Monday, July 15

Evidence grows of an end to the house price boom



House prices, estate agents for sale and to let. Signs of faltering demand in the housing market are prompting estate agents and analysts to suggest England’s house price boom may be ending.

Paul Smith, chief executive of the Haart agency — which has more than 100 branches — said: “We believe the nation has now neared the limit in terms of price rises.”

Inquiries declined in April at their second-highest rate since 2008, according to the Royal Institution of Chartered Surveyors — a trend that Mike Prew, equity analyst at investment bank Jefferies, said “signals this slowdown could morph into a period of sustained house price deflation”. Drops in this Rics measure are strongly correlated with price falls about a year later, Mr Prew added.

“The balance of surveyors expecting higher house prices 12 months ahead has also collapsed, suggesting something more than just short-term factors.”

Mortgage approvals across the country dropped 8.6 per cent in April, far steeper than analysts had expected.

This was partly down to the aftermath of a demand surge in March as buy-to-let investors rushed to beat a new stamp duty surcharge, while caution over the June referendum on European Union membership also played a role, Rics said.

But broader factors are also at work, including slowing economic growth and price rises that have stretched affordability to breaking point for many in London and the south east, where house price inflation has been most extreme.

“There are plenty of headwinds facing London irrespective of the referendum vote. It’s down to affordability — at some point you have to run out of buyers,” said Richard Donnell, director of research at Hometrack, an analysis firm.

Average prices in the capital rose 54 per cent between the start of 2012 and March this year, according to the Land Registry, contributing to a nationwide rise of 20 per cent. In London, prices stand at 9.2 times average earnings, according to Nationwide.

Mr Donnell said price growth had slowed this year in all but two London boroughs, while the number of homes changing hands declined 7 per cent across the capital last year.

This came as transaction levels and prices fell in the most expensive districts.

“When sales volumes fall back, it is agents that start to re-price the market to get volumes back, in a process that takes six to 12 months,” Mr Donnell said.

“They let vendors know that they need to be more realistic if they want to sell, taking on new instructions at lower prices.”

Henry Pryor, a buying agent, said he was aware of homes remaining on the market for three to four weeks without a single viewing. “How do you persuade people to buy something today that they think will be cheaper tomorrow?” he said.

Lucian Cook, director of residential research at estate agency Savills, said: “We are clearly hitting some affordability ceilings in London.” But the timing and speed of a rise in interest rates would be a key factor in the direction of the broader market, he added.

Mr Cook is sceptical the market is set for a major downturn, however. If the UK does not vote to leave the EU, he said, “it is difficult to see what the catalyst would be for a significant correction in the housing market”.

Robin Hardy, analyst at Shore Capital, said the market was also plagued by “mortgage zombies”, defined as “growing numbers of potential movers struggling with a lack of equity due to the various types of assistance buyers received . . . when they entered the market.

“Parental gifts, help-to-buy or other shared equity loans and long-dated mortgages all hamper the creation of equity. We see growing numbers of ‘mortgage zombies’ primarily from those who were first-time buyers at any time in the last five to seven years.”

However, analysts have yet to downgrade their house price forecasts, with many waiting until after the referendum to reassess the market.

Savills predicted late last year that prices in “mainstream” UK markets would rise 5 per cent this year and 17 per cent by 2020.