Taking The Temperature Of The Current Property Market

Medway house prices

Hello readers,

I recently read an article with the headline “UK house prices rise at the fastest rate since 2016…” and thought that I would review some of the dramatic predictions and headlines that we have seen since March… comparing them with reality certainly made for an interesting activity!

As we are looking ahead to what is undoubtedly going to be a challenging winter, I thought I’d share a couple of the “foresights” we saw with you as we look back on what has happened to the housing market over the past few months and start thinking about what 2021 will bring.

Prices & Demand

Dare I say the word “Brexit’”..? You will remember that the year started off with the property market beginning to recover and then, in March, when we were hit by a total lockdown, the FT reported that house sales had dropped to a 20 year low. The Guardian was predicting a 60% drop in home sales and there were numerous headlines warning that prices could drop 20% by December.

Whilst it is important to be aware of the headlines to, in some way, gauge the “temperature” of the market, it is interesting to take stock of where we are today – both in terms of the tremendous surge in sales we have seen over the past few months along with the price level – in light of what was predicted!

The introduction of reduced stamp duty at the beginning of July resulted in a surge of interest from buyers and, by September, property website Rightmove reported a 70% increase in demand, reporting that more homes were selling within a week of being on the market than any time over the past 10 years.

So, this brings us to the question in everybody’s mind: “Where are we now?”. Well, we certainly haven’t seen the 20% drop in prices that was predicted at the beginning of the year. In fact, we have seen quite the opposite as this week I read that UK property prices have hit a record high with the South East having an annual average increase of around 4%!

Within Medway, in particular, I have definitely seen a significant increase in prices in recent months and have also noticed there has been a further increase in rents. I’d be interested to hear if this is your experience!

For example, a three-bedroom property in Nelson Road, Gillingham which was listed for around £190k in January is now listing for around £210k and, whilst I doubt that this will be the final sale price, it is certainly something to be aware of. It will be very interesting to see how this is reflected in the data from the Land Registry over the coming months as the sales complete.

Mortgage Lending

Alongside the surge in property sales and house prices, the mortgage market has also seen significant changes. The beginning of the year saw a significant tightening of lending criteria and lenders dramatically reducing their maximum LTV.

Whilst for the buy-to-let market, 75% and 80% LTV mortgages are now available again, the rates that they are sitting at tend to be around 4%-5% meaning there is a considerable increased cost to borrowing.

Lenders have also tightened criteria, meaning that first-time buyers have needed to source a larger deposit (made even larger by an increase in house prices).

Furthermore, new measures have been put in place regarding where this deposit can come from (such as a not loan from parents) meaning that first-time buyers have pretty much exited the market for the time being. Data from the Zoopla House Price Index (below) shows how dramatic this shift has been!

What does this mean for investors over the next six months?

Whilst the property market appears to be having a “mini-boom”, the next six months will be a crucial time for investors and a question that I get asked regularly is whether now or later is the right time to invest.

My personal thoughts are that there appears to be a potentially short-lived “price bubble” that could burst in the first few months of 2021.

A drop in prices is something that several analysts are predicting. Knight Frank, for example, predicts that there will be a 7% drop in prices and the Centre for Economics and Business Research is predicting an 8.7% fall. This could wipe £15k – £20k off the average Medway terraced house.

All in all, the next six months are unpredictable! Given that we saw analysts predict a 20% drop in house prices at the start of the crisis which did not happen, you may wonder about whether there will, in fact, be a drop in 2021.

My advice is simply to act with extra caution. Make sure that you are not too highly geared and, where possible, put down a larger deposit. Regardless of this, however, I always highlight that property should be viewed as a long-term investment and when viewed this way, the trend continues to be positive.

I trust that you found this article insightful. As usual, you are welcome to get in touch with me via LinkedIn and I will be happy to answer any questions that you may have.

Hasan

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