Affordability is still the issue

Affordability is still the issue

Harpal Singh

Summer may finally appear to be here as the sunshine makes something of a belated appearance, but the previously soggy conditions were one of the factors putting a massive dampener on transaction levels and house prices.

In its latest house price index, LSL Property Services blamed the record rainfall that has lashed the UK and the extended Jubilee long weekend for disrupting buyer activity and ensuring that transaction levels plummeted to their second lowest monthly level in the last 17 years. This means that just 57,000 property sales took place in June, the knock-on effect of which is felt throughout the home loan and housing industry, from estate agents to conveyancers and beyond.

The meagre transaction levels have also impacted on house prices, but only on a superficial level. Property values may have depreciated for the first time this year, but it is worth placing this in a wider context. The 0.1% decrease itself is fractional and it is also worth reminding ourselves that prices are actually up 3% year-on-year, so one monthly correction is nothing to start fretting about. Indeed, with a housing supply shortage, returning buyer confidence and a booming prime property market, average prices aren’t about to significantly decrease any time soon. Of more concern are the underwhelming transaction figures, but hopefully June’s modest sales levels are a blip as opposed to an indicator of a wider malaise.

All things considered, the main factor hampering transaction levels is probably still mortgage availability. Loan to value amounts are beginning to nudge upwards again, but 90% is as far as many lenders are willing to go and this means that first-time buyers are having to amass deposits well in excess of £20,000 to even be considered for what the market dictates are ‘average’ properties.

It will be interesting to see whether the Funding for Lending scheme can get the market moving again because without some sort of intervention the market will remain stagnant. The initiative incentivises banks by how much they lend, so hopefully we will see more activity in the coming months. Some participants have already sharpened up rates, so there does appear to be a readiness to regain appetite once again.

As we all know however, headline rates aren’t the be all and end all so lenders will have to look at their overall criteria, flexibility and other areas of buyer affordability before they can expect first-time buyers to return in their droves.

The loan to value amounts required for the five-year fixes currently being launched by the leading lenders place them far out of the reach of most aspiring homeowners – and indeed vast swathes of those already on the ladder – but do at least show that lenders haven’t completely lost their competitive or innovative instincts when it comes to outdoing their rivals.

If this mindset can filter through to other product areas and parts of their business then we could start to see the mortgage market and home-buying industry start to regain some of its previous lustre. Until then, most stakeholders will be praying that the clement conditions hold for the next few months as prospective buyers are far more likely to view properties (and put in offers) while the sun continues to shine.

Harpal Singh is managing director of