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Lack of homes for sale fuelling price rises

Lack of homes for sale fuelling price rises

Category: Mortgages

Updated: 08/05/2014
First Published: 08/05/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

If you needed more confirmation that house prices are continuing to rise, you've got two reports released in as many days to back it up. The latest Residential Market Survey from the Royal Institution of Chartered Surveyors (Rics) shows that house prices remain on a "firmly upwards trend" while April's Halifax House Price Index has revealed that prices have risen by 8.5% year-on-year, putting the average UK home at £177,648.

However, there could be some light at the end of the tunnel for those trying to get on the ladder – on a monthly basis house prices actually fell by 0.2%, representing the second successive monthly decline, and even the annual growth of 8.5% is slightly less than the 8.7% recorded the previous month. There seems to be a slight slowdown elsewhere in the market too with the number of sales declining for the first time in 10 months (posting a drop of 5%) while mortgage approvals fell for the second month running, with March's figure of 67,135 being 12% lower than the peak level recorded in January.

This would tentatively suggest that now could be a good time for first-time buyers to get on the market, with prices remaining fairly steady and the reduction in sales ideally not putting excessive upwards pressure on things. However, prices are still up on an annual and quarterly basis (prices were 2.3% higher in the first quarter of 2014 compared to the final three months of 2013) so time will tell whether the monthly fall will have any impact on the market, and in the short-term the message is clear – there needs to be more homes available for sale if price rises are going to subside to any extent.

"Although mortgage approvals have now declined for two consecutive months and property transactions fell in March, on an annual basis housing demand still remains strong," said Stephen Noakes of Halifax. "Housing demand continues to be supported by an economic recovery that is gathering pace, rising consumer confidence, low interest rates and wage growth finally beginning to outgrow consumer prices. However, with supply of properties being slow to respond to market conditions, stronger demand in the past year has resulted in upward pressure on house prices."

Both reports confirmed that there's a growing gap between housing demand and the supply of new properties coming onto the market, and it's this that will have the biggest impact on prices. Rics' figures show that new buyer enquiries have remained steady over the first quarter with surveyors reporting sustained – and in some cases higher – demand, but the number of homeowners putting their properties up for sale has declined for the fourth consecutive month.

This is fuelling the supply/demand imbalance and simply means there aren't enough houses to go around, with this shortage continuing to result in price rises. In fact, surveyors estimate that house prices will rise for several years – on average, they're predicting growth of 6% each year for the next five – and contrary to other figures the Rics survey actually reported an increase in sales. The average number of home sales per surveyor hit 23, the highest figure recorded since February 2008, arguably fuelled by people panic-buying in an attempt to snap up properties before prices rise beyond their reach. Again, that means there are fewer properties currently available, and will in turn place extra pressure on prices.

It's hoped that the introduction of new rules following the Mortgage Market Review could help to subdue the market somewhat, as if stricter criteria means fewer people are accepted for mortgages the level of demand could start to subside. As an alternative, if they're offered smaller loans they won't be able to afford higher prices – which will hopefully lead to a cooling off of the market.

Again, it's a case of wait and see, and with additional speculation surrounding the future of Help to Buy it could prove to be a volatile few months for the market.

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