Activity in the UK housing market reached frenzied proportions in the first quarter of the year, as second-home buyers and buy-to-let landlords rushed to beat the 3 per cent stamp duty surcharge which came into effect on 1 April. The big question now is; what happens next?
Business was certainly buzzing in March when gross mortgage borrowing of £17.1bn was up nearly two-thirds from a year earlier and the highest monthly borrowing since April 2008. Mortgage approvals in March grew by 20 per cent from a year earlier, with remortgaging up by a quarter and house purchases up 14 per cent. The figures also reflect the growing number of mortgages sourced outside the big banks; BBA mortgage lending in March (roughly 60 per cent of the market) actually fell back by 1.2 per cent.
Much has been made of the European Union referendum on 23 June as a factor likely to hold back fresh activity in the housing market, on the premise that a subsequent collapse in sterling would push up import costs and stoke inflation. This, in turn, could increase pressure on the Bank of England to push interest rates higher.
There are suggestions this train of thought is flawed because the Bank would almost certainly move to alleviate market fears by keeping interest rates lower for longer. But the risk premium on bank debt could certainly increase lenders' wholesale funding costs, thus putting upward pressure on lending rates.
A more likely influence on housing activity is the affordability issue. According to property crowd funding platform Property Partner, since the last in/out referendum in 1975, average house prices have risen from £10,728 to £198,564, although adjusting for inflation would have lifted that figure to just £99,949. Leading the pack, house prices in London since 1975 have risen a staggering 3,200 per cent.
Demand for new houses is unlikely to go away, and with growth in average earnings outpacing inflation, at least the affordability gap is showing signs of narrowing. Figures for average house prices in April and the level of borrowing will provide some clues, but no one seems to be expecting anything but a sharp drop in activity from the first quarter, while price inflation looks likely to moderate but not reverse. No one wants to stick their head above the parapet, although after a buoyant first quarter, property services group Countrywide (CWD) and estate agent Foxtons (FOXT) has sensibly adopted a more cautious tone for the second quarter - potentially a portent for sentiment overall.
