connells group market report reports...the connells group quarterly housing market report has been...

Connells Group Market ReportPioneers in estate agency and property services

www.connellsgroup.co.uk Quarter 4, 2013

Estate agency 4-5

Introduction 3

Contents

Residential lettings 6-7

Mortgages 8-9

Surveys and valuations 10 -11

Asset management 12-13

Methodology 14

2

The Connells Group quarterly housing market report has been produced using data from across our estate agency, lettings, mortgage services, surveying and asset management businesses. This report focuses on the final quarter of 2013, providing in-depth analysis of current activity from across the residential housing market.

Demand from home buyers continued to outweigh the number of properties available in the fourth quarter of 2013, a trend which has dominated the UK’s housing market throughout last year. With confidence buoyed by Help to Buy and greater availability of mortgages, it will come as no surprise that Connells Group recorded a 42% uplift in the number of buyers registering an interest in purchasing a property compared to the final quarter of 2012.

This demand has gradually encouraged prospective sellers to lift their heads above the parapet with our figures showing a 10% annual increase in the number of homes coming onto the market in Q4. That said, supply of properties for sale has some way to go to meet demand. Despite the encouraging uplift in instructions towards the end of the year there were still eight buyers to each property in December 2013.

2014 is already shaping up to be another year of healthy growth, both for the housing market and the wider economy. News of rising GDP and falling unemployment coupled with the likelihood that an interest rate rise is still some way off is tempting increasing numbers of home buyers to make a purchase. Ensuring there are enough properties available for these buyers remains a challenge, both to satisfy demand and ensure sustainable house price growth in the long term.

David Livesey Group Chief Executive

Introduction

3

New Buyers and Instructions

l Christmas had its usual impact on activity over the months of Q4 with the number of new buyer applications down 5% on the previous quarter. However, signs of the market picking up are becoming more apparent with buyer registrations up 42% compared to Q4 2012.

l Similarly, the number of new instructions from vendors followed a similar seasonal slowdown at the end of year dropping 25% in Q4 compared to Q3. However, year-on-year there were 10% more properties coming onto the market in Q4 2013 compared to the same period in 2012.

l With the rise in buyer registrations outpacing the growth in new instruction numbers over the year the supply and demand imbalance within the market has been accentuated.

l As a result, the ratio of new applicants per new instruction is up 31% year-on-year (Q4 2012 to Q4 2013) with over eight new applicants per new instruction in December 2013.

Viewings

l Viewing numbers have remained fairly stable over the course of 2013. However, as a result of stronger buyer activity in the final quarter the number of property viewings in Q4 2013 was up 23% year on year, despite the inevitable slowdown in December.

Buyer Offers

l As a result, the number of offers received over Q4 was up by more than a quarter (29%) year-on-year.

4

Estate agency 160 ��

140 ��

120 ��

100 ��

80 ��

60 ��

40 ��

20 ��

0 ��

Number of Applicants Registered & New Instructions (Indexed)

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

Applicants Registered New Instructions

·50

·40

·30

·20

·10

·0

140 ��

120 ��

100 ��

80 ��

60 ��

40 ��

20 ��

0 ��

Number of Buyer Viewings (Indexed)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

160 ��

140 ��

120 ��

100 ��

80 ��

60 ��

40 ��

20 ��

0 ��

Number of Buyer Offers (Indexed)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

9�0 �� 8�0 �� 7�0 �� 6�0 �� 5�0 �� 4�0 �� 3�0 �� 2�0 �� 1�0 �� 0�0 ��

Applicants Registered Per New Instruction


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

Sales Agreed

l In line with the rise in buyer demand and increase in offers being made on property, the number of sales agreed has risen by nearly a third (31%) between Q4 2012 and Q4 2013 and provide a significant boost to confidence for 2014.

l The drop in sales agreed in the final month of Q4 was a purely seasonal dip.

Viewings, Offers and Sales

l The supply and demand imbalance has caused increased competition for the low levels of stock on the market with offers being made more quickly and after only a few viewings.

l As a result the number of viewings per offer is now at its lowest level compared to any point over the last 14 months at 7.6.

l More buyer competition has also led to more offers being made in an attempt to secure property. December usually sees an increase in the number of offers per sale because of the lack of agreed deals in the Christmas month. However with stronger demand in the final quarter of 2013 the average number of offers per sale is up to 2.31 compared to 2.11 in December 2012.

Prices

l The competition in the market created by the rise in buyer demand has put upward pressure on average prices throughout much of 2013.

l The average asking price of properties on the market now stands at £213,312 (December 2013).

l This equates to an 8.2% rise in asking prices from the average of £197,138 seen in December 2012.

5

Estate agency

10.0 .............................................................................................................. 9.5 .............................................................................................................. 9.0 .............................................................................................................. 8.5 .............................................................................................................. 8.0 .............................................................................................................. 7.5 .............................................................................................................. 7.0 .............................................................................................................. 6.5 .............................................................................................................. 6.0 .............................................................................................................. 5.5 .............................................................................................................. 5.0 ..............................................................................................................

