A journey of a thousand miles begins with a single step

2008 saw residential property values tumbling and the usual volumes of “discretionary movers” exercise that discretion to produce the lowest volume of housing transactions since records began. In South Buckinghamshire our records indicate a drop in value of around 20 percent from the highs of early 2007, and although Land Registry figures have not yet caught up, I would suggest that this is pretty much nationwide.

As the sale and purchase market volumes declined, counter cyclical forces saw sellers who were unable to obtain the price or sale they wanted become temporary landlords. Potential buyers, nervous as to the direction of the market, became tenants, albeit always again with the view that this situation would be temporary.

These factors saw the private rental market come to the fore and in South Bucks our residential lettings department saw a 30 percent increase in volumes with yields strengthening in the first half of 2008 to show returns of five percent plus only to fall away as an oversupply of property to rent became the norm in the latter months of the year.

Towards the end of 2008 the Bank of England base rate was cut dramatically and LIBOR inter-bank lending rates also reduced. Interest rate reductions are always headline grabbing and confidence building although the Government, who by now, on behalf of the taxpayer, had become huge stake and shareholders in the UK’s banking system, has also had to start to apply pressure on lenders to do exactly that and lend.

Entering 2009 there is some evidence that aspects of the residential market are set to improve, albeit cautiously. The last quarter of 2008 saw motivated sellers becoming more realistic on pricing and more transactions were agreed. Nobody feels comfortable about seeing the value of their home decline but the reality is that for those buying and selling, it is the difference between the sale and purchase value that is important and anyone actually seeking to move upmarket has actually seen that gap close. Falling values have also brought more property within the grasp of first time buyers who are also aided by the Government’s temporary moratorium on stamp duty up to £175,000.

The pent up demand to buy and sell is unquestionable and confidence that property values will not continue to fall will be a key factor in seeing a return to a more liquid market with higher volumes of transactions. Renting, whilst now an established and important part of the housing “mix”, is still not the preferred long term option for most people and a huge volume of people currently in that market will buy and sell as soon as they feel able to do so.
There continues to remain however some crucial factors that will need to be addressed before I see the market return to any sense of “normality” and for the ring of confidence circle to be squared off.

The availability of mortgage money must improve. Interest rates in themselves are not the issue. Lenders have had their fingers burnt and have tightened their lending criteria to the point that they are hardly lending at all. No-one would disagree with a more prudent approach but unless there is some relaxation in this area it will be years before individuals are able to save the higher deposits currently required by lenders to support the obtaining of a mortgage loan.

At the time of writing, the Government is considering a range of measures to mitigate the recessionary pressures. These will undoubtedly include additional tax credits or reduced taxes. They must however be careful not to just give money away and find that it is simply put under the mattress by the recipients. People are now more wary of spending now and paying later and a return to an era of saving for things before buying them may be beginning to come into place.

In essence therefore I believe that a strong housing market will be realised again and that some progress in that direction will be made in 2009. Things are very unlikely to change at a rate most people would like but like the journey of a thousand miles beginning with a single step, there are at least some signs of confidence returning.