3rd Quarter - Overview of the UK market
As the seasons change, it would appear that a turning point has been reached in the housing market. Conversations have abounded about the possible impact of a mansion tax, the next election, the Mortgage Market Review and interest rate rises. With uncertainty in the air, it is no surprise that the market has started to cool. Although yet to filter into the headline house price indices, with Land Registry reporting annual growth in London of 21.6%, lower asking prices suggest this rate of growth will slow significantly before the end of the year.
As a result of the changing conditions, market commentators are reviewing their house price growth forecasts. Those released so far project that UK house price growth will see a marked slowdown in 2015. However, despite the cooler market conditions, it is generally felt that a period of stability will be beneficial for the market as a whole.
“In the current market it is key for Landlords, now more than ever, to present the property in its best possible state and be realistic about the asking price.”
London property market
Fears of a house price bubble developing in central London have begun to subside, as a slowdown in the rate of growth has been recorded. This slowdown is being received positively by the sector, as it will help restore longer-term stability in the market.
In contrast to the rest of central London, the average price paid per square foot for properties in our area continued to increase in the third quarter of 2014, growing by 1.1% compared to Q2 2014. However, as with the wider market, the rate of annual price growth slowed to 17%, down from 23% just three months earlier. The weakest growth is currently for properties priced between £2 million and £5 million, which are rising at an annual rate of 5.8%, perhaps reflecting the additional stamp duty costs and mansion tax concerns.
Although prices continue to rise, albeit at a slower rate, transactions have been harder hit. There were 34.4% fewer sales recorded in our area in the third quarter of 2014 compared to the same period of 2013, on a par with the decline seen across prime central London. The biggest fall in sales has been for the cheapest and most expensive properties. Least affected has been the market between £1 million and £2 million, where the level of sales was just 7.1% lower than in the third quarter of 2013.
As the market softens and demand levels are temporarily weakened further as we approach the May election, it is important for vendors to take into consideration current market conditions. Vendors of properties between £2 million and £5 million should be aware that average prices currently being achieved per square foot are some 9% beneath the average asking prices of those currently being marketed. Correct pricing of properties is imperative to attract interest and avoid properties sticking on the market.
Our catchment area includes the following postcode districts: SW1X, SW1W, SW1V, SW1E, SW1P and SW1H.
Across prime central London, activity in the lettings market is starting to pick up, reflecting the better than anticipated recovery in the economy. With further growth in the London economy of 17.1% expected between 2015 and 2020, according to Oxford Economics, the outlook for the rental market is improving. However, in the short term, demand levels could be affected by the political uncertainty in the run up to the election, although this is likely to be to a lesser extent than in the sales market.
The third quarter of the year is traditionally the busiest for the lettings market and, unsurprisingly, the number of lets agreed in this period across our area was 30% higher than in the second quarter. However, the number of properties let was still 11.7% below the number let in the same quarter of 2013, showing that the rental market is still fairly quiet.
In recent years, the market has been characterised by an over-supply of rental properties compared with the level of demand. However, this is now starting to ease. In the third quarter there were 18.5% fewer properties listed to let than there were in the same quarter of 2013. At a local market level, Pimlico has seen the sharpest decrease, with a 25.8% fall in the level of new instructions.
With fewer properties available to let, although demand levels are not excessive, rents are beginning to creep upwards. Across our area, average rents achieved in the third quarter were 6.3% higher than a year earlier. Landlords have had to be realistic to secure their tenants, however, and have sensibly not pushed up asking rents. Indeed, the properties listed in the third quarter of 2014 were marketed at an average rent of 4.8% below what was achieved in Quarter 3 2013. Tenants are price sensitive but their requirements are also increasing. Well presented, good quality but sensibly priced properties will let well over coming months.