Houselungo 5 December 21
Double digit house prices rises bringing early Christmas cheer
The Nationwide published their house price index for November this week
What they said
Average UK house price £252,687
Annual house price inflation 10.0%
Increase in house prices last month £2,376
Another month of double-digit house price inflation will certainly put some sparkle into this year's Christmas lights bringing some much needed early Christmas cheer as we step into advent after another tough and challenging year. Continued strong house price inflation following the end of the stamp duty holiday will be welcome news for those who bought during the stamp duty holiday, but frustrating news for those who just missed out on the deadline.
In our view, the continuing positive house movement reflects several factors:
Whilst house prices rise, mortgage rates fall
The latest data from the Bank of England reveals that the average fixed and floating interest rates on new mortgages fell significantly in October.
What they said
The average floating mortgage rate for new business 1.82%
The average fixed mortgage rate for new business 1.58%
The average overall mortgage rate for new business 1.60%
The month after the stamp duty holiday ended the fall in mortgage rates will bring a bit of relief to those unable to secure their home purchase before the end of the deadline. The reduction in mortgage rate will have eased affordability, slightly, but in this market, every little helps.
The increased COVID-19 uncertainty surrounding the Omicron variant may put a stop to those falls in the short term until the scientists have had time to digest the new data and calculate the risks associated with Omicron. However, with a shortage of homes for sale as long as lenders continue to increase the market share in the mortgage market the balance of pressure on mortgage rates may remain down not up.
Mortgage approvals soft landing rather than cliff edge in October
The Bank of England released its mortgage approval data for October this morning
What they said
Mortgage approvals October 2021: 67,199
6.5% lower than September 2021
31.9% lower than October 2020
It was no surprise that mortgage approvals fell in October 2021, the first month following the end of the Stamp Duty Holiday. The modest fall of 6.5% was not as dramatic as that of housing transactions, which fell 52%, but it is worth remembering that mortgage approvals are a lead indicator. A mortgage approved today typically leads to a housing transaction in two to three months’ time, therefore, those receiving their mortgage approval in September were not expecting to complete their purchase before the end of the stamp duty holiday. A better guide is perhaps the year on year figure which was down by almost one third (31.9%).
Help to Buy volumes drop as rules change
The UK Government released the Q2 2021 Help to Buy Statistics this week
What they said
10,824 properties were bought with Help to Buy
This was a decrease of 30% from Q1, but an increase of 85% over Q2 2020
The value of Help to Buy Equity loans made in Q2 2021 was £808.2m
The latest Help to Buy statistics have been keenly anticipated as they are the first statistics released since the Help to Buy rule changes in April.
What were the Help to Buy rule changes?
Since April 2021 Help to Buy has been operating under new rules, it has been restricted to first-time buyers and regional price caps have been put in place
Have the Help to Buy rule changes had a big impact?
In a word, ‘yes’. The number of homes sold using help to buy has fallen by 30% since the introduction of the new rules.
Around half of that reduction was due to home movers no longer being eligible for Help to Buy and the other half being a reduction in the number of First Time Buyers. In our view, the reduction in the number of First Time Buyers is due to the introduction of the regional price caps.
We show in the graph below data from Housebuilder Barratt Developments which illustrates how many homes it sells using Help to Buy. Over the last few years, it has been as high as 52% but never less than 44%. However, following the rule changes this share of help to buy sales fell to just 21%, from one in two sales to one in five.
Twindig Housing Market Index
The Twindig Housing Market Index rose by 2.9% this week to 89.9 as housing market investors regained most of the confidence they lost last week following the discovery of the Omicron variant.
Investor confidence increased the most in the housebuilding sector, up 4.5% aided by a confident market outlook from Countryside Properties earlier this week. National Estate Agency Group Belvoir also issued an upbeat trading update this week with trading ahead of management's expectations and healthy sales and letting pipelines bode well for the future financial performance of the group.
The Nationwide Building Society also reported this week that House prices increased in November, bringing some early Christmas year after a dreadful COVID stained year to homeowning investors.
Once again, in the face of adversity, the UK housing market appears to be built on firm foundations, which should be less of a surprise than it seems given the remarkable performance of the housing market since the pandemic hit.