Sales

2011 has been a year of two halves. The first half of the year followed on from the back end of 2010 and saw a fairly strong market, boosted by a shortage of supply that created slight upward movement in house prices. Mortgage supply shortages were still an issue but for agents, the main issue was gaining instructions to sell.

The General Election put a dampener on activity and the removal of Home Information Packs contributed to an increase in the volumes of property coming to the market, shifting the supply and demand ratio and, as mortgage finance remained difficult to secure and with fears of austerity measure to be announced by the Government ringing in people’s ears, the market turned turtle and sellers found it increasingly hard to secure a buyer at other than very competitive and reducing prices.

In simplistic terms the UK housing market operates between 600,000 and 1.2m transactions every year dependent upon economic factors such as price growth, employment levels, mortgage availability and cost of finance. When the market is operating at its highest volume levels it is because there are large numbers of discretionary movers who choose to move. In harder economic periods these discretionary movers exercise their discretion and stay put and market volumes are largely made up of those who have no choice but to move, often through reasons such as death, divorce or debt. Despite historically low interest rates, we are now in the latter of the aforementioned markets as people either cannot borrow or are using the opportunity to repay debt. There are also concerns as to a future of increased taxation and reduced public sector spending. In short there is no “feel good” factor and no economic imperative to encourage people to make a move.

This scenario is likely to continue for the foreseeable future and certainly through 2011. There will still be a market and house prices are likely to slip but not collapse. Volumes however will be towards the lower end of the parameters mentioned above.

Tight cost control, improving fee levels and increasing market share should be high up the agenda of all sales agents.

Lettings

Having unusually seen a market where both sales and lettings business was strong the picture has shifted to a more normal one where the strength of the lettings market runs counter-cyclical to sales. Again, this is being fuelled by an imbalance of demand over supply.

With mortgages so difficult to secure (except for those with significant deposits) the average age of a first time buyer in the UK is rapidly heading towards forty and this has seen demand for rental property increase.

The private rental market has grown and now represents just under 10% of the UK market. To put this in perspective this is up on recent years but is way below the levels of 30% plus that existed in the early 1960’s before home ownership became the desired tenure of choice amongst the majority of the population.

Simple economics dictates that when demand exceeds supply, prices rise and there has been noticeable growth in rental levels. These look set to continue in the short term. A recent report from LSL plc indicated that the average rent in the UK was £691 per month and that this was likely to reach £700 per month plus early in 2011.

With young people having been encouraged to attend University and build up student debt, with economic uncertainty and likely higher levels of unemployment, the opportunities to save for a mortgage deposit is beyond many and therefore demand for rental property looks set to remain strong. Landlords, who may be rubbing their hands together in glee at this prospect should however remain cautious about squeezing tenants for ever higher rents, as the number of defaults and consequent void periods is also likely to increase. Securing a good quality tenant who is likely to remain in situ, look after the property and pay their rent will be key to making a strong return on investment.

Source:  Integra Property Sevices. Michael Day.