August 2013

Housing Market UpdateReview of the current state of the UK Housing Market by Katy Young

Housing Market Update by Katy YoungKey Findings✤ Prices: House prices are rising back to levels similar to those seen in

2008. They are driven primarily by the London property market.✤ Transactions: Property transactions are still muted at around half

the level of the previous pre-2008 peak.✤ Affordability: Even though house prices are rising faster than

earnings, low interest rates have kept mortgage rates down and so in that sense housing is affordable.

✤ Mortgages: First-time buyer and buy-to-let mortgages are at their highest levels since 2007/8. Both represent a growing proportion of overall lending.

✤ Building Starts: The positive momentum in the housing market has begun to feed through in to construction. House building has picked up during 2013.

Keywords: Housing Market| First-time buyers | Buy-to-let | Real cost of Borrowing | Help-to-Buy

Housing Market Update by Katy YoungNationwide & HalifaxHouse Prices

Both the Nationwide and Halifax data show that house prices are rising.They each show annual percentage change rates of around 4%.

40,000

82,500

125,000

167,500

210,000

2003 2005 2007 2009 2011 2013

UK House Prices since 2003

Q3 2007 £199, 766

Q2 2013,£167,069

Nationwide Halifax

Housing Market Update by Katy YoungONSLong Term TrendsHouse price index is high but not yet at the 2008 housing price peak.

130

145

160

175

190

2004 2006 2008 2010 2012

House Price Index

UK all dwellings, index 100 = 2002 -15.00

-11.25

-7.50

-3.75

0

3.75

7.50

11.25

15.00

2004 2006 2008 2010 2012

House Price Index Year % Change

Yearly change in June 2013 was 3.1%, showing stable increase.

June 2013182.5

January 2008185.5

LSL Acadametrics puts the average house price at £1,140 above the 2008 peak. This figure is higher than the ONS data because it includes cash transactions which have spiked in Central London as prices rise.

Housing Market Update by Katy YoungONS House Price Index by RegionRegional Data

The increase in the House Price Index is driven by strong growth in the London market.London prices increased by 8.1% in the year to June 2013.There are modest house price increases in other parts of the country. The average for the UK excluding London is 1.5%. Excluding London and the South East the increase is only 1%.This gives a 3.3% rise for England and 3.1% for the UK.

Housing Market Update by Katy YoungHMRCProperty Transactions

Seasonally adjusted figures show a slow but steady upward trend since 2008.The data for June 2013 shows a 12% yearly increase.However transactions are still around half the pre-2008 levels.

June 2006162,970

June 201386,400

Housing Market Update by Katy YoungHalifaxAffordability

Quarterly change: +1.5%. (Q2)

Yearly change: +2.9%.House prices are rising faster than average earnings.

Quarterly change: -0.07%. (Q2)

Yearly change: -1.7%.Mortgages are affordable compared to earnings because of low interest rates.

Halifax standardised average house price divided by average earnings (Seasonally adjusted).

Mortgage repayments as a percentage of income.

3.0

3.8

4.5

5.3

6.0

2000 2002 2004 2006 2008 2010 2012

House Price - Earnings Ratio

20.0

27.5

35.0

42.5

50.0

2000 2002 2004 2006 2008 2010 2012

Mortgage - Earnings Ratio

Housing Market Update by Katy YoungBank of EnglandReal Cost of Borrowing

According to the Bank of England figures the standard variable mortgage rate has been stable around 4% since 2009.Given this rate, the real cost of borrowing will be negative if the change in house prices is above 4%.During 2013 as house prices have risen, the real cost of borrowing has fallen.

0

2

4

6

8

2000 2002 2004 2006 2008 2010 2012 June 2013

10 year fixed rate mortgage Standard variable rate mortgage

Real cost of borrowing

Bank of England Loan Rates

Housing Market Update by Katy YoungFSA & CMLMortgage Activity

The proportion of residential lending attributed to house purchases remained high in Q4 2012.Mortgages accounted for 66% of residential lending compared with 61% in 2011.Over 2012 as a whole £96.9bn was advanced, 7% higher than in 2011.

0%

25%

50%

75%

100%

Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Q4-2012

Residential loans to individuals: Purpose of loan

House purchase Further advance Remortgage Other

CML data for 2013 recorded a 26% yearly increase in total gross mortgage lending, taking it up to £15bn in June 2013.

Housing Market Update by Katy YoungFSA & CMLFirst-time Buyers (FTBs)

CML data for June 2013 put the number of loans to FTBs up 30% from last year, reaching 68,200 - the highest quarterly total since 2007.Additionally, the value of loans (£m) in June 2013 was up 40% from last year. This increase in the gross value is because first-time buyers are increasing the amount they borrow.

