Monthly Market Review – November 2014

October has been a further month of conflicting house price data, and talk of the need for caution. The market has undeniably changed in dynamic, and a lot of the frenzied activity seen earlier in the year has subsided. We are now seeing pockets of activity confined by location and price band, where more attractive pricing strategies by sellers are starting to encourage buyers.

Rate of growth falling

House prices increased by 0.5% last month according to Nationwide. However Halifax report a monthly fall of 0.4% for the same period and Land Registry has released data last month reporting that prices fell by 0.2% on a monthly basis, but confirming that the annual change was an increase of 7.2%. As the figures from Nationwide are based on mortgage approvals they may indicate there is some latent buying interest still to work through to actual transactions.

Both Halifax and Nationwide’s quarterly price change data helps identify a clearer trend; and for the fourth month in a row the rate of growth is falling, which Nationwide record at 1.4% – the lowest rate of price growth seen so far this year.

A window of opportunity for buyers?

A wide range of political and financial factors are affecting the market at present, all impacting buyer behaviour and in turn market activity. Our Search Consultants are still seeing a shortage of sellers in some parts of the country, including prime central London, whereas elsewhere, properties which would normally sell very quickly such as in Surrey and other Home Counties are being offered at what we consider to be attractive prices.

For some buyers this is creating an interesting window of opportunity, especially for those who are willing to rationalise market threats and evaluate potential risks against financial savings now available in a buyer’s market.

How real is the threat of a Mansion Tax?

The property industry is rife with discussion surrounding the potential introduction of a Mansion Tax, with some estate agents even advising vendors to wait until post-election before selling. Having stirred up a hornet’s nest of uncertainty and come under intense political and media criticism, Labour have now outlined basic information with regards to how they would implement this new tax – if elected, which is designed to raise £1.2 billion.

The tax would be introduced on a progressive basis, starting at a level of £3,000 annually for homes between £2-3m, and be self-assessed with owners confirming that the value of their home is at, or in excess of £2m. Industry data suggests that anything from 58,500 to 110,000 properties would be affected if the tax was introduced, 80% of which are in London and the South East. Current research suggests that, on average, a tax levy of around £15,000 per annum would be applied to such homes. Whilst this amount from pre-taxed income is not to be ignored, Garrington has seen increasing numbers of purchasers willing to ‘trade’ the risk of the cost of the tax for achieving a significant reduction off an asking price.

Last month Garrington became aware of two country house transactions following this pattern of negotiation; one property was acquired at £2m having originally been marketed at £3.5m, another at over a 20% discount off the guide price.

Exceptions to the norm

Local markets across the UK are becoming increasingly polarised as a new report from Hometrack underlined last month, by comparing and contrasting 20 UK cities. Benchmarked against the UK average, 30% of cities are outperforming the UK average, and all are situated in the South of the country. The Land Registry also confirmed last month that the Prime Market remains in rude health, with recorded transaction levels above £2m increasing by nearly a quarter on a year on year basis. However, this is very much led by location where only the finest postcodes are attracting buyers who typically have to compete. In London for example, we have seen several large £20-50m acquisitions, the majority of which were made by domestic purchasers.

International demand drives prime rentals

The recent strong rise of Sterling, together with tax uncertainties, is combining to drive some international buyers away from the market and towards renting a property. Prime London rental yields are now at a three year high with rents rising 22.2% since September 2008 – a figure which outperforms New York, Hong Kong and Moscow.

Outlook

Will the winter become the season of goodwill and opportunity? Many parts of the property market are likely to see a slowdown in activity towards the end of the year. However, masked by this national trend, there remains a core of committed and well informed buyers keen to agree a purchase for their next home or investment.