There is a familiar scene playing out at dinner parties these days — you may well have seen it last night. Barely have the starter plates been cleared away and the wineglasses topped up when the iPhones come out and friends and neighbours compete over how much their house prices have risen this year. The property portal Rightmove recorded a 35% increase in visits to its “find sold house prices” section last month, compared with August 2013, as homeowners rushed to calculate their fat potential profits.
These owners are mainly in London and commutable hotspots in the southeast. Head to a cosy nook in rural Devon or deepest Yorkshire, however, and there is no braying — rather quiet sobbing into a glass of lukewarm plonk from Lidl as frustrated sellers lament having to cut their asking price for the second or even third time since January.
A lot has happened in the housing market so far in 2014. In the spring, desperate buyers in London and parts of the southeast queued up in the rain to spend 10 minutes poking through a flat and elbowing other prospective purchasers out of the way on an open viewing, resolving hours later to gamble their life savings on it, only to find that someone else had already offered £100,000 over the asking price.
Almost 160,400 property millionaires have been created in Britain over the past year — and there are 10,613 streets where the average property value has surpassed £1m, according to the property portal Zoopla. On 12 roads in the capital, average prices now stand above £10m. Estate agencies have sprung up at breakneck speed, keen to cash in on this perceived gold rush: the Move with Us network says 70% of agents across Britain have seen an increase in competitors opening offices in their area in the past three months.
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Yet there is change afoot. The number of new prospective buyers in London fell by 20% in the second quarter of the year compared with the same period in 2013, according to Knight Frank estate agency, while the number of viewings dropped 15%. And, this autumn, there’s a new spectre stalking the streets of the capital: the £1m house-price reduction. For instance, a four-bedroom townhouse in Park Street, Mayfair, which came onto the market at £8.9m on Valentine’s Day, failed to seduce buyers — it has suffered two price reductions and the asking value has now dropped to £7.25m. Meanwhile, a Victorian family home in Hammersmith recently saw its price cut by £1m to £2,999,950.
“I am definitely seeing more reductions come through on expensive properties,” says James Mackenzie, head of the country-house department at Strutt & Parker estate agency. “We have been waiting for the London market to plateau for ages — now that it has, we are starting to see waves of people selling up and looking to buy elsewhere. Couples have been away on holiday this summer in certain parts of Corfu or Mallorca, and have had a chance to sit down with a glass of wine and talk about their life plans. In the past two weeks, we have had a lot of people from places such as Fulham registering for properties in Surrey and Hampshire.”
With all this in mind, here’s what you need to know about the autumn housing market.
What’s the UK outlook?
Prices are still rising in most areas of the country — although research by Knight Frank shows that values have surpassed their 2007 peak in only four regions: London, the southeast, the east of England and Scotland. By contrast, prices in the northeast are still 6.8% below their pre-crunch peak.
Savills estate agency expects average UK house prices to grow by 9.5% this year, ahead of the 6.5% it originally forecast. This will be followed by 4% growth in 2015 and 25.7% overall in the five years to the end of 2018.
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Yet much of this annual growth is expected to come in the regions, as increasing numbers of buyers head out of the capital. “The likes of Brighton, Bristol, Cambridge and St Albans can expect to see the biggest wave of price growth in the housing market, especially as a 51% increase in the average sale price over the past decade leaves them looking good value compared to London,” says Lucian Cook, the agency’s head of UK residential research.
A Georgian townhouse in Bath put up for sale at £1m today would attract about 30 viewings in a week, compared with 10 this time last year and only five in September 2012, according to Paul Jarman, head of the western region at Savills. Other areas further afield are not so fortunate: Jarman says prices are still 10% below their peak in the second-home market in Devon, for example, with many owners unwilling or unable to sell for less than they bought for in 2006-07.
“After the release of several years of pent-up demand in the first half of 2014, the autumn market will naturally be quieter, as many who were willing and able to move have now done so,” says Miles Shipside, commercial director at Rightmove. “Those who missed the spring and summer moving window are now faced with higher prices and the prospect of imminent interest-rate rises, understandably giving them greater degrees of caution.”
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, expects a moderation in the rate of price growth in most parts of the UK over the next 12 months.
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What about London prices?
After leading the charge for the past few years, the capital is set to be the laggard from now on. Savills expects values for everything from swanky loft apartments to gracious townhouses to plateau in 2016, while Rubinsohn thinks they will stagnate as soon as next year. “Buyer inquiries and new instructions are good lead indicators, and data from our members suggests an earlier decline.”
Agents report that more deals are falling through, as buyers start to question the amount they are paying — which is having a knock-on impact throughout the property chain. There is some good news for buyers, though. “The days of the open house are numbered in London,” says Henry Sherwood, managing director of the Buying Agents. “Only about 10% of agents still favour this strategy.”
A slowdown in the capital would have a domino effect elsewhere. “The northeast market has taken over a year to show signs of real positivity, and it has stopped overnight as news of a slowdown in the southeast filters in,” says Neil Foster, director of Foster Maddison Property Consultants, who is based in Newcastle.
Should I flog my mansion now?
That might not be a bad idea. Savills says the value of homes worth more than £10m fell by 1.5% in the second quarter, and owners are already getting twitchy about a change of government next May — grannies in bighouses fear they could be landed with the dreaded mansion tax, and there’s potential for a reform of council-tax rates.
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Strutt & Parker has seen a flurry of instructions above £2m in the past week. “For a lot of people, this is their last chance to sell their home before the election,” Mackenzie says. “I expect lots of serious reductions and plenty of new homes coming to market, with committed sellers trying to move before anyone starts to use election season as an excuse not to buy.”
Will I be able to get a mortgage?
Stricter lending rules introduced in April, known as the Mortgage Market Review, have dramatically slowed the sales process. The mortgage efficiency survey by the analyst IRESS shows that less than half of home loan offers are now produced within two weeks — well down on 56% a year ago. In one in five cases, it now takes more than 30 days.
“We are concerned that the MMR has hit a sector of the market where recovery has been much slower than elsewhere,” says Nick Leeming, chairman of Jackson-Stops & Staff estate agency. It’s only a matter of time before a new game — “My house sale took longer than yours” — hits a dinner party near you.