Although a burst of housing market activity saw property prices rise in the latter part of 2009, mostly due to the reduced stock levels available, gross mortgage lending dropped in November. This heralded a slowing in buyer activity in December which the weather brought to a grinding halt in early January.
In January most commentators also suggested that the interest rate would stay below 1% for some time and that the level of second hand stock will remain low.
This in theory should encourage property price rises. Then in January it was reported that the inflation rate had jumped to 2.9% in December and alarm bells sounded. However, the BoE held its nerve and to support the fragile economy they held interest rates at 0.5% both in February and March.
It therefore is not surprising that commentators remained only moderately confident of consumers’ enthusiasm to take advantage of sale prices, a still low interest rate, and the growing number of incentives on new home developments.
However, the Chancellor’s announcement in the March Budget that stamp duty will be scrapped for first time buyers on homes less than £250,000 for this year and next was obviously aimed at boosting the lower end of the market and creating new buyers at the bottom rungs of the property ladder. He said the market had stabilised and there was “slow recovery” and that this measure would mean nine out of ten first time buyers will pay no stamp duty.
This is very commendable but did not confirm who qualifies as a first time buyer and does not provide a solution for the large numbers of first time buyers who cannot find the funds needed to cover mortgage deposits, or even find a lender to offer them a mortgage in the first place. This may not be so relevant in the brand new property market where sales incentives could cover this cost. However, where first time buyers are needed most to stimulate the wider housing market is the second hand homes sector.
On the downside, for more exclusive house builders, the Chancellor confirmed that this scrapping of lower end stamp duty will be funded by increasing stamp duty on properties over £1 million to 5%.
Whether the budget, which has been described as being more electoral than economic, will create the confidence needed by the economy, and in particular the housing sector, has yet to be seen.
Unemployment remains high, even though the number of people claiming jobless benefit in December dropped by 15,200 and job security remains low. Also, with a General Election scheduled for May many will keep their property purchasing powder dry until they know who is to manage the country’s finances from the summer onwards.
Although a clear win by any party is very unsure and a hung Parliament is possible, the one thing that is sure is the political parties’ commitment to tightening the public purse, which will impact both the public and private sectors.
This is being encouraged by the Governor of the BoE who believes that uncertainty about the government’s public spending plans is having a direct bearing on monetary policy and the country’s credit rating.
Although there has been considerable evidence of pre election ‘green shoots of recovery’ we still face a difficult journey to complete economic recovery.
Key to that recovery are the banks who both finance housebuilders and their customers. They also have to appear to be taking less risky investment options – especially when it comes to the allocation of mortgages, setting of loan to value ratios, interest rates and income to loan multiples.
However, it is cheering to discover that the British public still overwhelmingly wishes to invest in a new home, even though most potential property purchasers are putting plans on hold because of the problems of raising deposits or obtaining a mortgage.
The future may appear to be a little dark but it must be remembered that this is not something many older individuals have not seen before. The property market survived then and it will again. Now is the time for canny customer management and effective product marketing to ensure the potential property purchasers still out there are recognised, courted and ‘captured’.
For more information contact david@ferrier-pearce.co.uk
