Property prices in England and Wales up for second month in row to new record

The price of UK properties being put up for sale has increased for the second month in a row by 0.1% taking the average price to a new record high of £294,542, the latest index figures show.

But there has been a sharp drop in the number of new sellers, adding to an already diminishing supply of homes for sales and a shortage of people trading up, according to the July market report from Rightmove.

Year on year prices are up 5.1% but the headline figures hide considerable regional variations. In Wales prices are down 1.7% year on year but up 1.5% month on month, taking the average price to £177,280. Annual growth is small in the North East at 0.9% but monthly growth is 2.1%, taking the average price to £147,251.

In the West Midlands annual price growth is 3.2%, taking the average price of a home to £200,129 but the region saw a 0.5% fall month on month. In neighbouring East Midlands average prices have climbed 7.4% year on year and 1.2% month on month, to an average of £313,255.

The South West has also seen prices fall month on month, down 0.6% but prices are still up 2.9% year on year to an average of £286,155. Elsewhere in the south growth has been largely positive. In the South East prices are up 5.8% year on year and 0.4% month on month to £386,988 and in Greater London they are up 7.8% year on year but down slightly by 0.2% month on month to £615,115.

The East Midlands, the North West and Yorkshire and Humber, areas where price growth has struggled to keep up with other parts of the country, have seen positive growth. In the East Midlands prices are up 4.2% year on year and 0.7% month on month to £190,192 and in the North West they are up 2.7% year on year and 0.1% month on month to £176,277.

Meanwhile in Yorkshire and the Humber average prices have increased by 2% year on year and by 0.8% month on month to an average of £172,412.

Indeed, the number of new sellers is down 10.6% compared to 2014 and this comes at a time when demand is high. Rightmove reports that visits and enquiries to agents are both up 22% on last year. The shortage is most acute for smaller homes with two bedrooms or fewer, where Rightmove sees the biggest demand in excess of supply.

According to Miles Shipside, director and housing market analyst at Rightmove, the drop in new homes for sale could be due to the onset of the seasonal summer slowdown, and buyers’ constraints in affording record prices.

He said that the latter underlines the need for more new build homes that are affordable, of the right type and in the right locations and emphasises the importance of the recent government announcement on speeding up residential planning permissions aimed at boosting supply.

‘Another month, and another record high in the price of property coming to market. While the monthly increase is very modest, the same period a year ago saw a monthly fall of 0.6% which is more the norm given the onset of the summer holiday season,’ said Shipside.

‘However, given the widely acknowledged supply crisis and a sharp drop in new seller numbers this month compared to this time last year, it is somewhat surprising that the rate of increase has slowed to such an extent. Recent government announcements including relaxing residential planning requirements on brownfield land are an important part of the mix in improving affordability if they follow through to cheaper land prices,’ he added.

The analysis at a national level on Rightmove in June shows that the greatest gap between buyer enquiries and the number of properties available is for homes with fewer bedrooms. While different supply/demand dynamics will be at play in different parts of the country, the overall picture is that properties with two or fewer bedrooms have the highest number of enquiries per property.

This large mismatch is in the typical first time buyer sector of two bedrooms or fewer, with 24% more enquiries per property of this type than for larger properties with three or more bedrooms. They benefit from demand from not only first time buyers, but also downsizers and buy to let investors.

Shipside believes that the quandary for developers is how to deliver more homes into this sector when building larger homes may deliver greater profit margins and attract buyers with less stretched affordability. ‘The greatest mismatch between demand and supply is at the lower end of the property ladder, as no doubt many buyers in this category would like to afford to buy a larger home, but have had to accept that it is out of their reach and downsize their aspirations to increase their chances of a successful purchase,’ he explained.

He pointed out that the forthcoming extra tax burdens on buy to let investors may help to tip the balance in favour of first time buyers, but the consequent drop in rental property supply could push up rents.

‘More supply of affordable starter homes for the growing demand from both renters and buyers is required, which means more new build for both sectors to meet the country’s current and future housing needs,’ he said.

‘The challenge for government, planners and developers is how best to ensure the right properties are built in the right locations and at more affordable prices. This will however depend on addressing capacity constraints in the building industry, the price of land for housing, the consistency of funding for key players in the construction sector and the overall stability of the housing market and the wider economy,’ Shipside added.

Demand remains high, with both visits to the Rightmove website and enquiries to estate agents up by 22% in June compared to the same period a year ago. In contrast the number of properties coming to market is running at a weekly run-rate 10.6% below the same period in 2014.

The biggest drop-off in fresh supply is in the typical first time buyer sector with two bedrooms or fewer, the sector where demand was already at its highest compared to available properties. The shortage of suitable property for sale highlights the need for an urgent and marked increase in the overall housing stock to help keep pace with the growth in household formation.

With signs of buyers hitting their affordability ceilings, a substantial increase in suitable new build supply would help to alleviate upwards price pressure, although years of under investment will take years to rectify.

‘Creating an environment where homes are more affordable requires long term solutions. As prices increase, more and more buyers are reaching the upper limits of what they can afford or are allowed to borrow under newly restrictive mortgage lending criteria,’ said Shipside.

‘Those assessing whether to sell and trade up are faced with a double whammy of curbs on their borrowing power and bigger price jumps to the next rung of the ladder. Improving affordability requires the creation of more homes of the right type and in the right place, resulting in increased churn and more pricing competition. The challenge is to identify what is in demand and in short supply and build more of it,’ he concluded.