Post-Budget Briefing

Budget boost?

The Chancellor has applied what amounts to an irritant to the top end of the property market. One per cent increase in stamp duty is unlikely to have a significant effect on decisions made by buyers in the £1m+ category, but it may be reflected in prices achieved. Certainly, we will be advising buyers over £1m to bid another 1% less! However, it may have a more substantial impact on the land and development sector where margins are crucial and 1% can make a significant difference.

For cash-strapped first time buyers who are able to raise a deposit, the two year stamp duty holiday will be a welcome initiative. Certainly the raising of the threshold and temporary holiday applied in the past proved a helpful boost to the stagnant bottom end of the market, and we would expect to see an easing of the sector as a result. There is also likely to be a domino effect on the lower middle market which is being restricted by lack of activity at the bottom.

About turn on the cards?

After a slow start to the year, we are now beginning to see a significant improvement in the amount of property coming onto the market. And in many areas the volume of new property is dramatic. Vendors encouraged by reports of buying activity, and in some cases competitive bidding, are jumping in. But just as estate agents think they’ve got it all wrapped up, with enough property to sell, and plenty of buyers waiting for something to buy, the buyer levels are dwindling.

Why? Fear is the underlying factor. There’s a more positive mood surrounding the property market, but there’s a great deal of uncertainty surrounding the economy generally with a General Election looming. Will our finances be squeezed harder than they are now? What’s going to happen to mortgages? And jobs? And salaries? Will the Stock Market plummet for a second time? And will house prices drop again?

But for anyone with a real need or desire to buy, we could well be entering the best buying opportunity for a while. Increased quantities of stock will provide plenty of choice, and will prevent prices climbing. Lack of competition will mean buyers can operate at a sensible pace without being pressured to make instant decisions.

Our advice to purchasers would be to make sure that their finances are in order at an early stage. Find out how much you can borrow, and don’t push yourself too far.

Work on the basis that it’s a buyers’ market and you get to call the shots. There’s no guarantee that new property coming to the market is correctly priced. The vendor may be delusional, basing the value on a mythical uplift in the market; or the estate agent may have over-valued in order to gain the instruction. So proceed with caution and do plenty of research to give you a clear idea of what the market value should be.

Don’t feel you can’t pursue two houses (or more) at the same time. Be open with the agent and the vendor, but there’s nothing to stop you being live on more than one house.

Whatever you buy, negotiate as hard as you can. Generally speaking, prices are unlikely to rise for some time to come. Don’t be fooled into thinking we are in a rising market.

Where do property values go next?

The third and fourth quarters of 2009 and first quarter (to date) of 2010 have seen some considerable recovery in house prices. Market supply is low, borrowing is cheap (if you can get it) and the returns from other investments are poor. The amount of house purchases made without mortgages certainly points to investor interest.

2010 looks set to be a year of opposing forces that could make for considerable uncertainty in the housing market. Certainly a quick recovery to 2007 values seems unlikely.

Exerting upward pressure on prices will be the following key factors:

• Equity buyers will continue to chase limited genuinely good stock.
• Lending remains relatively cheap and it seems likely that the MPC will attempt to keep base rates low throughout 2010. The still faltering economy will prove stronger drivers than inflation fears.
• Even with the recent price rises, the market is down considerably from its peak presenting buying opportunities.
• Severely diminished output of new build housing means housing supply will take many years to recover to government targets.
• Overseas investors are cashing in on the strength of their currencies relative to the £. Some are now also seeking better value away from Central London and the South East.
• There is a belief that the worst of the market fall is behind us.
• Popular locations and sought after properties remain in demand.

So, there are certainly continuing factors that could put upward pressure on house prices factors throughout 2010. This, however, is not the whole story. There are a number of factors which point to the recent price rises being a temporary (at least in part) bounce on the path to a much more subdued 2010 and slow recovery thereafter. These are:

• Lending, while cheap, is still difficult to access for many potential house buyers. The number of mortgage products remains relatively low.
• FSA review likely to crack down heavily on interest only loans.
• The recent price rises have been driven by activity at the upper end of the market and in an environment of very low volume.
• The economic climate remains fundamentally poor and confidence is low among much of the population.
• Further job cuts in both public and private sector are a distinct possibility during 2010.
• There remains a large overhang of unsold stock in much of the market. A re-pricing of this will be required if sales are to be secured.
• Recent price rises could see a flood of properties hitting the market in 2010 as “accidental landlords” seize the opportunity to sell.
• Return of stamp duty from £125k will hit first time buyers.
• Election years always bring uncertainty and 2010 certainly does.

Taking these positive and negative factors into consideration, what lies in store for residential property for the rest of 2010?

Some, if not most, of the recent prices rises are a temporary bounce albeit a perfectly rational reaction to a number of the positive factors previously discussed occurring at the right time for purchasers. These gains will be largely wiped out going into 2010 with prices bumping along at late 2008, early 2009 levels for much of 2010. Properties bought at the right price now will certainly represent a good medium to long-term call and as always there will be exceptional properties and market sectors which will continue to perform despite the economic situation. Increased supply, re-pricing of stock and a fragile economic situation are likely to lead to a very flat 2010.

This picture is certainly not all “doom and gloom” as 2010 will prove to be a good buying opportunity in perhaps the best “buyers market” for 10-15 years.

The main question concerns supply or lack of it.  Will there or won’t there be good new property coming to the market this Spring?  It depends where you are – some agents are reporting plenty of valuations and lots of instructions.  But then – they always have!