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Reversing the trend of falling property transactions – analysis

  • 26/01/2017
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Reversing the trend of falling property transactions – analysis
Transaction levels are set to fall further from an already low base dividing opinion among industry figures on how to deal with this, and, whether it’s even a problem.

Back at the turn of the century, property transactions sat at around 1.6 million a year.

According to the Council of Mortgage Lenders (CML) we now see an average of 1.2 million property transactions a year, though this is predicted to fall both this year and next. In its latest News & Views publication, the trade body described the chances of seeing a “meaningful recovery” in the number of transactions each year as “increasingly slim”.

So what needs to happen to increase transactions?

Help for first-time buyers

Chris Lloyd, associate director of Enness Private Clients, said that lenders have begun opening up more options for first-time buyers, which should boost the numbers able to take the first step onto the housing ladder.

He continued: “We do need to see lenders start increasing the income multiples available for first-time buyers. More lenders are now offering guarantor mortgages, or deals which involved family help, meaning first-time buyers can borrow at higher loan-to-values.”

However, the CML said that while government help is in place to boost first-time buyer numbers, those already on the ladder looking to move up have been left to fend for themselves.

It continued: “The vast majority of properties coming on the market for sale are from existing home-owners, not newly-built properties. If this cohort of people can’t move, they don’t put properties on the market, which means they hold up everyone behind them.”

This undersupply then pushes up prices, as would-be buyers bid for a small pool of available properties.

Getting things moving up the ladder

So what can the industry do to encourage transactions further up the chain?

David Hollingworth, associate director of L&C, said that there may be a “logjam” with older people living longer, and not downsizing either because they don’t want to or there is a lack of quality in the types of property available. He suggests that supply of properties for those considering downsizing simply has not kept pace with demand.

He continued: “The starter home initiative is in its infancy, and aimed at first-time buyers, but its principles – trying to improve availability of land for development at a lower cost – could translate through to next-time buyers. It is difficult politically to make that sector a priority though, over those that feel they are locked out entirely.”

The CML argued that simply building more homes isn’t the answer either.

It said: “Even if we manage to build 250,000 new homes a year for the next decade, more than 90% of the housing stock that would exist in 2026 has already been built. So, we need to encourage better use of the current stock of houses.”

Are low transaction levels really a bad thing?

Not everyone thinks that these lower transaction levels are really a negative though.

Paul Mahoney, managing director of Nova Financial, pointed out that this is a sign that people are simply choosing to live in their homes longer.

“This isn’t unique to the UK but rather a common theme worldwide. For example Australia has experienced a similar pattern. It’s not great news for estate agents as they are selling fewer second hand properties, but the focus should be on new supply and the government hitting their target of 250,00 homes per annum,” he concluded.

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