Sellers will have to cut prices to find buyers, says Paul Smith, whose company operates Haart, Felicity J Lord andothers.
The boss of one of Britain’s biggest estate agent chains appears to have called the top of the property market,saying there has been a big slump in demand from buyers after the nation has “reached the limit” on houseprices.
Paul Smith, whose company operates the Haart, Felicity J Lord, Spicer McColl and Darlows chains across theUK, said there was “trouble in paradise” and sellers would have to cut prices to find buyers.
“We are starting to see a big slump in buyer demand with registrations down a huge 46% across the UK in justone month,” he said.
Smith warned that prices may be peaking after a 12% rise year-on-year rise to a record high of just over234,000, nearly nine times the average UK income.
“We believe the nation has now neared the limit in terms of price rises. Our data is already showing a slowdownin both house price growth and transaction levels. In order to maintain healthy sales levels sellers need to bemuch more realistic with their asking prices properties are in danger of being overvalued and these homes willstruggle to sell.”
Smith’s gloomy prediction from an estate agent’s point of view represents a sharp reversal from moreoptimistic statements he has issued about the market in recent weeks, but he said in the longer term the marketwill remain attractive.
But it comes after figures from HM Revenue & Customs revealed a dramatic collapse in the number of housesales in April after a boom in March to beat higher stamp duty rates on second homes.
Across the UK just 70,690 residential properties were sold in April compared to 173,430 in March as landlordsrushed to beat the tax hike. The sharp drop in April took housing market activity back to the low levels last seenduring the financial crash, but property experts said the decline was only to be expected after a bumper March.
David Brown of agents Marsh & Parsons said: “After most peaks comes a corresponding trough. The goalpostssimply changed overnight, making it incomparable to an extremely hectic March, which was characterised byunparalleled activity from second home owners and buy-to-let investors rushing through completions.”
Many potential buyers are expected to hold off making purchases until they know the outcome of the EUreferendum, potentially pushing down prices in the short term. Then from April next year, another big cut in taxrelief for buy-to-let landlords is likely to depress demand.
Nationwide building society, which reported bumper lending and profits figures , said in future buy-to-let borrowerswould face a much more demanding test before being granted a mortgage.
Prices have already begun to fall at the top end of the London market , with analysts split as to how far the fallswill spread into the wider market. In Hampstead and Notting Hill, prices are down by as much as 10%, whileagents Douglas Gordon said “overinflated prices [are] stymying sales” in markets further out.
But the continued ready availability of cheap mortgages, plus a persistent shortage of newly built houses, maysee first-time buyers fill the gap left by landlords and keep prices high. The average interest rate on a 90%mortgage where the buyer puts up a deposit worth 10% of the value of the property has fallen from 5.97% in2011 to just 3.01% today, according to data company Moneyfacts.
Doug Crawford of conveyancing company MyHomeMove said: “While house prices are high, buyers who canraise a deposit have been given a boost by extremely attractive mortgage rates which support borrowing.
“There are also signs of solid improvement in lending to first time buyers, such as a growth in high loan-to-value(LTV) mortgages available. Our forecast growth in sales is based on first-time buyers being able to access thehigh LTV mortgage products that will support their borrowing.”
The public finances have also enjoyed a large, albeit temporary, gain from the boom-and-bust in the propertymarket, with stamp duty receipts hitting a record high of 1.2bn in April. Over the last 12 months the Treasury hascollected 11bn from stamp duty, almost as much as inheritance tax and capital gains tax combined, and muchhigher than budget forecasts, according to an analysis by accountants Blick Rothenberg.
Paul Smith, the head of a major estate agency group in the UK, made a rather intriguing prediction about the property market. His statement suggests a significant decline in buyer interest, hinting that sellers might need to lower prices to attract buyers. This assertion is backed by a 46% drop in buyer registrations across the UK within a month, signaling a substantial reduction in demand.
Smith's warning about a potential peak in prices aligns with the data showing a 12% year-on-year increase, reaching a record high of over £234,000, approximately nine times the average UK income. He emphasizes the need for sellers to be more realistic with their asking prices, cautioning that overvalued properties might struggle to sell.
This downturn in the market, as Smith predicts, follows a surge in sales in March, driven by individuals aiming to avoid higher stamp duty rates on second homes. The subsequent sharp drop in April led to housing market activity plummeting to levels last witnessed during the financial crash. Analysts attribute this decline to the change in taxation policies and a subsequent slowdown in activity.
Several factors contribute to this market flux. The impending EU referendum outcome and potential tax relief reductions for buy-to-let landlords are anticipated to further dampen demand, potentially leading to short-term price decreases.
While certain areas, especially in London like Hampstead and Notting Hill, have witnessed price declines, the wider impact on the market remains uncertain. However, the availability of low mortgage rates and a shortage of newly constructed houses might sustain prices, with first-time buyers potentially offsetting the decrease in demand from landlords.
A crucial indicator of market stability is the continued availability of cheap mortgages. The average interest rate on a 90% mortgage with a 10% deposit has significantly decreased from 2011 to present day, supporting borrowing and potentially aiding first-time buyers.
Lastly, the property market's fluctuations have significantly impacted public finances, notably increasing stamp duty receipts, which hit a record high of £1.2 billion in April alone. Over the last year, the Treasury collected approximately £11 billion from stamp duty, surpassing initial budget forecasts and contributing substantially to government revenues.
To sum up, the property market faces a complex interplay of factors, from changes in tax policies and impending referendums to fluctuations in buyer behavior and mortgage rates, all influencing the buying and selling dynamics across the UK.
