As the total value of UK housing stock reaches £5.75trn, rising by £543bn in one year, the UK housing market has changed, and has affected supply and demand in the auction room.
New mortgage rules, shifting demographics, changes to taxation and continued house price growth in London and across the UK all look likely to continue to shape the market in 2015 and in the years to come.
The Mortgage Market Review, implemented by the Financial Conduct Authority in the second half of 2014, introduced more stringent lending criteria, limiting the number of people who can access mortgage debt and the amount they can borrow.
This is likely to continue to suppress transaction levels for mortgaged home ownership, particularly while the issue of deposit affordability remains. Savills Research has found that in the third quarter of 2014, an average first-time buyer faced a £46,000 funding shortfall. As aspiring buyers struggle to get on the housing ladder, sustained growth is being seen in the private rented sector, presenting new opportunities for property auction investors and developers.
The growth of the private rented sector is one of the biggest changes to the market we have experienced and it certainly looks set to continue. The total value of private rented sector stock in the UK has now hit £1.16trn, up by 57% over the past five years. With substantial further growth forecast, driven by an affordability squeeze, we are already seeing an increasing number of investors looking to capitalise on the escalating demand. At auction, oven-ready investments such as units with assured shorthold tenancies in place and properties that present an opportunity to create an investment are popular choices. Houses are another attractive option, catering for the increasing number of families living in rental accommodation.
Despite a number of constraints to getting on to the housing ladder, a revised stamp duty has brightened the outlook for the property market. Announced in December’s Autumn Statement, the new legislation has largely been welcome news for the auction room, with effective rates reduced for all properties under £937,000. Of the 171 lots sold at our first auction of the year, four fell over the threshold and all sold above their guide price. Even for properties valued at more than £937,000, the removal of the old slab structure has levelled off the cliff edge price points we used to see, which often dictated a buyer’s maximum bid. The market as a whole has become more fluid, with buyers and vendors alike no longer held back by large hikes in tax liability at certain levels.
Following a year of mainstream house price growth that ran well ahead of the recovery, Savills Research expects increases in 2015 to return to a more normal level. The strongest growth in London to 2019 looks set to be between £300,000 to £1m, with 19.3% growth predicted across the UK as a whole. The South East and East of England are set to be the star performers, with rises of 26.4% and 25.2% forecast by 2019 respectively. As a result, it is likely that investment focus will widen to include other major UK cities. We have already experienced strong competition for regional lots and those in the commuter belt, where bidders still see good potential for capital growth.
Despite the uncertainty caused by the upcoming general election, the auction market has proved resilient. At our first auction of the year, £52.4m of property sold with a 86% success rate. A wide range of buyer types bid fiercely for realistically priced lots, resulting in sales at prices ranging from £15,000 to close to £2m.
It will be interesting to see the main political parties’ plans to address or embrace the major factors affecting the housing market, and whether in six months’ time we are operating in a vastly different landscape.
Chris Coleman-Smith is head of Savills Auctions
