The property market has had a busy and arguably productive year, with an eager consumer base pressing forward with their home purchases, particularly with the Stamp Duty Holiday catalysing deals in the first half as buyers rushed to finish before the deadline.
In fact, despite some expectations that activity would wane once the SDLT break ended, the market has remained remarkably strong – according to Zoopla, 1.5 million houses will change hands in 2021, making it the busiest year for the property market since 2007.
However, while activity has been high this year and continues to be resilient as purchasers seek to take advantage of the window of opportunity before a projected interest rate hike in December or early 2022, we may start to feel a chill in the air as the market cools in the months ahead.
Stabilization of price rise and affordability
The most recent House Price Index from Nationwide, covering October, revealed that house price rise including properties for sale in Aylesbury grew by a significant 9.9% year-on-year in the month.
This is compounded by a statistic that will be especially distressing for first-time buyers: average house prices in the UK have risen by more than £30,000 since the pandemic began.
It’s clearly further bad news for first-time buyers wanting to jump on the property ladder, especially given the persistent difficulty of saving for a decent deposit.
The Office for National Statistics (ONS) announced an annual salary increase of 7.2 percent for total pay (including bonuses) and 6.0 percent for regular pay from June to August 2021 in October (excluding bonuses). Total pay falls to 4.7 percent in real terms adjusted for inflation, while regular pay falls to 3.4 percent.
The mismatch between incomes, savings, and rising property prices, not to mention the rising cost of living (including average rents), places a major burden on first-time purchasers, which is expected to persist until 2022.
Another drawback of the ONS statistics is that wage growth is influenced by the base and compositional effects, which should be viewed with caution because current wage growth is being compared to a low base period last year when negative pay growth rates were reported during the pandemic’s peak.
In practice, salary growth is likely to be worse than it appears, making affordability an even greater concern for savers and, as a result, prospective buyers.
Homeowners hoping to see their property(s) appreciate will likely be pleased with the increase in property values, but this will have a knock-on effect on the prices of any potential properties they may wish to purchase when/if they decide to return to the market, offsetting gains on a potential sale.
Another drawback of the ONS statistics is that wage growth is influenced by the base and compositional effects, which should be viewed with caution because current wage growth is being compared to a low base period last year when negative pay growth rates were reported during the pandemic’s peak.
In practice, salary growth is likely to be worse than it appears, making affordability an even greater concern for savers and, as a result, prospective buyers.
Homeowners hoping to see their property(s) appreciate will likely be pleased with the increase in property values, but this will have a knock-on effect on the prices of any potential properties they may wish to purchase when/if they decide to return to the market, offsetting gains on a potential sale.
As a result, the property is in high demand, with Propertymark’s September Housing Report estimating that there are currently 20 purchasers for every available house on the market. According to experts, it’s the “best sellers’ market we’ve seen in decades indicating that the market is highly stacked against buyers.
The current rate of housebuilding in the United Kingdom does not help purchasers. The government’s goal of building 300,000 new homes each year has gotten a lot of attention, but it isn’t being met, and Propertymark thinks it won’t be met until “at least” 2028.
Despite the targets, the situation is made worse by the continuous labour and material shortages that are causing havoc across the economy.
According to the ONS, private housebuilding output fell by 3.5 percent in the third quarter of the year, as a result of numerous factors such as Brexit and COVID colliding to disrupt supply chains, with one such casualty being UK timber supplies, which are not expected to recover this year.
Over the last 12 months, material prices have risen every month, and cost hikes are expected to continue well beyond 2022.
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