Buyers, who sat on their hands during the economic downturn, made a return to the property market over the past year. Growing consumer confidence in the property market is reflected in figures from HMRC which show that the number of transactions rose by 24% in the year to February 2014.

The growth was mostly driven by a sharp increase in the number of cash purchasers and first-time buyers. Although cash buyers continue to dominate the market, improved credit conditions has supported the return of first-time buyers. The latest figures from the Council of Mortgage Lenders also show that mortgage approvals to home movers have started to pick up again, having remained largely static over the last couple of years.

Purchases by existing homeowners remain well below where they were at the height of the market and account for one in three sales. This compares with almost half of all transactions between 2002 and 2007, when many took advantage of rapidly rising prices to trade up the property ladder.

With fewer people trading up, the supply of homes coming onto the market has been subdued. This restriction on the number of homes for sale is one of the main factors contributing to house price rises. It also underpins the appetite for new build.

Past falls in house prices mean that many second and third steppers have not built up enough equity to pay for a deposit on their next home. This is likely to change as price growth picks up, prompting more homeowners to sell and trade up the property ladder. Greater movement in the market should support demand for new homes at all levels, not just from first time buyers and downsizers. Some locations, such as Bristol, have seen greater interest from investors.

However, transactions levels are unlikely to continue the steep trajectory we have seen over the past 12 months, as mortgage reforms limit accessibility to debt.

Following the Mortgage Market Review, which came into play in April 2014, borrowers are likely to face bigger hurdles as lenders tighten credit scoring criteria and cut the share of applications approved. Future interest rate rises are also likely to dampen demand especially from those whose affordability is already stretched.

We forecast that transactions are set to rise to 1.35m by the end of 2018. While this figure represents a 85% increase since 2009, when the number of transactions hit their lowest point since the downturn, it remains 14% below the long-term average of 1.6 million.

Undersupply continues

Despite growing demand, Local Authorities in southern England are not planning to deliver enough homes according to Savills Research. The findings published in Planning: Countdown to the Election, reveal that there will be a shortfall of more than 160,000 homes across London, East of England, South East and South West regions over the next five years.

The research, which focuses on southern England and compared the latest locally planned targets with the needs projections from the TCPA, shows that the greatest shortfall will be in London.

Southern regions excluding London will be short of 91,323 homes over the period. The home counties, particularly London’s commuter belt will experience added pressure as home movers spill out of London in search of housing.

Taken from
Spotlight: What's Next for Residential Development?