After almost 18 months of appalling market conditions the figures have helped to raise confidence in this sector of the property market but in the September London Residential Review from international property consultants Knight Frank analysts point out that the recovery is starting from a very low base.
On the positive side London has performed better than other parts of the UK and the numbers of job vacancies in the City are rising.
Also the low numbers of actual properties available means that demand still exceeds supply and that isn’t about to change.
‘There is no indication that there will be a near-term rush of new property coming to the market.
In August new property inspections, the stage before the launch of a property on the market, were 42% lower on a year-on-year basis, suggesting that the volume of available properties will fall further into the autumn market,’ the report says.
Analysts point out that the buying market is split in two.
There are those with limited housing equity who are either struggling to access new mortgage finance on acceptable terms and are therefore staying out of the market due to negative equity, or want to avoid crystallising a loss, or because low economic confidence is encouraging them to stay put.
Then there is the equity rich and economically confident who are active in the market at present.
These have been the buyers behind recent price rises having taken advantage of last winter’s price cuts and the ultra-low financing rates they are able to access.
The report points out that the mortgage market needs to open up if there is to be a sustained improvement in the property market.
‘The credit market is still fragile. The real concern is that despite an improving economic picture, the banking system simply does not have the ability to supply the required level of credit.
Mortgage approvals are rising but they still remain depressed. Added to this, credit spreads have remained extremely high, suggesting that the banks are still very nervous of the condition of household finances in the UK,’ the report says.
Also the maximum size of the mortgage market has shrunk by almost 40% since the 2007 peak. ‘This dramatic shrinkage has resulted from the departure of foreign banks from the UK mortgage market as well as the specialist and buy-to-let lenders.
It looks increasingly clear that credit supply will remain limited over the next few years.The mortgage market will see improvements, but this will only happen over time, 2011 rather than 2010 at the very earliest,’ the report adds.
There is also concern about interest rates. ‘A key support for the market has been unusually low interest rates, which have protected so many overstretched borrowers.
This factor has helped keep housing off the market and aided price growth.
The key unknown is whether interest rates are likely to rise in the short term. Economists’ views on this issue have fluctuated widely in recent months depending on the prevailing view of the risk of high inflation stoked by quantitative easing, or alternatively deflation,’ the report continues.
‘Sobriety remains a virtue for vendor and purchaser alike,’ the report concludes.
