Latest asking prices suggest parts of UK property market are cooling

The UK residential property market is cooling with the latest index showing that most regions have seen small falls in average asking prices although this is partly in line with seasonal expectations.

Since October prices have fallen in six of the nine English regions and Wales but not in Scotland while Greater London is currently the UK’s worst performing region with prices rising just 0.2% over the last 12 months. The largest monthly price falls were in the North East with a drop of 0.6% and Yorkshire down 0.5%.

The data from the index also shows that Scottish prices were up 0.8% over the last month taking the annualised increase to 5.9% and the East of England prices were up 0.6% month on month, taking the annualised gain to 10.6%.

However, the overall rate of home price appreciation for England and Wales slipped to 3.8% compared with November 2015 and Doug Shephard, the firm’s director, said that this trend is expected to continue downwards.

The data also shows that the total stock of property on the market has again dropped back slightly since last month and is currently 1.7% more than in November of last year.

However, the supply of property for sale continues to increase in the key regions of London with growth of 14% and it was also up 14% in the East of England while the South East recorded growth of 15% year on year.

The London market now has around 23% more properties than there were 12 months ago, with prices going nowhere and the typical marketing time now 17% higher than in November 2015. Moreover, top end properties are simply not selling and the average marketing time has risen to 200 days.

The report says that the East of England continues to be the UK’s best performing region. Prices continue to rise at a fast pace despite increasing supply. Home prices have increased by 10.6% over the last year, indicating that this region is outperforming all others by a considerable margin.

‘The West and East Midlands are enjoying the next best price performance with respective home values increasing by 6.4% and 5.5% over the last 12 months. Supply in these regions is still contracting, hence we expect prices will remain robust,’ Shephard explained.

‘Overall, the current mix-adjusted average asking price for England and Wales is now 3.8% higher than it was in November 2015, and we anticipate that this figure will continue to trend downwards over the coming months,’ he added.

Shephard explained that ultra-low interest rates pushed up prices in London to extreme levels and the downturn that began in prime central London has now spread across the entire Greater London area where prices are stagnating and properties are spending longer and longer on the market.

‘In fact for the region show that they lag behind monetary inflation, hence in real terms they are already falling. Supply is increasing in the East of England and the South East as it did in London. Oversupply is clearly a danger as it will cause a stand-off between buyers and sellers which could lead to a rapid downward spiral in prices,’ he pointed out.

‘Prime properties in the capital are not selling and the rental yields are some of the worst in the country. Due to sterling weakness we can already expect a large wave of inflation to hit soon, indeed, it’s already on the rise. Should inflation increase much beyond 2% then expect mortgage rates to rise to well above that figure,’ he added.

Shephard also warned that more expensive borrowing will create a major headwind for the UK property market. ‘In fact, interest rates are already predicted to quadruple over the next five to 10 years, according to the yield curves produced by the Bank of England but they may well rise even further than forecast,’ he concluded.