Viewings Per Offer


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

160 ��

140 ��

120 ��

100 ��

80 ��

60 ��

40 ��

20 ��

0 ��

Number of Sales Agreed (Indexed)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

2.25 ..............................................................................................................

2.00 ..............................................................................................................

1.75 ..............................................................................................................

1.50 ..............................................................................................................

1.25 ...............................................................................................................

1.00 ..............................................................................................................

Offers Per Sale Agreed


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

£220k ��

£210k ��

£200k ��

£190k ��

£180k ��

£170k ��

Average House Price


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

£215,575

£201,823

New Buyers and Instructions

l Despite the rise in buyer demand in the sales market, the rental market remains strong as thousands of potential buyers continue to struggle to raise enough finance to fund a deposit.

l The number of new applicants registering for rental property has risen by a tenth (11%) on the previous year (Q4 2012 to Q4 2013).

l To meet this demand, landlords have continued to bring property to the market as is shown by the number of new instructions increasing 16% between Q4 2012 and Q4 2013.

l Stronger year on year growth in new instructions compared to new applicants has eased competition somewhat with the average number of applicants per new instruction over the final quarter of the year falling 5.8% compared to 2012.

Agreed Tenancies and Average Rents

l The increase in the number of rental properties coming onto the market over the last twelve months combined with strong tenant demand has led to a year-on-year rise in the number of tenancies agreed in the final quarter of the year.

l The number of tenancies agreed across Q4 2013 is up 13.5% compared to the same period in 2012.

l The stronger year-on-year increase of instructions compared to tenant registrations over the year has meant average rents have been under less upward pressure and tenants have been able to negotiate better deals than they have in the past.

l The average UK rent now stands at £756 per calendar month (December 2013) – down from £783 pcm at the end of 2012.

6

Lettings 150 ..............................................................................................................

125 ..............................................................................................................

100 ..............................................................................................................

75 ..............................................................................................................

50 ..............................................................................................................

25 ..............................................................................................................

0 ..............................................................................................................

New Applicants Registered and New Instructions (Indexed)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

New Applicants New Instructions

30

25

20

15

10

5

0

120 ..............................................................................................................

110 ..............................................................................................................

100 ..............................................................................................................

90 ..............................................................................................................

80 ..............................................................................................................

70 ..............................................................................................................

60 ..............................................................................................................

Number of Agreed Tenancies (Indexed)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

7.5 ..............................................................................................................

7.0 ..............................................................................................................

6.5 ..............................................................................................................

6.0 ..............................................................................................................

5.5 ..............................................................................................................

5.0 ..............................................................................................................

Applicants Registered Per New Instruction


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

£850 ..............................................................................................................

£800 ..............................................................................................................

£750 ..............................................................................................................

£700 ..............................................................................................................

£650 ..............................................................................................................

Average Agreed Rents (UK)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

£756

£788

£755

£800

Regional Rents

l While average rents for the UK have fallen slightly over the last twelve months, some regions where demand for rental property is particularly strong have seen average rents continue to rise.

l In the North, rents finished the year at a fairly similar level to the end of 2012 with average monthly rents of £556. This is down from the annual peak of £591 in October following the traditionally busy period for the rental market at the end of the summer.

l Across the Midlands and the east of England the supply and demand imbalance has caused average rents to finish the year particularly strongly. The average rent in the regions now stands at £712 pcm, up from £666 pcm in December 2012.

l London saw a spike in average rents in September – a month which see a lot of demand in the rental market due to graduates moving to the capital. Following this spike, demand has settled and average rents have eased, finishing the year at £1,367 pcm.

l In the South, rents have followed their usual seasonal pattern finishing the year at £704 pcm – the same level as December 2012.

7

Lettings

£1,600 ...............................................................................................................

£1,400 ...............................................................................................................

£1,200 ...............................................................................................................

£1,000 ...............................................................................................................

£800 ...............................................................................................................

£600 ...............................................................................................................

£400 ...............................................................................................................

£200 ...............................................................................................................

£0 ...............................................................................................................

Regional Average Rents Year-on-Year

Q4 2012 Q4 2013

North Eastern & Central South London

£1,425

£704£667

£548

£1,417

£731£695

£579

£600 ..............................................................................................................

£550 ..............................................................................................................

£500 ..............................................................................................................

£450 ..............................................................................................................

£400 ..............................................................................................................

Average Agreed Rents (North)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

£750 ..............................................................................................................

£725 ..............................................................................................................

£700 ..............................................................................................................

£675 ..............................................................................................................

£650 ...............................................................................................................

£625 ...............................................................................................................

£600 ...............................................................................................................

Average Agreed Rents (Eastern & Central)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

£1,525 .............................................................................................................. £1,500 .............................................................................................................. £1,475 .............................................................................................................. £1,450 .............................................................................................................. £1,425 .............................................................................................................. £1,400 .............................................................................................................. £1,375 .............................................................................................................. £1,350 .............................................................................................................. £1,325 .............................................................................................................. £1,300 ..............................................................................................................

