Interest rates may rise this year and action could be taken to cool Britain’s overheated housing market, the Governor of the Bank of England Mark Carney has suggested.
Speaking late last night, he said a rise in rates ‘could happen sooner than markets currently expect’, with ‘gradual and limited’ increases being needed as the economy recovers.
The Bank Rate has been at a historical low of 0.5 per cent for more than five years and the financial markets had not anticipated a rise until next year. But the economy seems to be recovering faster than expected.
Carney also said the housing market is ‘showing the potential to overheat’ and he expressed concern about borrowers over-stretching themselves financially.
It comes as new research showed house prices rose by nearly £21,000 during the past year.
The average property value increased by 8.5 per cent in the 12 months to the end of May to stand at £266,013, according to LSL Property Services.
The group said the rise was the fastest annual increase it had recorded since August 2010, when the housing market was recovering from the financial crisis.
House prices have risen in 91 per cent of unitary authorities across England and Wales during the past 12 months.
David Newnes, director of Reeds Rains and Your Move estate agents, owned by LSL Property Services, said: “As the vigorous health of the UK housing market catches international and media attention, all eyes have been on how the Government and regulators will react.
“However, the growing clamour for intervention neglects the fact that when taking inflation into account, only London and the South East have seen house price growth in ‘real’ terms since January 2005.”
He added that while in London house prices had soared by 13.3 per cent during the past year, excluding the capital, property values had increased by just 6.3 per cent across the rest of England and Wales.
The difference between the price of a home in London and the rest of the country is now the biggest since the group’s records began.
But LSL said there were indications that the property market was beginning to cool, particularly at the top end of the London market.
“the introduction of tough new lending criteria under the Mortgage Market Review had led to an easing in buyer demand”
Prices actually fell in 12 London boroughs during April – the latest month for which figures are available.
The prime central London boroughs of Kensington and Chelsea and the City of London suffered the biggest drops, with property values falling by 2.7 per cent and 2.9 per cent respectively.
Across England and Wales as a whole, there was also a slow down in the annual rate of sales growth.
The group estimates that 72,000 homes changed hands during May – just 8 per cent more than in the same month of 2013.
The figure is well down on the year-on-year rise of 33 per cent seen during the previous 10 months.
Today’s data comes the day after the Royal Institution for Chartered Surveyors also reported a cooling in the housing market during May.
The group said a combination of limited supply and the introduction of tough new lending criteria under the Mortgage Market Review had led to an easing in buyer demand.
Meanwhile, chartered surveyor e.serv said mortgage approvals for house purchase in May had fallen to their lowest level for a year.
Suggestions that the housing demand is cooling should help to ease concerns that a bubble may be building up in the market.
Mortgage lending fell to its lowest level for a year during May in a further sign that the housing market may be cooling, research has shown.
A total of 61,202 loans were approved for house purchase during the month, the fourth consecutive monthly decline and the lowest level since June 2013, according to chartered surveyore.surv.
The group said approval levels were now 19 per cent lower than at the beginning of the year, as demand from potential buyers eased.
“Uncertainty is one factor affecting home movers. Some buyers are waiting to see if the market will begin to plateau before agreeing to pay the high price tag on new property.”
The research comes as the Royal Institution for Chartered Surveyors also reported a cooling in the housing market during May.
The group said the number of homes being put up for sale fell for the fifth month in a row, but demand from potential buyers also eased, taking some of the pressure off prices.
It said the shortage of homes on the market, combined with the introduction of tough new lending rules under the Mortgage Market Review appeared to be “stemming the tide” of perspective buyers.
But despite the overall decline in mortgage approvals, e.surv said pipeline loans to first-time buyers continued to pick up in May with 9,670 mortgages agreed for people with a deposit of 15 per cent or less, 40 per cent more than in the same month of last year.
Data released by the Council of Mortgage Lenders today also showed a 52 per cent year-on-year increase in lending to first-time buyers in April.
A total of 24,500 loans worth £3.5bn were advanced to people buying their first home during the month.
But the group said first-time buyer affordability worsened in April, with average income multiples rising slightly to 3.42, up from 3.41 in March.
At the same time, the average amount borrowed rose to £121,500, the highest level ever recorded and up from £118,750 in March.
