The South West prime capital value forecast - Part one

Highlights

– Shortage of properties available for sale is frustrating buyer demand.

– Average monthly sales across the South West in the first half of 2015 were 40 per cent down on last year.

– Gap between buyer and seller expectations is holding back the market.

– Whilst interest rates remain at a record low, is now the best time to consider moving?

Sales market overview

Average house prices in the South West rose by 5.4 per cent in the year ending in August 2015 according to the Land Registry, which was higher than the national average of 4.2 per cent.

However, local market performance can vary considerably with factors such as supply, proximity to commuter stations and access to good schools contributing to demand and price differentials.

Average price growth since the end of the global recession in the markets covered in this report varies considerably.

One characteristic common to most markets is a shortage of properties available for sale, which is frustrating buyer demand.

Across the South West as a whole, the available stock of properties in June was averaging around 14 per cent lower than at the corresponding point in 2014 according to the RICS, although by the end of the summer availability had improved.

Buyer demand is encouragingly healthy, in particular from retirees and second home purchasers from London and the South East seeking properties close to reasonable sized towns offering easy access to retail, health and leisure facilities.

In addition to the shortage of available properties, buyers have been frustrated this year by high asking prices.

The £1m-plus segment has generally been sluggish across all markets, in large part due to the progressive increase in Stamp Duty as values increase.

Whilst top prices have been achieved on the best properties, in most cases there is a sizeable gap between buyer and seller expectations and vendors wanting to attract offers have often had to give ground on asking price.

Although mortgage interest rates remain the lowest in living memory, lending criteria have been tightened.

This is frequently resulting in protracted transaction times and exacerbating the inertia caused by the shortage of properties coming onto the market.

Indeed, Land Registry data reveal that average monthly sales across the South West in the first half of this year were 22.3 per cent down on last year and 39.7 per cent down on the peak year of 2006.

The Blandford market has generally been strong up to the £500,000 mark.

Downsizing retired buyers require a village location with good facilities and sometimes a buy-to-let property within the town itself.

Families will look for larger properties offering outbuildings, stabling, paddocks, tennis court and secondary accommodation.

Prime property values have seen modest growth of around two per cent - three per cent over the past 12 months while prices in 2015 have remained stable.

Buyer demand in Chippenham, predominantly from downsizing retirees and families seeking a lifestyle location, is steady and focussed on the prime village locations surrounding the town.

September saw a jump in buyer activity with price reductions often being key in attracting offers.

Prime values have risen by around four per cent over the past 12 months, with much of this growth recorded last year and in the first quarter of 2015.

Cirencester is seeing interest from a good mix of buyers.

The typical chocolate box Cotswold home is in great demand from local buyers and second home purchasers.

Modern family homes tend to sell to local purchasers or families re-locating to the area.

Prime values have risen by no more than two per cent over the past 12 months, with period properties recording slightly higher growth.

Marlborough Demand for properties in the town is particularly strong.

Buyers are a mixture of London and Home Counties households looking for a lifestyle change, including London commuters who don’t have to go to the

office every day, and locals.

For families with school age children, catchment areas are an important consideration.

Average prime values have risen by around three per cent over the past year, although the best town centre properties have seen stronger growth.

Salisbury Activity has picked up since the end of the school holidays although a shortage of available stock remains an issue.

Demand is widespread - from retirement downsizers and second home buyers, to lifestyle purchasers and London commuters.

Prime prices have remained flat over the past 12 months.

Outlook

The outlook for price growth over the next 12 months is moderate in most locations.

The mortgage market is anticipating further regulatory tightening from 2016 with the arrival of the EU Mortgage Credit Directive and there is considerable uncertainty about when interest rates will rise.

The Bank of England Governor has already dropped hints that Bank Rate could rise as early as the turn of the year while high street lenders may increase their rates even sooner if their margins, which have already been squeezed this year, suffer further erosion.

Indeed, some of the best fixed rate deals have already been withdrawn.

However, there is definite pent-up buyer demand and the economy continues to expand within an environment of low inflation and a return to real wages growth which should boost consumer confidence.

Moreover, any increases in interest rates are likely to be gradual and the supply/demand imbalance is likely to persist for some time to come.

This suggests that upwards pressure on prices will result.

However, buyers are likely to remain unwilling to meet asking prices unless they are lowered to more realistic levels or unless the property ticks all of their boxes.

What would be the impact of an increase in mortgage interest rates?

What impact would a rise in mortgage interest rates have on the average household?

It depends upon the scale and frequency of any increase.

Looking at the hypothetical data for a household with two earners in Figure 5, if rates were to rise by 25 bps from their current position the impact

would be minimal.

However, a one percentage point increase would see average monthly mortgage payments rise by nearly £100.

For single person households any increase will of course be more keenly felt.

Households will additionally need to service their non-mortgage related debt, the cost of which will also rise.

On the plus side, it is worth remembering that our analysis does not allow for

any increase in average monthly household income which should dampen the impact to some extent.

Concern about imminent rate rises might just persuade buyers to commit now before the window of opportunity for historic low mortgage rates closes.

Equally, households not wishing to move may take the opportunity to re-mortgage, which an increasing number have chosen to do this year as borne out by lending statistics.

Whatever households decide to do, it appears increasingly likely that interest rates will be higher next year and possibly even sooner.

Local market comment

Blandford

Jacqui Thurston

Director

“Activity picked up noticeably in September as pent-up demand finally began to be released. Second home buyers from London and the Home Counties have been particularly prominent and well-presented, sensibly priced properties are attracting the most interest.”

Chippenham

Caroline Ferris

Director

“We still have a good register of active buyers and stock levels are improving. Prime village locations with access to good schools are especially popular and sensible pricing should secure a sale.”

Cirencester

Alex Holmes

Manager

“There are plenty of buyers actively seeking good quality properties in and around Cirencester. Although pricing has been something of an issue we have nonetheless had several properties this year which have gone to best and final bids and ended up selling in excess of the guide price.”

Marlborough

Rosie Souster

Director

“Marlborough’s good schools, bustling town centre and beautiful surrounding countryside are a real draw for buyers most of whom are ready and waiting to move. The shortage of stock across the board this year means there is a degree of pent up demand and offers close to or above guide price have not been unusual although pricing is still key.”

Salisbury

Tom Sumption

Manager

“Good sized family homes within the ring road and village properties are highly sought after and sell easily provided pricing is realistic and presentation is first class as buyers remain selective and price conscious.”