Transactional activity remains the weakest feature of the UK residential market. We anticipate that, by the year-end, around 850,000 residential sales will have completed, which is just over 50% of the level recorded annually prior to the credit crunch.

Owners are simply not selling in the current climate and, with interest rates at manageable levels, are not forced to sell, leaving repossessed and distressed stock levels low.

This weakness is most pronounced in the mortgage-dependent markets, which tend to be the lower value markets. Conversely, the higher value markets, where equity rich buyers are most prevalent, are the markets in which transactional activity has been strongest.

We estimate that, in the 18 months to June this year, a net £6 billion flowed into the second hand and new-build markets of prime London from overseas sources alone; these buyers tend not to sell in order to buy, reducing the pool of property available.

Also this year, there has been reluctance among Londoners to
move out of the capital, leading to a 24% drop in this type of relocation activity.

Prospects for recovery

Looking ahead, the strength of recovery in transactions will be determined by the volume of mortgage lending available for
house purchases.

Reduced expectations for house price growth may well temper the willingness of banks and building societies to lend, and the prospect of tighter restrictions on lending, in light of the ongoing global financial stress, will doubtless affect their capacity to do so.

This points to a slower and later recovery in transaction volumes, meaning that in the 10 years to the end of 2016 transaction levels could be seven million fewer than in the preceding 10 years (see Table 'Projected level of transactions').

Taken from
Residential Property Focus, Q4 2011