0%

15%

30%

45%

60%

Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Q4-2012

House purchases: Owner occupation

First-time Buyers Other

The FSA data shows that the percentage of house purchase loans going to FTBs continued its quarterly increases from 18% to 19% in Q4 2012.

Housing Market Update by Katy YoungFSA & CMLBuy-to-let

FSA data has the proportion of house purchases for buy-to-let lending up to 11% - the highest percentage since 2008.CML’s Q2 2013 data showed 40,000 buy-to-let mortgages worth £5.1bn. Both figures were the highest they had been since 2008.

0%

3.5%

7.0%

10.5%

14.0%

Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Q4-2012

House Purchases: Buy-to-let

Housing Market Update by Katy YoungONSRental Market

The rental market did not see a significant decline during the recession.May 2013 data shows a 1.3% yearly increase in rental prices.

94.0

96.5

99.0

101.5

104.0

2005 2006 2007 2008 2009 2010 2011 2012 2013

Index of Private Housing Rental Prices

Not seasonally adjusted.Index level: January 2011 = 100

✤ The strong rental market helps to explain the growth in the buy-to-let mortgage market.

✤ High rents make new mortgages for FTBs relatively attractive compared to renting.

Housing Market Update by Katy YoungGfKConsumer Confidence

The UK Consumer Confidence index averaged -9.71 since 1981. With a recorded low of -39 in July 2008.According to the latest GfK figures the index increased to -16 in July 2013, its highest level since April 2010.Q2 2013 has seen one of the best single quarter improvements since the July 2008 low.

-40

-30

-20

-10

0

Aug 11 Dec 11 Apr 12 Aug 12 Dec 12 Apr 13 Jul 13

GfK UK Consumer Confidence

Housing Market Update by Katy YoungHM GovernmentGovernment Housing Schemes

The Help-to-Buy scheme was launched in April 2013. In the first two months 4000 people reserved new homes under the equity loan scheme.The scheme has helped to overcome the barrier of large mortgage deposits, especially for first-time buyers.There are concerns that the scheme is creating a housing bubble, which has led to calls for the coalition to call off the planned introduction of a government guarantee in January 2014.

Housing Market Update by Katy YoungBank of EnglandGovernment Loan Schemes

The Funding for Lending scheme involves the Bank of England providing cheap loans to banks and building societies in order to boost their lending to businesses and individuals.Since its introduction in August 2012, the impact has been a reduction in bank funding costs which have then been directed towards lower mortgage rates.

Housing Market Update by Katy YoungRICsBuyers and Vendors

RICs new buyer enquiries and new vendor instructions are both increasing. However buyers exceed vendors.The lack of housing for sale is driving prices higher. This is in part caused by the increase in first-time buyers, who contribute to demand but have no property to sell.

Housing Market Update by Katy YoungHometrackHousing Supply

Last year 160,000 new homes were built in England. However, this is still short of the CLG projected household growth of 223,000 per year.Hometrack supply/demand balance is positive for 2013 indicating house price rises.The lack of housing supply is partly due to planning restrictions. The Home Builders Federation reported on average it takes home builders 15 months to receive full planning permission.

Housing Market Update by Katy Young

Starts & Registrations

10000

25000

40000

55000

70000

2005 2007 2009 2011 2013

Housing Starts (including ONS predictions)

ONS NHBC

House building fell during the recession but is growing again.NHBC Q2 2013 figures show yearly growth of 38% in registrations.Using the high correlation between NHBC and ONS figures we can forecast the ONS 2013 figures.This gives predicted ONS starts of 43,000 in Q2 2013 and yearly growth of 45%.

ONS & NHBC

Data Sources

With thanks to John Ashcroft

Nationwide http://www.nationwide.co.uk/hpi/default.htm

Halifax http://www.lloydsbankinggroup.com/media1/economic_insight/halifax_house_price_index_page.asp

ONS http://www.ons.gov.uk/ons/taxonomy/index.html?nscl=Housing+Market

HMRC http://www.hmrc.gov.uk/statistics/transactions.htm

Bank of England http://www.bankofengland.co.uk/statistics/Pages/default.aspx

FSA http://www.fsa.gov.uk/library/other_publications/statistics

CML http://www.cml.org.uk/cml/statistics

GfK http://www.gfk.com/news-and-events/Pages/default.aspx

HM Government Help-to-Buy http://www.helptobuy.org.uk/

RICs http://www.rics.org/uk/knowledge/more-services/guides-advice/uk-house-prices/

Hometrack http://www.hometrack.co.uk/our-insight

Home Builders Federation http://www.hbf.co.uk/media-centre/facts-statistics/

NHBC http://www.nhbc.co.uk/Builders/ProductsandServices/InformationProducts/HousingMarketReport/

CLG https://www.gov.uk/government/organisations/department-for-communities-and-local-government/about/statistics