Isabelle Fraser Property editor 21 October 2020 www.telegraph.co.uk
House prices are soaring, either up 7.3pc in the last year, according to building society Halifax, or by 5pc if you ask Nationwide.
But those top-line numbers don’t tell the whole story. In fact, given the market is forecast to fall off a cliff in the not-too-distant future, they are quite misleading.
The frustrating thing for property market watchers is that all these figures tell us what happened a few weeks or even months ago, because of the slow nature of buying a property and the way that data is reported on a lag. Official house price data is always released on a delay, so the “latest” numbers reflect what happened in August.
To understand what is happening right now, it’s important to look for the signal through the noise.
We must pick up on anecdotal evidence, think laterally and rely on more subtle indicators. At the moment these are far more important – and suggest that the market that defied experts’ expectations is already running out of steam. The early warning signs are now flashing red.
While mortgage approvals may be up – in August, they hit a 13-year high – the sheer lack of low-deposit mortgages available and the increasing credit crunch in the lending market are the more important factors. According to data firm Moneyfacts, the number of mortgages on the market has fallen 57pc since March to 2,259 in October.
It marks a subtle but crucial change to what makes up an “ordinary” homeowner, which will shape the whole property market.
And it is a rising trend among lenders, which are becoming far more risk averse as unemployment rises. Last week the Bank of England warned of a spike in mortgage defaults.
Now, no high street banks will lend to anyone with less than a 15pc deposit. Many have stopped lending on flats and new-builds. All this will eventually filter through into sales – or lack thereof.
For those who can get mortgages, a spike in demand combined with lenders’ reduced processing capacity means that the waiting time between applications and mortgage offers has more than doubled. Meanwhile, wait times for conveyancers, surveys and valuations have soared, with some refusing to take on new business, leaving transactions in limbo and many unlikely to complete before the stamp duty deadline.
There is increasing anecdotal evidence that this is causing deals to fall through, as chains break down and buyers back out. This means that while these theoretical sales have been recorded by the likes of property website Zoopla and fed into their calculations, they may not take place.
It’s also important to understand what the indices are telling you – and where in the buying process they come. Rightmove, the property website, records asking prices; these reflect sellers’ optimism (or pessimism) about the market, and not the actual sale price, which may well be far lower.
This index also reflect the type of property coming to market. Asking prices are so high right now partly because people are selling bigger homes because they think they can finally shift them after years of sluggish sales, as demand for such properties rises after lockdown.
Another, more unusual way of understanding what is going on in the market is looking at the level of Google searches for “Rightmove”, which is a handy lead indicator for house purchase mortgage approvals.
After weeks of sitting at a level roughly 30pc above that seen in the same period in 2019, these searches have dropped, suggesting that pent-up demand from lockdown and the push to transact before the stamp duty deadline is waning.
It’s important to tune into these signals, and other unusual sources of data, to drown out the noise of the headline figures. Much like an early warning system of an earthquake, you can feel the tremors that are about to strike.
Clarification: The article previously said TSB has stopped offering 40pc mortgages, which was incorrect. Last week the bank temporarily removed some low deposit mortgages from sale via brokers but they are still available in TSB branches.
House price boom could be derailed by ‘perfect storm’ of collapsed sales
By Melissa Lawford 22 October 2020 www.telegraph.co.uk
The property market is being strangled by its own “mini-boom” as logistical delays mean buyers are increasingly pulling out of sales.
The summer surge in buyer demand combined with reduced processing capacity after lockdown means that lenders, local authorities, conveyancers and surveyors are overwhelmed. Sales are at serious risk of being dragged beyond the stamp duty and Help to Buy scheme deadlines at the end of March.
Andrew Boast of SAM Conveyancing solicitors warned that local authority searches that would normally take one to three weeks now often take six weeks. Meanwhile, surveys that before the pandemic could be booked for the following working day now need to be secured up to four weeks in advance.
