Our latest issue focuses on the housing market cycles and whether or not the recent increase in activity and positive price growth are signs of a recovery. Download the full report here.

Q How strong is the evidence of an improvement in the UK housing market?

A The major house price indices all indicate a return to year-on-year house price growth at a national level. This varies from 0.5% according to the Land Registry to 4.1% according to the Nationwide house price index.

The RICS house price survey has shown a big increase in new buyer enquiries, someway ahead of properties brought to the market. Historically such a gap has been a strong indicator of future performance. This is supported by gradual increase in sales to stock ratios and a recent bounce in mortgage approvals.

But all of these measures are coming off the back of low market activity. Transaction levels remain around 40% below those of a fully functioning market.

Additionally those active in the market tend to be more affluent buyer groups. Our analysis of localised markets suggests that transaction levels in the most valuable 10% of wards, where average prices approach £580,000, run at two thirds of pre-crunch levels. In the least valuable 10% of wards, where prices average just over £90,000, they are just 36% of pre-crunch levels.

Q  How widespread is the improvement in market conditions?

A Recent evidence suggests that London is continuing to outperform, with the Land Registry index showing house price growth of 5% in the past year. In the worst performing region, Yorkshire and the Humber, prices fell by just over 2% suggesting that, at a regional level at least, the markets have largely bottomed out. This said, in a property blackspot such as Blackpool, prices are 43% below their level five years ago in real (inflation adjusted) terms.

Yet the market is fragmented in other ways. Cash buyers account for around 35% of the market and mortgaged buyers tend to be higher earners. The average salary for a mortgaged first-time buyer is £42,000, whilst that of a homeowner is £63,000. These figures are 66% and 12% above the average UK household income.

Q  Is the recovery confined to the most valuable parts of London?

A To date, the recovery has been heavily driven by London although there has been a substantial divergence in performance across the capital.

According to the Land Registry index, prices across London have risen by 28% in nominal terms since the downturn, equating to a 9% increase in real terms. In 17 out of 32 boroughs prices are above their pre-crunch peak, though price movements are much more in line with the UK average in areas such as Newham and Barking & Dagenham.

Still, prices across London are higher relative to each of the remaining 10 regions of Great Britain, than at any point in the last 15 years. Beyond London there are only seven counties or unitary authorities (Bath & NE Somerset, Brighton & Hove, Hertfordshire, Oxfordshire, Surrey, Windsor & Maidenhead and Wokingham) where prices are within 5% of their pre-crunch level.

Taken from
Residential Property Focus Q3 2013

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