At the same time, typical first-time buyer incomes also rose to a new record of £37,000.
The group also reported that the value of mortgages advanced to people moving home rose to £8.8bn in April, 11 per cent more than in March and 47 per cent higher than a year ago.
Paul Smee, director general of the CML, said: “First time buyers and home movers continue to be key drivers in the growth of the market and, despite fears that MMR preparations may hinder this momentum, we have seen a continued year-on-year upward trend every month in 2014.
“The UK picture continues to mask a disparate set of varied local conditions, but overall we expect lending levels to continue to build on the foundation of growth we have seen over the past 12 months.”
You might have seen architectural designer Greg Toon from Potential etc… tackle readers’problem homes in his regular column for The Sunday Times Home section. Well, now he has joined Zoopla to help you sell your home. Every month, one home seller will win a free design scheme from Greg and it will be featured here for all prospective buyers to see.
To be in with a chance of winning a design scheme by Greg Toon, please send a link to your property that you are selling on Zoopla to website editor firstname.lastname@example.org.
Greg Toon has 18 years experience in the architecture business, working in London practices on residential and commercial projects. His extensive experience includes designing everything from warehouse conversions and hi-end offices, to restaurants, social housing and millionaires’ mansions.
In 2012, he moved out of London with his family and set up Potential etc… after renovating their tired looking 1960s home. The before and after photos below show the transformation of the house that many of his friends thought he was mad to buy.
Realising that some people find it hard to look beyond dodgy wallpaper or awkward room layouts, Greg created a unique service, providing design schemes for sellers – instant make-overs in the form of artistic perspective sketches and proposed floor plans – to illustrate their property’s potential and help them to sell it.
The concept is that buyers are investing in the vision for the home rather than just the property as it stands. By doing this, the property is opened up to a wider audience. Properties with Greg’s design schemes have sold faster and for more money, something that no lick of paint or expensive kitchen refit can guarantee.
The housing market showed signs of cooling during May as tough new lending conditions came into force, research showed today.
The number of homes being put up for sale fell for the fifth month in a row, but demand from potential buyers also eased, taking some of the pressure off prices.
The Royal Institution of Chartered Surveyors said the shortage of homes on the market, combined with the introduction of tough new lending rules appeared to be “stemming the tide” of perspective buyers.
Across the country, new buyer enquiries rose at their slowest rate since February 2013.
The group added that in London, where there has been most concern that a bubble may be building up in the market, demand from buyers actually fell for the first time since June 2012.
May was the first full month since the Mortgage Market Review, under which lenders impose tighter affordability criteria on borrowers, came into force.
RICS said it was hard to “disentangle” the new rules from other factors that were impacting the market and to know whether they were simply having a temporary affect while lenders adjusted to the new environment.
“In particular, we’re seeing the London market level off”
But it added that respondents reported that banks were lending less, with average loan-to-value ratios among first time buyers dropping to 85.3 per cent from 86 per cent in April.
Unsurprisingly, the fall in demand impacted on surveyors’ expectations for prices, with them now anticipating growth of 3.6 per cent during the coming 12 months – the lowest level since December 2013.
They are also expecting a significant slow down in activity, with only 29 per cent more surveyors in the South East predicting greater activity in the coming three months, down from 66 per cent more six months ago, while in the South West the balance dropped to 48 per cent from 93 per cent.
RICS said the tightening in mortgage lending conditions even led to a modest pick up in demand for rental property, with average rents now expected to rise by 2.5 per cent during the next 12 months, and at an annual rate of 4 per cent during the coming five years.
Simon Rubinsohn, RICS chief economist, said: “What we are really seeing is some of the very strong upward momentum starting to come off the housing market, as a lack of supply, higher prices, more prudent lending measures and some of the talk from the Bank of England are creating a level of caution among sellers and buyers.
“The most visible indicators of this are the revised downwards price expectations for the next 12 months and the flatter picture regarding new buyer enquiries. In particular, we’re seeing the London market level off.”
As the recession slowly eases its grip billions of pounds of money is pouring into regeneration projects across Britain, many of which remained on the drawing board during the recession.
Buying a home in an area in line for serious improvements is one of the surest ways to make a good property investment. The downside, of course, is that most of these areas are by definition currently a work in progress and buyers will need to be patient if they are to reap the benefits of massive regeneration.