Legal & General Mortgage Club now estimates that the average sale takes 15 weeks from start to finish. As many as 200,000 buyers may miss the stamp duty holiday deadline as a result.
Andy Soloman, of Yomdel, a firm that tracks property market sentiment, said the delays mean: “There is a ticking time bomb of withdrawals that will affect the market going forwards.” Fast approaching deadlines mean the market faces a “perfect storm”, he added.
Sales are increasingly falling through
The longer a transaction takes, the more likely it is to fall through, particularly given the pandemic’s effect on job security and changing restrictions, said Mr Boast.
The number of collapsed sales is rising fast. In July, 17pc of agreed sales fell through, according to data from property website Rightmove. The number has been rising steadily. So far in October to date, the share has jumped seven percentage points to 24pc – effectively one in four sales.
This means that many of the sales that have been boosting house price indexes based on agreed prices or mortgage approval data, may simply never happen.
The number of failed sales is still marginally down on October 2019, when 25pc of agreed deals fell through, but the boom in demand as buyers rush to transact after lockdown and the stamp duty holiday makes it surprising that the numbers are comparable.
Sellers in particular are keen to press ahead with sales because they have agreed such high sale prices for their homes, said Mr Boast.
Buyers need to meet tight deadlines
But buyers need things to move quickly. Sam Richards, 27, put an offer of £358,000 in on a flat in east London on December 23 2019. After nine months of delays, he has finally pulled out.
First, the transaction was suspended by lockdown. Then when the market reopened, the purchase was held up by a discrepancy between the leasehold and the freehold plan. The seller booked a survey in July, but the council never updated their files.
“First the guy who could do it was away, then there was no answer for the whole of August, and September,” said Mr Richards, who asked to speak using a different name.
“I was the bottom rung of a nine person chain and someone was having a baby,” said Mr Richards. “I think the seller is considering legal action against the council.”
Mr Richards has now had an offer of £322,500 accepted on a two-bedroom flat in a different east London borough. Now the agent has told him the local authority search will take 55 days.
Mr Richards plans to go ahead because he expects the delays to only get worse ahead of the stamp duty deadline at the end of March.
If he transacts before the deadline, he will save more than £6,000. If he misses it, he plans to “negotiate the price down by the tax difference”.
There will be a vacuum of buyers in April
Other buyers may not be able to transact at all. After the deadline for the stamp duty discount has passed, “there will be a large number of purchasers who will not continue with their transactions because they can’t afford to,” said Mr Boast.
Entry-level buyers face a double hit. The Help to Buy equity loan scheme also ends in March.
“Developers have a mad rush to get their stock sold before the funding is pulled,” said Mr Boast.
For the last three months, solicitors have been adding clauses into contracts for purchases on the Help to Buy scheme that caveat that the buyer is not liable to complete the transaction if it cannot be done in time to be eligible for the equity loan funding, he added.
Help to Buy’s replacement, which launches in April with a system of regional price caps and which will be open only to first-time buyers, means that nearly 40pc of the buyers who currently buy under the scheme will no longer be eligible, according to the Home Builders Federation, a trade association.
The change will hit the market harder because buyers are increasingly dependent on the scheme. Before the pandemic, 35pc to 45pc of new build sales were made using the equity loan scheme, according to HBF. Since lenders withdrew low deposit mortgages en masse, that share has jumped closer to 55pc.
Stagnation lies ahead
Restrictions in lending also mean the housing market now is more vulnerable to failed sales. Homemovers have overtaken first-time buyers as the most dominant buyer group, according to property website Zoopla.
Neal Hudson, of BuiltPlace housing analysts, said the shift means that more transactions involve buying chains, which are more exposed to delays.
After the rush before the tax deadline, analysts have predicted stagnation as the market grapples with rising unemployment. Hamptons International and Savills have both forecast zero house price growth in 2021. The Centre of Economics and Business Research has forecast a 13.8pc drop.