Market Snapshot: Prices, transactions, lending and construction

A handy summary of what's been happening both in Prime London and nationally...

Cushman & Wakefield has put together a handy overview of where we’re at in terms of prices, transaction levels, lending and new home starts. Let’s start with the prime markets of London…

  • Prime Central London

Capital values in Prime Central London again largely held firm, with minor monthly increases of 0.3% recorded in May. However, the average discount to asking price figure opened up once again, suggesting prices will remain flat for the foreseeable future. Transactional activity increased on both a month-on-month and year-on-year measure, yet it is worth considering that the yearly increase was from a very low post 3% stamp duty surcharge market.

Despite May data recording yet another fall in rental prices, the 2017 trend of falling prices may be about to reverse as we head into the summer. The average discount to asking price gap narrowed for the 1st time this year and now stands at 4.3%.

  • Outer Prime London

The early year flattening-out of capital values in the Outer Prime London market appears to have been more than a blip, with values recording a slight upward turn (0.1%) in May. In another sign that prices are set for a period of stability, the average asking-to-achieved gap has stopped opening up, holding at 4.9%.

Once again the Outer Prime Rental market has mirrored that of the Prime Central market with values falling 0.5%, but with a significant contraction of the asking-to-achieved spread. This key indicator would suggest that the traditionally busy summer market is set for a landscape of steady prices at worst.

  • New Home Starts (National)

Latest data from the Department for Communities and Local Government shows Q1 2017 new home construction starts at their highest quarterly level since the 2007/2008 market downturn. In an encouraging sign, work was started on over 45,000 homes between January and March of the year. However, increasing construction costs may act as a brake against this trend in the coming 12-24 months. Whilst it appears that material cost increases from a weakened sterling look to have already fed through, ongoing labour shortages will provide sufficient fuel for overall robust cost inflation.

  • Transactions (National)

Transactional activity remains subdued, although Q1 activity in a number of (mainly Northern) regions is still above the post 07/08 downturn quarterly average. Yorks & The Humber, the North West and the West Midlands all recorded volume increases 15% over the Q1, post-downturn average, whilst in London and the South East transaction levels for Q1 2017 were under the post-downturn average.

We would not forecast transactional activity to pick up until mid-summer as a picture of the UK’s political landscape becomes clearer (for the time being) and a degree of pent-up demand is released. This ongoing lack of current transactional activity will also have the secondary impact of clouding true trends regarding value movements when Spring data is released.

  • Prices (National)

Latest figures from the three major house price indices produced mixed results. The more current Halifax and Nationwide indices recorded monthly house price inflation at +0.4% and -0.2% (respectively) for May, while the UK HPI recorded a strong +1.6% for the preceding month (April). This is the first time the Halifax index has recorded growth this year, while the Nationwide reported price falls for a third month in a row.

The short run-up to June’s general election and the subsequent unexpected hung parliament has added an additional layer of uncertainty on top of what was already a market holding its breath, and while the latest UK HPI data may show a slight uptick in the year-on-year rate of house price inflation in April, we would expect this indicator of an accelerating market to be temporary. The May RICS agent survey predictably painted an uncertain picture with stock levels per agent remaining at historically low levels (43 per agent), and new buyer enquiries falling marginally after a flat preceding six months.

From a regional perspective, recent growth has resulted in average house prices in both the North West and Yorkshire & The Humber moving above their previous 2007/2008 peak levels. The North East is now the only English region whose current average house price is below its previous 2007/2008 peak level.

  • Lending (National)

Latest figures from the Council of Mortgage Lenders (CML) showed 51,200 homebuyer loans issued in April, totalling £9.6bn. This number of loans issued is 16% down on the preceding month, but up 9% on a year earlier (April 2016). Once again though, it is worth taking into consideration that this year-on-year comparison is based from a very slow, post-3% stamp duty surcharge market.