Stagnant UK Property Market: Sellers’ Perspective

It has been widely reported that the current market conditions are such with very low volume of transactions, falls in mortgage approvals, and an overall stagnation in the UK property market.

House Price Crash shows very clearly the levels of mortgage approvals and the graph illustrates this with fine detail. Click on the link.

The amount of new mortgage approvals for house purchase, (but not yet lent), rose to 45,940 in May 2011 from 45,447 in April. However May’s approval figure was lower than the average for the previous six months despite the slight increase, according to figures released by the Bank of England.

Nationwide’s index has prices remaining stagnant since May, and down 1.1% annually, while Halifax has prices up 0.1 % in the same month and down 4.2% annually, while the Land Registry has prices down 2.3% annually. Overall there is clear evidence of stagnation in the market.

It is important to analyse the factors causing this and the mind set of Sellers’ and what is causing them difficulties.

Once again today the UK Base rate was held again at 0.5% for the 28th month running. It will be interesting to see the divide in the Bank of England committee when the minutes are released.

Lending to individuals

At PropVestment we sight two major problems causing this stagnation. Firstly Sellers are too over optimistic, thinking that their property should have risen along the same rise levels as seen before the credit crunch, and cannot come to terms with a possible drop in value, so they set their asking price above what is realistically achievable and representive of their property.
This means that many properties stay on the market longer, the few that are closer to realistic values and are lucky enough to attract attention of the buyers suffer from a secondary factor. Price agreed, next step acquire a mortgage approval.
When the bank valuer goes to value the property, its significantly undervalued relative to the asking price, the mortgage offer comes at a LTV of this valuation, leaving the buyer with a shortage to complete. Result, the deal falls through.

Why should a seller sell? Well with current interest rates, many PropVestors have mortgages around the 1-2% mark, they are enjoying a healthy surplus on rents and selling just means, realising Capital Gains Tax.

Therefore if one does not need funds else where, logic says to stay put, not sell and lose a chunk to the tax man and instead enjoy the cake of higher rental yields to mortgage installments.

Further as stated in our last article, it has been stated that rents, in particular in Central London, are expected to rise 8-10% in the year to come. Investors are well placed to get great returns. Especially where the mortgage costs are not looking to rise due to the base rate on hold.

The UK mortgage market is still quite inactive, even though data is showing an recent increase, from our personal experience and that of our clients, the lending criteria is very strict and stringent and only those that fall into a model profile, income base, age and credit history are the ones where mortgages are being approved. Further to this the LTV (Loan to Value) is still surprisingly low in comparison to boom times. Sellers do not want to accept the lower valuations and feel their properties hold more value so will not sell at current market prices.

PropVestment concludes that from a sellers’ perspective the primary factor why sellers are not as active as they would like to be is simply that the returns are just too good, and staying put is the best option. Even those looking to sell, find the potential buyers are not capable of securing the finance to meet asking prices.

LENDERS START LENDING, SELLERS & VALUERS GET REALISTIC

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