That being said one of Britain’s most exciting regeneration programmes is Wirral Waters, Birkenhead, a £4.5bn redevelopment of the city’s currently disused docks.
This is a monster of a scheme which will eventually include offices, shops, bars and restaurants, plus up to 15,000 new homes in towers of up to a reported 50 stories. Such vast projects do not happen overnight and it is currently unclear when The Peel Group, which has planning consent for its 30 year project, will begin.
However, Mark Heaton, associate partner at the Clive Watkin Partnership, points out that the city is still feeling the ill effects of seven years of economic misery.
It means two bedroom terraced houses on the fringes of the Wirral Waters scheme currently sell from as little as £40,000 – often to investors since few buyers want to live on the edges of a currently derelict zone.
“If it is turned into our Canary Wharf or Salford Quays it will be fantastic,” said Heaton. “But it will take a long, long time.”
A safer bet is the leafy suburb of Oxton Village, a couple of miles from the docks but a world away in terms of lifestyle. Here you could pay around £500,000 for a fine Victorian villa with six-plus bedrooms, or from around £90,000 for a two bedroom flat.
Another scheme well worth watching is the Clyde Gateway in Glasgow, a £2.7m scheme centred on the site of this year’s Commonwealth Games. It will regenerate a swathe of the east end of the city, including Bridgeton, Dalmarnock, Rutherglen and Shawfield, meaning homes in these currently undervalued areas could make a fantastic investment.
The 20 year project will include a new suburb on the site of the athletes’ village
Property in Glasgow currently costs an average £156,803 up 4.47 per cent in the last year.
A recent study by Slater Hogg & Howison says the city’s market is strengthening with homes selling faster and closer to asking price than they have for seven years.
“The recovery in the Glasgow housing market is rooted in the return of the first time buyer and the confidence they bring to the rest of the market,” said Michael Luck, managing director of Slater Hogg & Howison.
“The Scottish Help to Buy Equity Loan scheme which launched in September 2013 has added to this growing sense of confidence. In the first three months of the scheme, it accounted for one in 12 sales of new property in Scotland. The scheme has been well received with one in four new properties for sale in Glasgow under £400,000 available through the scheme.”
Meanwhile, massive investment (to the tune of £1.3bn) is going on to the west of Milton Keynes. Some 6,500 new homes are to be built in the rather lumberingly-named Western Expansion Area between Stony Stratford, Two Mile Ash and Crowhill.
This area is about as far from the land of the concrete cow as you can imagine, with a mixture of lovely village and country houses, and modern contemporary homes to choose from.
Homes in Milton Keynes cost an average £235,444, up 4.91 per cent in the last 12 months.
avid Webb, a director of Fine and Country prefers to use the word expansion to describe the plans to expand Milton Keynes, pointing out that regeneration usually suggests a run-down area.
At present buyers could pick up a two bedroom period cottage in Stony Stratford for around £160,000 to £200,000 or a four bedroom 1970s house for circa £400,000. And Webb believes that demand in the area (which includes London and Birmingham commuters) is such that it can sustain a stream of new houses starting to come onto the market in the next year or two.
“At the moment we have got quite a severe shortage of property and high demand,” he said. “If there was to be a slowing of prices then I would argue that would be a good thing because we are heading towards a boom and bust situation where prices are rising above what people can afford. Milton Keynes is used to having big influxes of new homes, and I don’t think it will suffer.”
1. For those willing to play a long game this two bedroom period house in Birkenhead, yards from the River Mersey, could be worth a lot more than £69,950 when the Wirral Waters scheme is up and running. It is also extremely handy for Hamilton Square station, and local transport links never hurt a home’s price growth potential.
2. Alternatively this five bedroom Victorian house is on offer at £222,500.
3. The Commonwealth Games will breathe new life into the East End of Glasgow where you could buy a one bedroom flat above shops for a mere £42,000.
4. Or for £269,995 you could opt for a fabulous three bedroom flat on nearby Glasgow Green, within an easy walk of the games’ athletes village.
5. East of Milton Keynes billions of pounds are being invested, which could make homes like this £2.5m Georgian pile all the more sought after.
6. The area – of course – also has modern property, including this three bedroom contemporary townhouse for sale at £240,000