The World Cup behind us, the Commonwealth Games are now well under way, the culmination of a year-long countdown and many more years of work behind the scenes. So has this excitement filtered down to the property market? For your monthly round-up of what has been happening in the property market in the past few weeks, read on!
The Latest News About Interest Rates
Following last month’s speculation about an early interest rate rise and the announcement that Chancellor of the Exchequer, George Osborne, is to give the Bank of England new powers to directly limit the size of mortgages, the overall feeling seems to now be that interest rate rises will actually be later rather than sooner. (http://www.ibtimes.co.uk/uk-interest-rates-hike-later-not-sooner-despite-strong-economic-recovery-1457546). The quarterly ITEM Club report by accountancy and business services titan, Ernst & Young, said that the outlook for interest rates remains uncertain, with low inflation, the strong pound and the risk of deflation in the Eurozone pointing to a decision to keep interest rates unchanged.
The Guardian also reported that ‘benign price pressures’ in recent months have been seen as easing the pressure on policymakers to lift interest rates in the near term (http://www.theguardian.com/business/2014/jul/15/uk-inflation-house-price-data-interest-rates).
Financial markets, however, are still expecting a rate rise before the end of the year while economists are divided regarding the timing. The Evening Standard reported that the Governor of the Bank of England, Mark Carney, insisted that the timing of a rate rise would be ‘driven by the data’. (http://www.standard.co.uk/business/business-news/uk-inflation-early-rate-rise-buzz-puts-carney-on-spot-as-inflation-soars-9606765.html)
At a business conference ahead of the Commonwealth Games in Glasgow Mr Carney warned that a rise will have to happen soon to avoid “other risks” developing. The only issues is that we just don’t know what ‘soon’ actually means! (http://www.telegraph.co.uk/finance/economics/10985991/Mark-Carney-rates-must-rise-to-avoid-housing-bubble.html)
A study released during July by the Resolution Foundation, an organisation whose stated aim is to improve living standards for the 15 million people in Britain on low and middle incomes, reported that millions of mortgage borrowers are at risk of financial hardship when the Bank of England does decide to raise interest rates. These assumptions are based on the Bank of England base rate approaching 3 per cent by 2018 in line with market expectations (http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/10987916/Rate-rise-to-3pc-in-2018-would-make-800000-borrowers-mortgage-prisoners-Resolution-Foundation.html).
Huge sympathy must always be extended to those who find themselves in a position where they are unable to afford mortgage payments on their home. If there is a silver lining in the current market conditions, however, it is that someone finding themselves in this position today is in a better position because of a generally-rising property market than, for example, those in a similar situation found themselves in 2008-09 where, not only were people unable to afford their mortgages due to a general economic downturn, but also they were trapped in negative equity situations and unable to afford to sell their homes to rid themselves of the debt burden.
Generally-speaking, in our opinion the prospect of interest rate rises doesn’t spell disaster for the property market. Although it’s not ideal for people with variable rate mortgages, the majority of commentators, as reported in our previous monthly updates, seem to think that rate rises will be gradual and that, overall, they are not likely to add several percent to the cost of borrowing money. Interest rate rises tend also to go hand in hand with economic growth and rising house prices so the picture for home owners should still remain quite positive.
There have been a few pieces of mortgage related news during July, with the Financial Times reporting that 5 year fixed rate buy-to-let mortgages are on the increase, with landlords in particular being keen to protect themselves against interest rate rises (http://www.ftadviser.com/2014/07/21/mortgages/mortgage-data/buy-to-let-mortgage-choice-on-the-increase-65QhubWjk1haaTODxTqIJJ/article.html).
Thisismoney.co.uk reported that people are taking longer-term mortgages to pay for more expensive properties, with terms of 30 and 35 years becoming more common (http://www.thisismoney.co.uk/money/mortgageshome/article-2697458/Data-shows-homebuyers-taking-longer-term-mortgages.html?ito=feeds-newsxml).
Help to Buy
News hit the market that the shared-equity version of the Help to Buy scheme for new build homes had run out of funds just 3 months into the current financial year (http://www.bbc.co.uk/news/uk-scotland-28331541).
Whilst this is certainly not great news for anyone who was looking to purchase a new-build home using this scheme, it should be noted that this applies to properties that were due to settle/complete before the start of the next financial year. Anything due to settle from April 2015 onwards should not therefore be adversely affected.
What effect might this have on the wider property market? It means perhaps that buyers will switch their attentions back to the second-hand market since one of the incentives to purchase a new-build property has evaporated for the time being. This, arguably, might have a beneficial effect on the property market outwith the new-build sector.
Demand and Supply
The latest Royal Institution of Chartered Surveyors (RICS) Residential Market Survey found that demand is continuing to outstrip supply in Scotland (http://www.scotsman.com/news/scotland/top-stories/first-time-buyers-still-hunt-for-scottish-property-1-3472053).
The Edinburgh Solicitors Property Centre (ESPC) also reported another month of positive news, with the number of homes sold in the previous quarter of the year being 32% higher than the same period last year (http://www.espc.com/news/espc-house-price-report-june-2014). The number of homes coming on to the market also increased by 10% on an annual basis.
The largest increase in sales looks to have been accounted for by smaller properties, with rising activity among first time buyers and buy to let investors spurring-on growth in this area.
As demand outstrips supply, this of course puts upward pressure on prices so it’s not surprising to see that property prices in Edinburgh and the Lothians have been recovering from the dips that were experienced during the financial crisis.
July is actually the first month in a long time where, writing this article, I can report that the number of properties we have signed-up to come to the market is actually higher than the number that we have sold. We have been concerned for a while that a lack of supply would put unsustainable upward pressure on prices, so it’s good to see that it appears that seller confidence is starting to catch-up with buyer confidence. It is certainly fair to say that we are seeing prices starting to rise across the board though so, if you are thinking of selling your own property, it’s certainly worth getting in touch with us to arrange a free valuation of your property to find out what it is likely to be worth in the current market conditions!
STV reported that for the ninth month in a row the cost of a house in Scotland has risen, with average prices up in 28 of 32 local authority areas (http://news.stv.tv/scotland/282763-housing-market-strengthening-says-lsl-scotland-house-price-index-shows/).
Anecdotally, this is certainly what we are seeing ‘on the ground’ and gives further credibility to the suggestion that, if you have been hanging-on to wait for the market to recover before you think of selling your own property, you might not need to wait any longer!