National House Price Picture Remains Firm But London Outlook Moderates
- New instructions to sell continue to fall while demand rises albeit more modestly
- Price expectations remain firm across the country, with London no longer as strong
- Average perceived LTV ratios drop back across the spectrum of borrowers
The May 2014 RICS Residential Market Survey shows the national house price picture remains relatively robust, although the trend in key activity indicators is showing some signs of moderating. The imbalance between supply and demand still persists, albeit to a lesser extent than previously. Indeed, while new instructions reduced for a fifth month in succession, new buyer enquires are now rising at the slowest pace since February 2013. Given the relationship between New Buyer Enquiries & New Instructions and house price inflation, this signals a slowdown in the house price inflation over the next 6 months to a year.
The lack of supply coming onto agents’ books continues to be widespread, with seven of the twelve areas covered in the survey registering a decline in new instructions and the majority of others only seeing a slight rise. Interestingly, the London instructions balance edged into positive territory although the underlying trend is that it is broadly flat. Meanwhile, new buyer enquiries fell in the capital, which is the first decline since January 2013 and the weakest reading since June 2012. Elsewhere, buyer interest remains generally firm.
House price gains are still strong across all parts of the UK, with the South East and East Anglia experiencing the sharpest increase for a second consecutive month. Meanwhile, despite the London price balance creeping up in May, it still sits well below the readings commonly reported since the middle of last year and has moved closer in line with the national average. Looking ahead,
price expectations, both at the three and twelve month horizons are still pointing to material growth across the country, although to a slightly lesser degree than previously. RICS respondents are now projecting average annual house price inflation at the national level of 5% over the next five years, which has edged down fractionally in recent months. In contrast, price expectations over the same
time horizon in London have fallen from a peak of just over 9% in March 2014 to just under 5%.
Agreed sales continue to rise steadily at the headline level, although activity was flat in London and the South East and also across the Midlands. Despite this, sales expectations are firm across all parts of the UK with the three and twelve month balances coming in at +35 and +47 respectively. The sales to stock ratio ticked up slightly and now stands at 39%, which represents the highest reading in the post-crisis era.
Anecdotal evidence suggests there has been a tightening in mortgage underwriting standards on the back of the introduction of the Mortgage Market Review (MMR) recommendations, which came into effect at the end of April. This is partly reflected in the RICS average perceived LTV series, with the ratio nudging down across each category of borrowers (First-Time Buyers, Buy-to-Let Landlords and Existing Owners).
In the lettings sector, tenant demand seems to have gathered a little more impetus while landlord instructions to let out their property declined marginally for the second consecutive month (on a non seasonally adjusted basis). This may be a result of some (accidental) landlords now opting to sell, a feature frequently highlighted by contributors to the survey. These factors are acting to push near term expectations of rental growth higher. Looking ahead, rents are projected to grow at around 2.5% over the next twelve months, and at an average annual rate of 4% over the next five years.