Housing market trends. SELHP 5 th December 2013 Selina Clark

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1 Housing market trends SELHP 5 th December 2013 Selina Clark

2 Key points > 86% of housing markets below peak 2007 levels (50% more than 10% below) > Low turnover and low mortgage rates a major support to house prices > Talk of housing bubble over-done but purchasers with equity have major buying power > Large group of households priced out of market by no equity and affordability gap > Demand pressures remain on all rented tenures > Private rent rents rising slowly but top end exposed to a recovery in first time buyer sector > Strong demand for intermediate housing products > Key risks in next 5 years external shock, higher interest/mortgage rates 2

equity and affordability gap > Demand pressures remain on all rented tenures > Private rent rents rising slowly but top end exposed to a recovery in

3 Profile of house price recovery across UK cities % rise from 2009 trough 40% 35% 30% 25% 20% 15% 10% 5% 0% London (UQ) London (All) Oxford, Cambridge Bristol, Cardiff London (LQ) Birmingham, Manchester Liverpool Edinburgh Glasgow -20% -10% 0% 10% 20% 30% % relative to 2007 peak > The recovery in residential values by UK city varies widely reflecting local economic and demand side factors. > Split between top and bottom end of London markets international equity fuelled demand versus domestic mortgage reliant demand Source: Hometrack (size of bubble relates to average price) 3

recovery in residential values by UK city varies widely reflecting local economic and demand side factors.

4 Extent of house price growth within regional markets Coverage of house price growth in last 4 years 100% <10% 10-20% 20-30% 30-40% >40% > Nationally, 57% housing markets risen by less than 10% in 4 years. 90% 80% 70% > Just 6% markets up by >30%, almost all in London. % markets 60% 50% 40% > 86% markets still below peak levels 30% 20% 10% 0% NI Source: Hometrack N East Wales Y&H N West W Mids E Mids Scot S West East S East London 4

90% 80% 70% > Just 6% markets up by >30%, almost all in London.

5 Low mortgage rates a major boost to buying power 250, , , ,000 50,000 Actual house price UK Implied house price > Comparison of actual house prices against implied house price. > Implied house price is what could be bought using 35% net income to meet mortgage repayments at prevailing LTV and average mortgage rate over time. > Clear disconnect between actual and implied prices in late 1980s and mid 2000s. Impact of lower interest rates clear over 2008/9. 0 Source: Hometrack > Implied prices sensitive to changes in mortgage rates. 5

> Implied house price is what could be bought using 35% net income to meet mortgage repayments at prevailing LTV and average mortgage rate over

6 Different mix of buyers setting prices 41% buy to let and cash buyers 700, > Chart shows volume of sales by type of buyer 600, , % > Cash buyers (including cash investors account for one in three sales nationally. 400, , ,000-57% -31% -18% > First time buyer volumes on the rise while existing owners are less likely to move. 100,000 0 Source: Hometrack BTL First time buyer Home mover Cash > BTL, FTB and % cash buyers are net new demand (i.e. don t add to supply hence upward price pressures). 6

400,000 300,000 200,000-57% -31% -18% > First time buyer volumes on the rise while existing owners are less likely to move.

7 National private housing starts rolling 12 months 120, ,000 80,000 60,000 40,000 20,000 Houses Flats > New private housing starts are up by 67% from the 2009 low. > Recovery in starts for houses stronger than flats. Buyers with embedded equity. > Focus on average selling price and margins rather than volumes by developers. > Affordability a constraint on volumes > Market pricing of new build set for low volumes 0 Source: Analysis of NHBC data

> Focus on average selling price and margins rather than volumes by developers.

8 New build concentration > New build concentration risk or clear opportunity? > Where do starts in last year account for a high % of local housing market turnover? > These markets dependent upon strong demographics, jobs growth, latent demand across local market or in need of more supply/liquidity. 8

9 Help to Buy (MIG) costs up to 30% more than renting Costs per month - 2 bed 1,800 1,600 1,400 1,200 1, Average rent Upper quartile rent Help to Buy 95% LTV 5% MR > Costs per month of buying and renting a 2 bed > Help to Buy mortgage rates put buying costs up to 30% higher than renting > Help to buy attractive to highest income renters rather than mass market E Mids East London N East N West Scot S East S West Wales W Mids Y&H GB Source: Hometrack 9

Buy mortgage rates put buying costs up to 30% higher than renting > Help to buy attractive to highest income renters

10 Rental growth cooling in London on supply/demand Rental growth per annum - 2 bed 15% 10% 5% 0% -5% -10% -15% -20% London S East > London rental market has cooled on rising supply (new build) and changing affordability dynamics. > Buying with a 90% mortgage at a 4% mortgage rate an attractive proposition > Recovering owner occupied market will impact top end of rental market. -25% GB Source: Hometrack 10

11 How many household priced out? > Map shows % households with household income to buy an ave. 2/3 bed home with an 80% mortgage. > Large affordability gap in southern England where more than half of market priced out assuming limited access to housing equity. > What housing products and tenures are most viable? Source: Hometrack 11

12 What tenures/incomes to target across local markets? (All pricing for an average 2 bed property) Source: Hometrack 12

13 Income required to access housing Southwark (2 bed) Source: Hometrack calculations 13

14 Income required to access housing Bexley (2 bed) Source: Hometrack calculations 14

15 Income required to access housing Bromley (2 bed) Source: Hometrack calculations 15

16 Income required to access housing Greenwich (2 bed) Source: Hometrack calculations 16

17 Income required to access housing Lewisham (2 bed) Source: Hometrack calculations 17

18 Summary > Summary > Cost/income to access owner occupation to remain high > Higher mortgage rates greatest risk to headline house prices > Rental market pressure to stay > Demand for intermediate products in the right markets 18

greatest risk to headline house prices > Rental market

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Policy Response Buy to Let Tax Relief

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