In the south-west we find the number of clients moving from London to the country is increasing, with a high proportion of them looking to buy a second home. However by no means all our clients are moving here from London and the south-east.
Most clients want to buy a detached country house with some land or at least a good garden. The majority would prefer to be in a village, with a community, a lack of crime, a pub and, if possible, a shop.
Stable economic conditions, cheap fixed rate debt, robust housing demand and stock scarcity all led to a more buoyant than expected housing market in the first half of the year.
At the very top end there have been fewer properties coming on to the market this spring and summer and a high demand. Very high levels of growth are being shown in this prime market. Important country houses and landed estates have been achieving premiums of 20% - 40% and buyers have had to be quick off the mark to succeed.
The middle market for properties over about £400,000 to around £1million is much stronger than a year ago. Prices are nudging up but those properties with over ambitious asking prices are not selling or taking a long time to sell.
Demand for the classic old rectory continues unabated and competition is still strong for houses in good order.
At lower levels we believe continued affordability pressures will increase demand for shared equity.
2006 has seen a buoyant farmland market with agents saying values have strengthened by some 10% so far this year and that supply is up 20% compared with the first half of 2005.
What of the future? We forecast that supply pressure will continue to put modest upward pressure on house prices in the longer term. This is likely to be most evident with larger, quality properties.
August/September 2006
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This year, in the south-west, the strongest sector of the country house market is the most expensive end, i.e. over about £850,000. Demand is building in this sector and activity levels are good.
In the mainstream country house market, i.e. the range from around £500,000 to £800,000, things are rather different. Despite the Bank of England’s Money Policy Committee’s (MPC’s) continued assertion that the house market is not its direct concern, its interest rate rises and repeatedly expressed caution have suppressed demand. The market has been inconsistent, with some properties selling surprisingly quickly and others unexpectedly taking much longer.
The more alarmist popular media have talked of plunging prices. However this is wide of the mark. Activity overall has fallen, meaning a healthy balance of supply and demand in most areas. We see no evidence of a collapse in prices and most of the price reductions noted have been from a level that was unrealistic in the first place.
At lower levels investment buyers had been buying in ever-increasing numbers. However this year enquiries from this sector have dropped considerably.
For first-time buyers, the rising stamp duty threshold and the reduced competition from investors is good news. First-time buyers, who account for less than 30% of all purchase loans, (the lowest recorded over the last 30 years), astonishingly now average 34 years old when they buy. It would be positive for the market as a whole if their relative strength could improve.
In general, ‘some signs of recovery are evident in the market’ according to Royal Institution of Chartered Surveyors housing market spokesperson, Jeremy Leaf, who continues:
‘Would be buyers have become more confident as a result of the interest rate outlook, while the economy continues to deliver steady growth, despite the past year’s slowdown. The recent terror attacks have not had any impact on house prices, even in London.
The August interest rate cut will support a further rise in buyer activity, though there is little prospect of a renewed house price boom anytime soon.’
The Council of Mortgage Lenders (CML) says ‘The outlook is for a relatively stable housing market for the foreseeable future.’
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The runaway mainstream housing market of spring and summer 2004 has shown signs of a long-awaited slowdown in the late summer months. This has been partly due to the usual seasonal lull but higher interest rates will certainly have had some effect.
The slowdown, with further predictions of collapse, has been rather over-hyped by the press. To see the situation in perspective bear in mind that year on year house price growth is still running at 20% per annum. Interest rates will need to go up further to produce a significant slowdown to low single figure growth. Judging by the comments in the August Bank of England inflation report, this seems far from certain to happen.
We are now seeing quite a number of properties, which had been overpriced and therefore not selling readily, being re-marketed with price reductions. It is good to see realism returning to the market.
In spite of some clients having had their confidence chipped away by negative press comments, they realise that houses will always be a good investment in the medium to long term. If they have to accept a more realistic price when selling, they should be able to buy at a more realistic price too.
We have acquired a wide variety of houses for clients in the last year or so, in the price range of about £350,000 to £2 million. Generally we have been able to negotiate reductions in asking prices.
However prime period country houses in the £1.25 million to £2 million price bracket have been, as always, in short supply and strong demand, leading to sale prices in excess of guide prices. This is a situation where expert help is invaluable. Happily we successfully purchased one such house for a client where sealed bids were called for and we were competing with 5 other strong prospective purchasers.
Looking to the future, we see slower market conditions continuing while there is uncertainty about whether interest rates will rise or possibly fall. If history repeats itself this natural settling down period will be followed by sustainable growth at a more realistic rate.
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2003 was an interesting year for Sclater Property Search. Early in the year there was great caution in the property market. This was not surprising with press predictions of impending disaster in the market, war in Iraq and a poorly performing stock market.
The London market was particularly affected, with the extra burden of cost cutting and uncertainty that dogged the City at the time. We noticed a lack of buyers from London seeking West Country property during the year but no lack from other parts of the country.
However confidence and demand for good properties returned with the ending of the war in Iraq and the sustained recovery in UK equities during the second half of 2003. Returning talk of City bonuses and the improving economic outlook helped too.
The usual strong spring market in the West Country did not arrive till the summer. Since then we have acquired a good number of excellent properties for clients. Generally we have been able to negotiate reductions in asking prices.
Looking to the year ahead we expect a lack of available supply for prime properties at the top end of the market to keep an upward pressure on values. Pressures on affordability, as interest rates rise and income growth slows, means growth in the mortgage reliant mainstream housing market is likely to continue to slow, led by London and the South East.
Negotiating the right price is particularly important and comes from experience and knowledge of the local market.
We expect buyers to remain price and quality sensitive but the best properties in the area we cover are expected to attract strong demand.
With acknowledgment to Savills Residential Research. You may find their
web page helpful too: www.fpdsavills.co.uk/research
