For the time being, the consensus is that the residential market has at least, stalled.
There are four key reasons for this: the Mortgage Market Review and the resultant delay in processing home loan applications; the uncertainty of the timing of anticipated interest rate rises; new Stamp Duty rates – bad for homes over £900,000 and offshore buyers but very good for homes under £500,000, and the considerable uncertainty surrounding the general election to take place in May 2016 and the possible result of another hung parliament.
The Royal Institute of Chartered Surveyors (RICS) highlights: ‘average sales per surveyor has decreased and the average stocks increased.’ And according to HMRC the ‘seasonally adjusted estimate of transactions fell by 4.3% between September and October although still higher than October 2013.’
Research from Savills on new home production concludes that we need to build 240,000 – 245,000 new homes per year in England. Just over 112,000 were completed in the year to March 2014. Larger developers (500+ units) built 73% of new homes last year and small builders (100 + units) delivered 14%. Accordingly all of the diverse local developers together only accounted for 13% of new homes, less than 15,000 properties.
Of all of the sources of property data on the market, my favourite is the RICS monthly commentary from chartered surveyors around the country. A few quotes include: ‘rural houses are slow to move’; ‘the improved sentiment from the early part of 2014 has been tempered by conflicting economic news’ and ‘election uncertainty in 2015 is damaging confidence’.
The voices of their London counterparts are more bullish, perhaps because reality has landed sooner. Comments from London surveyors include: ‘asking prices adjusting … buyer activity increasing’; ‘prices 10% down on Spring 2014 peak’; ‘busy period following price reductions’; ‘prices being realigned … sales taking place’, and ‘asking prices are reducing resulting in a greater number of sales.’
The conclusions are obvious but where are the opportunities for short-term lenders? First, we must focus on providing local developers with construction finance for new, in-town, inexpensive homes. For example under £500,000 in London and £300,000 in the home counties and provinces. The reduction in Stamp Duty at the lower end of the market also helps.
Secondly, because long-term financing is slow to commit and even slower to drawdown, bridging finance is the alternative until permanent arrangements are made. This applies equally to the homeowner and the buy-to-let investor and provides the buyer with a competitive advantage.
I believe that 2015 need not be doom and gloom but a year ahead of opportunity for those who adapt to changing markets.
