The number of active buyers entering the residential property market reached new heights, partly driven by the continuation of positive economic trends, such as low interest rates, says the analysis from Connells Group.
This has tempted those on the fence to make their first move onto the property ladder sooner rather than later, according to David Livesey, group chief executive.
But he pointed out that with the current level of available stock at historic lows, the additional demand from these new buyers combined with increased buy to let activity from investors looking to extend their portfolios before the higher stamp duty changes came into effect on 01 April, many of these first time buyers faced restricted choice and additional competition as they sought to find their ideal property.
However he explained that the ratio of applicants to new instructions has evened out in the short term, while property price growth has not been as rapid as it has been in previous quarters, making climbing up or onto the housing ladder a less daunting feat for many.
‘This slight cooling has by no means turned into a chill, with property remaining a valuable asset that will continue to increase in value for the foreseeable future. Supply side initiatives, driven by the Government’s attempts to stimulate housebuilding in particular, may need further support if they are to have any meaningful impact on the level of available stock in the short term,’ said Livesey.
The report shows that landlords and tenants have also enjoyed a positive and productive start to the year. It says that activity from renters has grown at a healthy pace, as this group often uses the start of the New Year as an opportunity to move into new accommodation.
Despite the fresh demand from new applicants entering the lettings market in the first quarter of the year, the ratio of registered applicants to new instructions is by no means as high as it was during the first quarter of 2015 and average agreed rents have broadly stabilised across England, in the short term at least, the report points out.
Livesey said that an increased supply of rental stock is easing pressure on the sector, as buy to let landlords purchase less expensive properties, some of these new build. ‘This may not be what the Government had in mind when it aided the construction of such properties, but it has given tenants respite nonetheless. In addition, tenants are also driving harder bargains, securing longer leases at a cheaper monthly rate meaning they need to return to the market less often, which is also attractive to landlords,’ he explained.
‘The mortgage market has also sprung back to life this quarter, largely propelled by high activity levels in the residential and buy-to-let sectors. Home movers and first time buyers are seeking to take advantage of the low interest rate, high LTV lending environment,’ he added.
The report confirms what many others have, namely that there was a pronounced increase in buy to let lending caused by the introduction of a 3% stamp duty surcharge on additional homes. It spiked in January and February, before dropping noticeably in March, immediately before the change.
‘However, this is not a sign that investors have lost confidence, more a short term trend as they simply sought to avoid an unnecessary upfront cost. Indeed, over the long term, the sector is more than capable of riding out the increased levy given its strong fundamentals, namely, high yields, high rental demand and accessible mortgage lending,’ Livesey pointed out.
Despite the forthcoming referendum on the future of the UK’s position in the European Union, the reports says that looking at the national picture, the economic outlook remains strong.
‘There are some warning lights flashing in certain areas of the global economy and the current Brexit debate is leading to a degree of business uncertainty. The uncertainty is similar to that seen in the lead up to the Scottish Referendum in 2014 and the UK General Election in 2015, and whilst this may introduce some hesitancy to the market during the second quarter the fundamentals of the UK economy remain strong, with low unemployment, reasonable rates of GDP growth and rising real term wages,’ said Livesey.
‘This generally positive climate looks set to be maintained over the coming quarters, regardless of the result of the upcoming referendum, and with demand for housing continuing to outstrip supply, the outlook for the housing market remains positive,’ he added.
‘Going forward, it will be interesting to see whether the Government continues to increase its income from the buy to let market. The silence from the Chancellor on the sector in the March budget may be an indication that he has reached his profit raking limit. A far bigger challenge for the Government over the coming year is the perennial question of how to stimulate housing stock and ensure the benefits of any such boost reach those most in need, namely, first time buyers,’ he explained.
