A Market Bauble

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4 December 2009

Are we in a new bauble?

Twas the night before Christmas, when all through the house; Not a creature was stirring except for... a surprising number of house buyers...oh and the RBS Directors, and also the Yorkshire and Chelsea building societies and not forgetting Dubai World ... actually quite a few mice were stirring.

With the start of December the residential housing market normally begins to draw the curtains, slip into some choice knitwear and prepares to layout the mince pies in anticipation of relaxing time spent away the property supplements, real estate portals and mortgage comparison sites. However, just as we are settling down to write a letter to Santa asking for increased mortgage lending, a continuation of the stamp duty holiday and hoping that we will finally emerge from recession; it seems that some elves think that all may not be rosy in Santa's Grotto. Recently press coverage has been filled with images of bulls running rampage in the stock and housing markets and as the recent panic over Dubai World's debts have shown there is still an underlying fragility to the recent confidence. 

Christmas is an important time for decision making as families gather, talk through ideas over a couple of glasses of mulled wine and seek the advice of gin soaked Auntie Genevieve and lecherous Uncle Dicky who once upon a time had jobs in finance and property. This period of reflection and consideration during the long dark evenings, warmed by an open fire and heated by a glass or two of ruby port, is when many plans for the coming year will be conceived.

So what does this unseasonal flurry of news, opinion and activity mean for family discussions?

Stamp Duty

An immediate consideration for some buyers pre-Christmas is the imminent end to the stamp duty holiday - for properties under £175k - which is due to expire when the clock strikes twelve at the end of the year. The success of this scheme to date has been perhaps a little lackluster according to Zoopla.com who report that a comparatively meager £173m has been saved by buyers since September 2008; somewhat less that the government's forecasts of £600m. The discrepancy of 70% between target and reality is similar to the decline in the volume of sales in many areas but to be seasonally positive it should be acknowledged that over one hundred thousand buyers are likely to have benefited from this measure in a sector of the market where affordability can be painfully tight. 

Whilst it is reasonable to question the difference that the stamp duty holiday has made, what will remain unknown is how many people it actually persuaded or enabled to buy who might have otherwise stayed out of the market. The truth is that even with the stamp duty holiday many buyers in this price bracket are struggling to secure lending at a rate and deposit requirement which they can afford. A measure such as stamp duty relief was never going to be a panacea but it does help remove another brick in the wall obstructing market participation. In a market where the upfront cash required to participate is at a contemporary high then any measures that reduces this burden can only be seen as positive. The removal of this aid before lending has returned to many market sectors is akin to the taking away a toddlers water wings before they are confident in the pool; the question for next year is has the government done enough and will this market sector sink or learn to swim?

Festive Cheer

It is fair to say that while we have seen the market slow down as we approach the festive season the level of drop-off has been more modest than perhaps we might have expected and far less than previous years; enquiry levels have slowed rather than stopped and remain akin to the quieter weeks of year. Notably in November our applicant registrations were 23% higher than at the same time last year and this has continued the trend since April of higher levels in 2009 than 2008.

The weekly registered buying power has also tailed off over the past few weeks, as would be expected, but there still remains a wealth of buyers on our books who are motivated and actively looking for quality property within key areas both for occupation and investment purposes.

New Homes Resolution

The new homes sector has been one whose distress has been well documented over the year with many high profile development companies tumbling from a great height like an ill placed Christmas tree fairy. Statistics released by the Scottish Government show as few as four private new homes were started in the capital in the second quarter of the year - compared to over 500 in 2008 - with this sort of change there is little doubt over the pain that the sector has endured. The fact that affordable housing delivery is set to outstrip private housing development in 2009 is further testament to the weakness of the market.

Thankfully, as the year has progressed and the overhang of completed stock has diminished, build programs have been modified and buyers have returned to the market, the interest and sales rates of many developments have improved markedly. This has been aided by schemes which have addressed the affordability and deposit short falls facing many buyers rather than through the headline discounts which were so prevalent at the start of the year.

Rettie & Co's New Home Broker Team has been especially busy in recent months matching buyer's needs and circumstances to the available product, financial solutions and buying packages in the market. Our new homes team, both on site and in the office broker team, have found a swelling volume of buyers attracted back to new build perceiving it to be a desirable product, offering comparatively good value with the crucial advantage of being able to offer solutions which address their financial circumstances.

The upturn in activity over the course of the year, both in traditional and new build, has on the whole been founded on a context of pent-up demand, easing economic circumstances, growing consumer confidence and improving mortgage lending. For 2010 the continued positive progress of these factors will hopefully help continue the stabilisation of the market and encourage the continued upturn in transaction volumes which has been experienced over the course of 2009.

The Dubai Triangle

So with these positive indicators generating a sense of confidence why should we now be considering if the market has deviated from safe waters, like a Dubai yacht crew, and is now drifting away from the neutrality of international waters?

With nine months of month-on-month growth in the average house prices and with prices down only 12% from peak (according to the Nationwide House Price Index) such a question is valid after what is heralded to be the biggest financial correction for generations based largely on the real estate markets. With the average house prices increasing 10% from February 2009 to date, compared with 5% during the same period in 2007 (Nationwide HPI) this does raise some Christmas alarm bells. However, such statistics fail to represent the reality of buyers' circumstances; sales volumes, the withering of certain market sectors and constraints in finance all contribute to distort the relevance of average figures for many buyers. 

The reaction of the stock markets to Dubai World shows how issues can still arise and influence the confidence of a market. For the housing market this also remains true. There continues to be many fundamentals that need to be addressed before we return to 'normal' market trading (not peak trading); lending, unemployment, consumer confidence, economic recovery, elections...the list goes on at micro and macro levels. How these factors develop in the coming year will influence the market's progress but the positive trends in buyer demand and the slowly increasing mortgage availability should give grounds for optimism moving forward. There can be no doubt that 2010 is likely to provide a number of challenges but as you sit down around your Christmas turkey and mull over your plans for the coming year it is worth keeping in mind the fundamentals of your situation. Do you want to move? Can you raise and afford the appropriate finance? Is a suitable property available?

If these can be answered in the positive then due consideration should be given to your specific circumstances as not all market sectors are currently equal with lenders deciding who has been naughty and who has been nice.

Contact Us

If you have any questions the Rettie & Co. Consultancy & Research Team can be found loitering under the mistletoe or alternatively please do not hesitate to contact:

Andrew Meehan
Researcher
t: 0131 624 9051
e: andrew@rettie.co.uk

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