May 2011 saw an median Uk house price of c.£163K (combining key indices). Nationwide was up 0.3%, Halifax up 0.1% and the Land Registry (which includes cash and mortgage sales but notably excludes Scotland and Northern Ireland) was down 0.4%. More importantly on a regular and every year basis data remained negative, down as much as 4% depending on the index used.
Location remained key and regional variances were considerable. The North and far West remained weakest with falls in prices down c.6% whilst London continued its isolated growth reflecting the imminent arrival of 2012 and the requisite impact of overseas buyers. For a current estimation of house prices both Nationwide and Halifax have easy on-line price calculators based upon a typical asset in the region although both differ with Halifax being more pessimistic.
Of more importance, however, is the time to come outlook of house prices. Whole the long term imbalance in the middle of contribute and ask remains distinct for the industry and this has helped prop up prices to date. However, factors are at play to growth contribute and there remains chronic constraints on ask in terms of low revenue growth, high taxation, relatively high inflation, unemployment, weak buyer belief and mortgage availability.
Mortgage availability remains a serious constraint with housebuilders attempting to overcome this straight through increased use of incentives and collaboration arrangements such as shared equity, part replacement and parent/government backed schemes. Mortgages have, however, also continued to evolve in an exertion to open the lending doors whilst mitigating risk with guarantor mortgages and third party savings backed mortgages now more mainstream. Complexity has admittedly increased since the initial idea of citizens admittedly clubbing together as a building society to lend to young homebuyers.
As buyer optimism and spending remains low any time to come bounce back in the housing store is more likely to be business driven. Key to business success, however, will be the time to come of interest rates together with strong cash flow management. A inexpensive assumption would be that Base will slowly step up, by c.0.25% a time, until it reaches more realistic levels (although the commencement of this stepped rise continues to be delayed with talk now of 2012). If rate rises and cash flow fail to be managed, however, this will add to the strain on businesses and restrict funding ready for salaries, dividends and ultimately house purchases.
On the contribute side volume housebuilders are currently achieving higher profitability driven by either a greater amount of completions and/or increased margins. Although some, such as Taylor Wimpey, are selecting to focus on pricing as opposed to volume, contribute will continue to growth going forward as new sites unfold particularly as the government releases a requisite amount of state owned land for development. Smaller builders will continue to, at best, stand still as they continue to find it difficult (although not impossible) to collect the finance needed for growth. Those successfully managing costs and with a solid track record/banking association will be best settled especially if speculative and higher rise builds can be avoided.
The resulting outcome of the supply/demand association is that stabilisation of house prices is all we can expect in the short term. As matters stand currently it is likely that we will leave 2011 with median prices about 2% below those of 2010 with the anticipated rise in contribute of homes in the second half of the year retention back any real price improvement. Location will, as ever, see marked differences to the median price but no real Whole growth is anticipated until late 2012/13 at best - driven from London into the South East with Northern areas the last to turnaround.
First time buyers will continue to struggle. Despite the modern upward trend in both loan to value ratios and actual mortgage advances it should be remembered that both measurements were, until recently, at their lowest level for at least 20 years and therefore the growth should be viewed as a modest revising rather than a requisite rise in optimism.
Finally, whilst Base Rate is set to growth going forward, as mortgage rates no longer directly track Base this will have more of an indirect impact, largely restricting cash assuming no downwards change in lending margins. business investment as a whole will remain key to economic salvage as buyer belief remains weak.
Uk House Prices - The time to come Outlook