House Sales Are On The Up

RICS report followed a bullish forecast from the Centre for Economics and Business Research that the cost of the average home will jump by nearly £50,000 over the next five years. The CEBR said house prices will ‘surpass’ their pre-crisis peak for the first time next year, reaching an average of £227,000. By 2018, it predicts the cost of the typical UK home will be £267,000.

RICS polls its member estate agents each month on their experience to provide a barometer of the property market. It said that house prices were now back in positive territory, albeit only just, with 1 per cent more of its members overall reporting prices rising rather than falling.

What's happening to house prices?

The national property market is more fragmented than ever before, with the bright spots being all about location. London and the South East are riding high but other regions are suffering. If you drill down further a postcode lottery is the order of the day.

It can rarely have been more true that the distance a few miles make can be huge.

While a desireable town or district may have buyers chasing down properties and driving selling prices up, a less in-demand spot just down the road could see properties piling up unsold.

If you want to move home, knowing your market and pricing sensibly is essential. That means looking beyond the headline prices we highlight here and doing some good old-fashioned groundwork closer to home.

The Land Registry's most recent quarterly data, which provides the broadest measure of actual house prices paid across the board, showed a decline in the months to December 2012 but prices up year-on-year.

The average price for all property was up 4.3% annually to £238,293, but that was a 4.7% fall over the three-month period. The quarterly Land Registry data is broader than the more widely published monthly data and includes both new-build home sales and properties that have not been sold at least once in the past 17 years.

A gradual property market improvement could be seen over the course of the year if the Bank of England's Funding for Lending scheme keeps pushing down mortgage rates and making more money available to borrowers.

Rates have come down substantially with best buy five-year fixes for those with a 40% deposit below 3% and deals for those with a 10% deposit below 5%.

However, many still see getting a mortgage as a tough task, so confidence is fragile, says the Building Societies Association (BSA). Two-fifths (42%) still see access to mortgage finance as a barrier to buying a home but this is the lowest percentage recorded since the BSA began its study at the height of the credit crunch in June 2008.

The Problems Ahead

Lenders have made it much tougher to take out cheap interest-only loans, which had helped prop up the property market. A squeeze on interest-only has been in place since the financial crisis hit but has dramatically stepped up a gear last year. The effects of this should not be underestimated. Those with existing interest-only mortgages are finding their lenders will not let them borrow more to move unless they switch to a repayment loan which comes with much higher monthly payments. 

The second problem is that lenders are still cash-strapped and the eurozone debt crisis is weighing heavily on the banking sector. This has contributed to a dramatic fall in swap rate money market costs and the fixed rate mortgages that these heavily influence. If things get worse banks will find their balance sheets hammered.

The cost of moving is also high. Those buying family homes in areas where a property costs more than £250,000 face a stamp duty bill of at least £7,500.

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