UK house prices remain steady as mortgage approvals fall to nine-month low

It seems that the UK housing market is defying gravity with a report today confirming that mortgage approvals have fallen to a nine-month low. When you bear in mind historically low UK interest rates and low mortgage rates this reflects the stand-off between buyers and sellers in the UK. At the moment buyers are unwilling to commit in light of political upheaval while sellers are unwilling to give their properties away at any price.

Deflating the housing market

In light of the current political and economic situation perhaps a slow but steady deflation of UK house prices is not such a bad thing? The alternative is a short sharp shock with prices falling dramatically, sellers listing at any price and buyers in total control. This steady deflating of the recent growth in UK house prices should hopefully avoid panic and alarm which have been extremely prevalent in past house price corrections.

Underlying demand

Even though overseas investors seem to grab the headlines when it comes to the UK housing market let us not forget there is steady underlying demand from the domestic market. The froth created by the buy to let frenzy and cheap mortgages has dispersed and we are now returning to basics – supply and demand. Tweaking of property taxes by both the UK government and the Scottish authorities was nothing more than a tax grab and has to a certain extent helped to deflate short-term demand for houses.

Relatively high rental yields

Even though the likes of the Walkie Talkie office block in London recently changed hands for a record £1.28 billion on a net yield of 3.4%, there are high single digit and in some cases double-digit rental yields on offer across the UK rental market. These attractive rental yields will to a certain extent support local property markets and those which have perhaps outperformed in recent years may be more susceptible to further deflation in house prices.

When you bear in mind that London house prices are valued at around 12 times London earnings against just six times UK average earnings for the rest of the country, this will give you an idea of the range and performance. That is not to say that London house prices will fall dramatically but perhaps the recent years of stellar performance may not be repeated for some time to come?

A game of poker

As we have mentioned before, sellers are unwilling to give their properties away while buyers believe they have the upper hand in light of the political and economic turmoil of late. In some ways this is turning into a game of high-stakes poker but with fewer people up sizing their properties there may be limited forced sellers for buyers to negotiate with. Recent downgrades to forecast growth for the UK economy do not help the situation for sellers and UK house prices but in reality it is difficult to say with any great confidence what may happen after Brexit negotiations.

Again, we have mentioned this before, prior to the Brexit vote last year many saw the European Union as something of a basketcase and the euro a currency which was literally dying a death. You could easily be mistaken for assuming that the euro is suddenly the powerhouse currency and the European economy is leading the world. Yes, Brexit will mean major changes for the UK but the idea that somehow the European Union will move forward with no consequences is a fallacy.

While the headlines suggest differently, there has been a softening of political aggression behind-the-scenes of Brexit talks. The European Union immigration policy is coming under pressure, some EU members are pleading for the UK to remain and this all makes for a very interesting next couple of years. Write off the UK at your peril and write-up the European Union at your risk.

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