’s own research shows professional property investors to be bullish, with 62% planning to increase their portfolio in the coming year. And, for anyone who wants to invest in a second property, there may be bargains — but they will need professional advice before making any decisions.
But what does this mean in the longer term? The markets expect interest rates to have come down to something approaching ‘normal’ by 2026. The fact that this five-year period also saw a cost-of-living crisis, and all the knock-on effects of home working, means that it may prove to have been an outlier when set against longer-term market trends.
Individual sector detail is more important than ever
It seems likely we will edge back towards ‘business as usual’, except with slightly fewer amateur buy-to-lets.
Until then, there is still plenty of business out there — but only for those who really know what they’re doing and are prepared to put in the research.
Steven Macdonald is national intermediaries strategy lead for Handelsbanken
This article featured in the June 2024 edition of Mortgage Strategy.
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