Marsh & Parsons London Property Market Overview - May 2010
Sat 01 May 2010
- Property Price in Central London up 0.3% in May following growth of 0.7% in April
- The latest results for Sentiment Indicator shows overall level of demand strengthened compared to a year ago
- Election and Budget may be impacting transaction activity
Property prices continued their upward trajectory in May with the latest results from the Marsh & Parsons London Index showing a growth of 0.3% in the month resulting in total capital appreciation in Central London of 4.8% in the year to date.
Within the Marsh & Parsons branch network, the area which has shown the greatest price inflation in the year to date is Fulham, which has recorded a 12.6% capital growth in the five month period, followed by Battersea where growth of 9.5% was recorded.
This overall growth of 0.3% in the month compared to growth of 0.7% in April. The moderate slowdown in the pace of price appreciation during the month of May could reflect some reluctance on the part of purchasers to make decisions while the election was ongoing.Cash buyers remain an important ingredient in the market accounting for 40% of all transactions during the five month period. Interestingly approximately 50% of purchases in central London office were made by overseas residents reflecting the lower value of sterling.
Latest available figures from the Land Registry show that average price inflation in the London market remained robust in April at 1.6% for the month. This brings the annual increase to 14.8%. As a result, the average property price in London stood at 341,487 in April. In comparison, average prices in England and Wales rose by 0.2% during the month and 8.5% annually.
An analysis by London borough reveals that the largest increase during the month was in Camden at 3.3%, followed by Kingston Upon Thames at 2.6%.
On an annual basis, a number of locations recorded very strong double digit growth, the largest of which was in Kensington and Chelsea at 21.2%. This was followed by City of Westminster and Camden with growth of 19.3% and 18.9% respectively.
In London, transactions totalled 5,925 units in February, approximately 90% greater than the same period in 2009. It is important to note that sales volumes in the London region are relatively low and are therefore subject to volatility.
Transaction levels in England and Wales averaged 53,137 units per month in the three months to February according to figures from the Land Registry. This represents an increase of 66% on the same period the previous year which was historically low. That said, the latest Land Registry report reveals that transaction activity is beginning to ease.
Gross mortgage lending fell by 10% in April to reach 8.9-billion according to figures from the major UK lenders published by the Bank of England. Although this is just slightly greater than a year earlier, it is less than half the level recorded in April 2008. This reduction largely reflects a decline in remortgaging activity which decreased by almost 18% during the month to reach 2.8-billion. This is compared to 11.5-billion seen in April 2008. Mortgage lending for house purchase fell marginally during April to reach 5.3-billion from 5.5-billion in March.
The major UK lenders figures also reveal a 7% reduction in the level of mortgage approvals in April compared to the previous month to reach 47,000. This is approximately 9% greater than in April 2009.
The latest RICS Lettings Survey for Great Britain reveals that tenant demand continued to increase in the three months to April with the net balance at +30. This means that 30% more surveyors reported an increase in tenant demand than those reporting a fall. The number of new landlord instructions fell during the month to reach a net balance of -12, indicating continued supply shortages.
The rental level net balance rose from 0 in the three months to January to +30 in the three months to April highlighting positive rental inflation. Rent expectations for the next three months were also positive with the net balance standing at +36. The survey also revealed that London saw some of the strongest growth in tenant demand and rental inflation during the period.
The Marsh & Parsons market sentiment barometer assesses current market conditions perceived by branch managers compared with those in the previous month and the previous year.
The latest results for May reveal that the overall level of demand in the residential market strengthened compared to a year ago.
In particular, half of all respondents indicated that the levels of both applicants and viewings had increased compared to May 2009.
Investor demand increased across the majority of locations, 75%, compared to May 2009 reflecting improved confidence levels in the market and a return to positive rental inflation. In addition, 40% of locations also reported an increase in investor demand compared to April, with the remainder indicating no change.
Overseas demand remained unchanged across 60% of locations compared to April, with 20% indicating an increase as a result of the decline in sterling. All respondents indicated no change compared to May 2009.
Demand from individuals trading up remained relatively unchanged across most locations, 75%, compared to a year ago with 25% indicating an increase. Similarly, 60% of respondents indicated no change in this purchaser cohort compared to April, while 20% reported an increase.
First time buyer demand increased across half of all locations compared to May 2009, with the other half purporting no change. The majority of respondents, 60%, indicated that demand from this group remained unchanged compared to April, with the remainder reporting a decline during the month.
On the supply side, half of all respondents reported an improvement in stock levels compared to last year, while 25% reported a decline. Approximately 40% indicated higher stock levels compared to April, with a further 40% indicating no change. Some locations are still experiencing shortages compared to the level of applicants. In terms of the view of the year ahead, 80% of respondents were positive.
The most recent RICS Housing Market Survey for the United Kingdom recorded improvements in price inflation, new buyer enquiries and newly agreed sales during April. In particular, the prices net balance increased to +17 in April from +9 the previous month, indicating that 17% more surveyors reported an increase in prices than a decrease. The largest price improvements were in London. The new buyer enquiries net balance rose to +8 from +1 in March, while the newly agreed sales net balance stood at +12 compared to -8 the previous month.
The latest results from the Office of National Statistics reveals that the UK economy expanded by 0.3% during the first quarter of 2010. Although this is revised upwards from a previous estimate of 0.2%, it remains below trend. For 2010 as a whole, growth in the economy is expected to average 1.3% before strengthening to 2.5% in 2011 according to latest figures from the OECD.
The new coalition government will outline its plans to reduce the budget deficit in an emergency budget on June 22nd. Some of the possible measures expected include maintaining the 1% rise in national insurance introduced by the Labour government, with increases in the VAT rate and Capital Gains Tax.
Any increase in the VAT rate will put further upward pressure on inflation which increased to an annual rate of 3.7% in April. However, Mervyn King, the Bank of England Governor, stated that this reflects temporary factors and that the rate of inflation is expected to fall back and remain below the target rate of 2% for 2011 and 2012. This would suggest that there are no immediate plans by the Bank of England to raise interest rates above the current 0.5% rate.
While activity levels did appear to dampen moderately in recent weeks, it is largely assumed that this is a consumer response to uncertainty surrounding in the first instance the election and secondly the emergency Budget.
An increase in Capital Gains Tax (CGT) if introduced in the emergency Budget will impact second home owners and investors who intend selling their home, thus potentially impeding supply levels in the market.
However, if an increase in CGT is announced in advance of the implementation date, this is likely to result in a temporary surge in stock levels and subsequently dampen price inflation.
Finally, the recent decision by the government to scrap HIPS (home information packs) is also expected to improve the supply of properties in the market going forward. This should help boost activity levels in locations that are currently experiencing shortages.