Three tier market in UK due to lack of lending
Elite markets, such as parts of London, are expected to emerge in 2011 as the UK’s property market divides into tiers and the average buyer is priced out, it is claimed.
The latest monthly report from Rightmove suggests that with new seller numbers up 21% year on year in London but other parts of the country experiencing a flat market there will be marked differences in prices and sales across the country.
Its report also shows that this month’s new sellers are mimicking last year’s February hike by increasing their asking prices by 3.1% to an average of £230,030, leaving year on year prices virtually the same, up 0.3%.
It describes a three-tier market where lenders court ‘bargain hunting bottom-feeders’ and the low loan to value elite but shun the average buyer of the traditional volume end of the market.
‘Trends during the first six weeks of the New Year normally shed light on how the remainder of the year might pan out. The start of this year is very much a repeat of 2010 and so we expect 2011 to be characterised by what may well be the new norm, with the average buyer of yesteryear locked out of the market,’ said Miles Shipside, director of Rightmove.
‘Any hopes that transaction volumes may be on the springboard preparing to return to historic norms will have been dashed by lenders’ predictions that 2011 lending volumes will match 2010’s dire levels. Mr Average will be left out in the cold in the buying and selling game unless the beneficiary of a hereditary hand out,’ he explained.
‘The current subdued market volumes are set to be the new norm unless the seemingly never ending discussions between Government and mortgage lenders find some way of increasing Mr Average’s access to lower deposit mortgages without pricing them out of the market,’ he added.
Shipside described a three tier market, with the more elitist tier being courted by lenders attracted by low loan to values that help them build a more profitable and lower risk mortgage book. ‘This supports an active but low volume market in the country’s desirable locations, with a natural bias towards top end buyers and the more affluent south. Movers closer to the capital have the capital to move,’ he said.
The middle tier, traditionally the mass-market that includes Mr Average, is suffering from paralysis due to a lack of mortgage finance and insufficient equity to trade up, he added.
‘Some 530,000 mortgages were taken out in 2010, while Rightmove recorded circa 1.3 million properties coming to market over the same period. While not every property coming to market sells and not every buyer requires a mortgage, these figures show the clear imbalance between property supply and lenders’ willingness or ability to fund the traditional volume market,’ he explained.
Then there are baby boomers who benefited from the buoyant mass market periods in the eighties, nineties and noughties are often able to release equity from their own property profits to help the next generation onto, or up, the rungs of the housing ladder.
Sellers in this former mass-market group though are forced to play a waiting game for the more scarce ready, willing and able buyers that have the cash or necessary creditworthiness to proceed. Unwilling or unable to drop their asking prices to bargain basement levels, this helps explain why new sellers’ average asking prices remain broadly static year on year and are still following traditional seasonal ups and downs, he added.
He also points out that rises in interest rates, unemployment and more forced sales in the second half of the year could alter the landscape. ‘Most sellers can afford to hold out for a buyer who will hopefully pay a fair price as the house ideally suits their needs and represents comparative value. In areas of more plentiful supply that can mean a long wait with no guarantee of success,’ said Shipside.