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Taking house price indices with the largest pinch of salt

With lockdown rules easing, the property market has a welcome feel of ‘getting back to business’. MT Finance may still be working from home, with a view to returning to the office early next month, but surveyors are getting back out there and clearing the backlog of valuations that built up during the period when they weren’t able to carry out physical inspections.

Lenders are trying to return to high loan-to-values (LTVs) but demand is such that they are being swamped with applications. Other lenders, who had to pull out of the market due to the impact of Covid-19 on their business, are now coming back.

Confidence is slowly returning as buyers and sellers get on with deals that have been put on hold firstly because of Brexit, then while they waited for the general election outcome, and finally because of the pandemic. Now, however, there is a new threat – historic statistics.

As the Office for National Statistics predicted when it temporarily suspended its UK House Price Index from April until further notice, Covid-19 would greatly reduce the volume of housing transactions taking place. This makes it difficult to produce a measure of house prices that, as the ONS said, ‘would be representative of any true transaction activity within the housing market’.

Lack of transactions

Indeed, Nationwide Building Society’s May report made for particularly grim reading, with a 1.7 per cent fall from the previous month, the largest monthly fall in house prices in 11 years. Back in 2009, we had a financial crisis on our hand; now we do not. Banks have plenty of liquidity and are eager to lend. Interest rates are at all-time low and agents are reporting a positive uptick in applicants registering – Rightmove had its busiest ever day on 27 May with more than six million visits – which are all positive signs.

With the full impact of lockdown measures being felt during the period covered by Nationwide’s report, it’s not surprising to see artificial numbers. It is not a fair reflection of the market or sentiment but purely a result of necessary measures taken by the government to deal with the pandemic.

Halifax’s take on May’s data was more positive, with the average house price falling for the third month in a row, a 0.2 per cent month-on-month decline in values. Indeed the fall was more modest than in April, which saw a 0.6 per cent drop, pointing to a robust property market notwithstanding unprecedented conditions which forced it to grind to a virtual halt in May.

Of course, if you put these reports into context, we get a truer picture. Bank of England data reveals a great first quarter with confidence in the lending market, more mortgages and higher LTVs being offered by banks, along with cheaper rates. This was all set to be the trend for the year ahead, before the pandemic struck. Ultimately, it shows that the fundamentals are there. They haven’t gone away – lenders are still keen to lend.

Government stimulus required

The easing of lockdown conditions is seeing an uptick in activity and transactions, and indeed average values as we move into the summer months, although it’s too early to see these reflected in the official data. Nationwide reports that one in eight people put off moving because of lockdown but the majority saw the current situation as a temporary pause with would-be buyers planning to wait six months on average before looking to enter the market.

Indeed, MT Finance’s latest Broker Sentiment Survey points to a relatively optimistic outlook with 40 per cent of brokers predicting that it will take six to nine months for the market to fully recover from lockdown.

Once lockdown is fully over, would-be buyers should regain their confidence to move. The government has done well supporting borrowers with its mortgage payment holiday programme, which has subsequently been extended. It has provided support for households and jobs on a scale never before seen. In order to ensure all this good work is not undone, the next step is further stimulus in the form of a reduction in stamp duty or even its removal for several months.

Uncertainty can mean opportunity

It is said that fortune favours the brave and property investors who spot an opportunity and need a fast and flexible way to take advantage of this, may wish to consider bridging finance. It is suitable for traditional purchases, as well as those at auction – if you can find one online with a live stream – as everything is tied up exceptionally quickly. Terms range from 1 to 24 months with no early repayment charges or exit fees should you wish to end the loan early, providing maximum flexibility in what are uncertain times.

For more information on bridging, get in touch with the MT Finance team today on 02030512331 or fill in our contact form and a member of the team will be in touch with you shortly.

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