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House prices on the increase yet again

October 2015 saw the average price of property rise to the previously unseen level of £296,549. While that may seem like an enormous figure, it’s only a marginal increase of 0.6% over the previous year – the lowest since 2010’s 0.2% increase. In the time since then, the average rise has been 1.8% – and so, by recent standards, this increase has been a small one.

That said, the 0.6% figure does not wholly describe what has become a terrifically lopsided housing market. The increase has been felt far more keenly at the lower end of the market, with new buyers finding themselves having to content with enormous demand, miniscule supply and consequently sky rocketing prices.

The middle and upper market sectors were both under the 0.6% (at 0.4% and -0.1% respectively). For the lower end, the figure is a whopping 4.9%! Moreover, properties with two bedrooms or fewer are at their highest price ever, being an average of 9.6% more expensive than they were a year ago (compared with just 5.6% for the market as a whole.

Supply and demand-side factors are coming together to create something a perfect storm. Obviously, some first-time buyers are still able to afford these exorbitant fees. This is in spite of 2014’s Mortgage Market Review tightening the lending criteria for first-time buyers.

The increase has also been brought about by a lack of these sorts of property on the market. First-time buyers also find themselves competing with landlords who, recognising the huge rental demand at the bottom end of the market, have swooped to capitalise on the favourable conditions.

Housing supply from associations and the public sector is dwindling, and so it has been left to private letting agents to fill the gap. Indeed, it is letting agents who are the main beneficiaries of the present state of the housing market – since a growing number of households are unable to secure that first step on the property ladder, they are instead turning to rented accommodation. That said, it would be unfair to label all renters as victims. Some appreciate the transience that renting can offer; they prefer to have somewhere to stay without the financial commitment and costs that home-ownership can incur.

Whatever the motivation behind it, the demand at this lower end of the rental market is without precedent. It is such that some landlords are putting properties on the market in the morning and then literally filling them in the evening. This growth of the rental market, combined with the return of low-deposit mortgages and competition among lenders forcing mortgage rates down, has created an upward spiral of house prices.

So what does that mean for those on the bottom of the pile, looking to get onto the property ladder? Well, there is little sign of anything to be cheerful about in the short-term. Miles Shipside, the director of RightMove, has suggested that such people must hope for the cavalry to come to their rescue, in the form of government action or large-scale institutional investment.”

The state has shown little inclination toward building new council houses. But, though the government has been unwilling to build new houses, they have looked to relax planning rules, in the hope that this will encourage private firms to build more houses. It is estimated that such initiatives will result in hundreds of thousands of new homes over the current parliament – though in the short-to-medium-term, it’s left to private letting agents to satiate the enormous demand.

In a market where first-time buyers compete with landlords, the former is likely to find themselves disadvantaged, since the latter make inherently more attractive customers. There are several reasons why a seller might prefer to sell to a buy-to-let landlord than they might a first time buyer. The foremost and most obvious of these is that buy-to-let landlords have huge amounts of money lying around, and so the sale is unlikely to be impacted by a sudden loss of cash-flow. Another reason comes in the form of the experience landlords have with the process of property sales and their minutiae; they’re far less prone to pulling out before the deal is completed as a result of an emotionally-driven change of heart.

If you’re a first-time buyer, it’s therefore vital that you offer reassurances that you’re not a risky customer. Do this by being among the first to view the property and liaise with its owner, and by convincing them that their property will be in good hands with you!



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