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MARKET INSIGHT - Urban Spaces · PDF file 8 per cent between 2013 and 2016; from 83 per cent to 75 per cent London stands out from the rest of the country with only 41 per cent of

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  • MARKET INSIGHT JANUARY 2017

  • In Q3 2016 there were 92,845 cash only transactions in Great Britain, a 5 per cent fall compared with the same period last year. This fall continues the general trend of a reduction in cash buyers in the market since 2014. However, this is broadly in line with the fall seen in overall housing transactions; mortgaged purchases fell by 6 per cent in the same period.

    But what the national figures hide is that the more expensive regions have generally seen the largest decline in cash buyers. In the South East, the number of cash transactions fell by 13 per cent compared with last year; in the East, it fell by 11 per cent and in London by 9 per cent.

    Affordability plays a part in these changes. As prices have grown, the ability for many to be able to buy homes debt-free has reduced, as has the yield on any property bought to rent out - especially with the additional effects of stamp duty. This has served to change the behaviours of cash buyers, who are increasingly looking for value for money.

    In 2013, the South East had the largest share of cash only transactions but in 2016, it has now been usurped by the North which now accounts for 20 per cent of all cash transactions compared with 15 per in 2013. London, which has a low proportion of cash only transactions partly due to the cost of housing, has also seen it’s proportion fall from 7 per cent to 6 per cent. This has not simply been because cash buyers have left the market but is instead because they have changed where they buy their homes.

    Typically, cash buyers buy in the region they come from, but this has changed in recent years. Nationally, in 2013, 83 per cent of cash buyers bought in the same region they came from but in 2016, only 78 per cent did – a 5 per cent fall.

    The more expensive regions have seen the biggest changes in cash buyers buying where there are from. In the South East, the proportion has fallen by 8 per cent between 2013 and 2016; from 83 per cent to 75 per cent London stands out from the rest of the country with only 41 per cent of cash buyers from the capital buying there – a 12 per cent fall from the 53 per cent seen in 2013.

    Source: Hamptons International

    Number of Cash Transactions

    Region Q3 2015 Q3 2016 %Change

    East 9,691 8,604 -11%

    East Midlands 7,787 7,905 2%

    London 8,402 7,684 -9%

    North East 3,612 4,131 14%

    North West 11,461 11,036 -4%

    South East 15,836 13,786 -13%

    South West 14,125 13,960 -1%

    West Midlands 7,143 6,257 -12%

    Yorkshire & The Humber 6,989 6,996 0%

    Wales 5,596 5,569 0%

    Scotland 5,300 5,313 0%

    GB 97,313 92,845 -5%

    Cash buyers broaden their horizons on their search for a home

    CASH TRANSFERS?

  • © Hamptons International 2016

    Source: Hamptons International

    Change in Cash Transactions Regional Split 2013-2016

    Rank Region % of Cash Sales 2013

    1 South East 20%

    2 South West 20%

    3 East of England 13%

    4 North West 12%

    5 East Midlands 9%

    6 West Midlands 7%

    7 London 7%

    8 Scotland 6%

    9 Wales 3%

    10 Yorkshire and the Humber 2%

    11 North East 1%

    Rank Region % of Cash Sales 2016

    1 South West 19%

    2 South East 18%

    3 North West 14%

    4 East of England 10%

    5 East Midlands 10%

    6 Scotland 7%

    7 West Midlands 7%

    8 London 6%

    9 Yorkshire and the Humber 4%

    10 Wales 3%

    11 North East 1%

    London cash buyers have now set their sights further afield in the search of debt-free homes. The South West has seen an increase in the proportion of London cash buyers buying there. In 2013, only 7 per cent of London cash buyers bought a home there but this has now grown to 10 per cent in 2016. Similarly, only 2 per cent of London cash

    buyers bought a home in the North in 2010 but this has now grown to 8 per cent. South East cash buyers also show a similar trend. In 2013, 8 per cent of their purchases were for homes in the South West but this has now risen to 12 per cent. Their purchases in the North have also increased from 1 per cent to 3 per cent.

    Typically, cash buyers buy in the region they come from, but this has changed in recent years.

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    CPI Real Earnings

    As recent Budgets and Autumn Statements go, Philip Hammond’s first one was a little, well, boring. But that’s how the government’s fiscal planning should be. Rabbits out of hats might be entertaining to watch, but they are generally not great for business and tax planning.

    The new Chancellor’s other departure was to reduce the emphasis on austerity. He hasn’t gone overboard, but committing funds to research and development and investment in infrastructure is a welcome relief, achieved by relaxing the timescale of reducing the government deficit.

    There isn’t a huge amount to spend, but some of it goes into providing new housing: £1.4bn for affordable homes and £2.3bn by 2020- 21 for infrastructure to help local authorities “unlock new private housebuilding in the areas where housing need is greatest”. He hopes this will get 100,000 homes built.

    That’s all great stuff, but there was also a reminder that it’s not going to be easy, even with less austerity. The Office for Budget Responsibility’s forecasts show that inflation is expected to pick up quite sharply in 2017 due to the impact of the fall in sterling. The impact of that is to significantly affect real earnings growth, which means that even though austerity is less severe, households will still feel the pinch.

    One thing that may give some relief though is the expectation that interest rates will fall and remain below 0.5 per cent until the end of 2019. That’s good news for homebuyers, particularly first time buyers, who want or need to move home. That combined with the Governor of the Bank of England’s commitment to ensure that credit remains available to homebuyers and businesses should help to promote much needed liquidity in the housing market.

    Inflation and Real Earnings Growth % Forecast

    OBR Interest Rate Projections %

    Source: OBRSource: ONS / OBR

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    The new chancellor tones down the drama in his first autumn statement

    A CAUTIOUS STATEMENT

  • © Hamptons International 2016

    Transactions are the best signal of the health of the housing market and as we approach the end of 2016, there is some concern that they have not recovered faster. Although chances are we will end the year with overall transactions in the UK being slightly above that of 2015.

    But this achievement is partly due to the unprecedented spike in transactions in the lead up to the new stamp duty rules – a 73 per cent year-on-year growth in March alone. Much of the year since has been marked by decreasing number of transactions.

    Yet there is encouraging news for transactions in the coming months. Mortgage approval numbers are a good gauge of future transactions and, following the lull in activity in the wake of the EU referendum results, approvals are picking up. October marked the first time in the year where we have seen consecutive monthly increases in approvals. They grew by 7 per cent between August & September and September &

    UK Mortgage Approvals & Transactions Cumulative YoY Mortgage Approval Growth, UK

    October. This is good news for transactions. Recently the conversion rate of around 80 per cent of approvals go on to complete – so as mortgage approvals grow so too do transaction numbers a few months after.

    What is also encouraging is that first-time buyers have been driving this revival. Our former chancellor’s policy on the stamp duty surcharge, loading the scale in favour of first-time buyers over landlords, looks to be having the intended effects as more first-time buyers seem to be entering the market. Since the stamp duty introduction, first-time buyer mortgages have been trending up as landlords’ have declined. And with house price growth set to slow next year, they have more opportunities to start their home owning journey.

    Source: Bank of England & HMRC Source: CML

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