Average Agreed Rents (London)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

£775 ..............................................................................................................

£750 ..............................................................................................................

£725 ..............................................................................................................

£700 ..............................................................................................................

£675 ..............................................................................................................

£650 ........................................................................................................... £625 .............................................................................................................. £600 ..............................................................................................................

Average Agreed Rents (South)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

£547 £556

£591

£664 £669

£712

£1,426

£1,394

£1,505

£1,367

£745

£704

£753

£704

Residential

l The number of mortgages taken out among first time buyers and homeowners showed the usual seasonal drop as the festive period approached at the end of Q4.

l However, despite the traditional seasonal fall, the number of FTB mortgages taken out in Q4 2013 was up 31% on the same period in 2012.

l Homemover mortgage numbers were also up 16% year-on-year demonstrating that the initiatives such as Help to Buy are beginning to translate into activity among first-timers.

l The number of residential remortgages taking place in 2013 grew steadily over the second half of the year with the total number for Q4 up 55% of the same period in 2012.

l The increase in speculation about whether the Bank of England will increase interest rates sooner than expected has helped drive a lot of remortgage activity over the last six months.

Buy To Let

l Buy to let mortgage volumes have reflected the growth seen among residential deals between 2012 and 2013.

l The total number of BTL purchase mortgages taken out over Q4 2013 is up by a fifth (20%) on the same period in 2012. While BTL remortgage volumes have risen by 55% year-on-year.

Mortgage Values

l Improved confidence in the property market overall has not only increased activity levels among buyers and seller. It has also given those taking out mortgages the confidence to increase the value of their loans. Average mortgage values ended 2013 at their highest level in 14 months at £122,683 in December.

8

Mortgages

£125k ..............................................................................................................

£120k ..............................................................................................................

£115k ..............................................................................................................

£110k ..............................................................................................................

£105k ..............................................................................................................

£100k ..............................................................................................................

Average Mortgage Value


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

160 ..............................................................................................................

140 ..............................................................................................................

120 ..............................................................................................................

100 ..............................................................................................................

80 ..............................................................................................................

60 ..............................................................................................................

40 ..............................................................................................................

20 ..............................................................................................................

0 ..............................................................................................................

Number of Residential Mortgages By Type (Indexed)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

Number of First-Time Buyers Number of Homemovers

120 ..............................................................................................................

100 ..............................................................................................................

80 ..............................................................................................................

60 ..............................................................................................................

40 ..............................................................................................................

20 ..............................................................................................................

0 ..............................................................................................................

Number of Residential Re-Mortgages (Indexed)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

100 ..............................................................................................................

80 ..............................................................................................................

60 ..............................................................................................................

40 ..............................................................................................................

20 ..............................................................................................................

0 ..............................................................................................................

Number of BTL Mortgages By Type (Indexed)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

Number of BTL Remortgages Number of BTL Purchases

£120,450

£123,683

£108,440

UK Mortgage Type Split

Despite the growth in the number of first-timer buyer mortgages between Q4 2012 and Q4 2013, the proportion of FTB mortgages across the mortgage mix has remained at 30% at a national level. This is largely down to the gap left by the slower growth in homebuyer mortgages being filled by remortgage activity across both residential and BTL deals.

Regional Picture

London has the largest proportion of first-time buyers across all the regions with 45% of mortgages going to FTBs. This demonstrates how Help to Buy has particularly helped buyers in areas where prices are high above the national average. The capital has the lowest proportion of homemovers across the regions at 24%, however, with the growth in demand from FTBs, more homemovers may be encouraged to enter the market over the coming months. The East has the lowest proportion of FTB mortgages at 32% and the highest proportion of homemovers at 40%.

9

Mortgages Mortgage Type Split

UK Q4 20130.3%

18%

30%

29%

9%

14%

UK Q4 20120.3%

15%

30%

33%

7%

15%

n FTB

n Home Mover

n BTL Remortgages

n BTL Purchases

n Remortgages

n Other

Scotland/North Q4 Eastern Q4

13%

15%

36%

36%

32%

19%

9%

40%

Midlands Q4 London Q4

18%

11%

35%

36%13%

18%

45%

24%

Wales/South West Q4

40%

13%

9%

38%

South East Q4

41%

16%

10%

33%

Mortgage Valuations

l In line with the growth in estate agent activity, the number of mortgage valuations grew over the course of 2013.

l Over Q4 2013, the number of mortgage valuations that took place across the country was up 17% on the same period in 2012.

l While it is not yet possible to break down the data to reflect the number of mortgages linked to the initiatives such as Help to Buy, it is clear that the confidence these schemes have brought to the market are having an impact on activity.

Surveys

l The number of structural surveys, (comprising of homebuyer, condition and full building surveys) being carried out has followed a similar pattern to mortgage valuations and shows that buyers are not prepared to risk a purchase without the security of a survey.

l Survey numbers are up by nearly a quarter (24%) between Q4 2012 and Q4 2013.

Buy to Let

l The total number of BTL valuations in Q4 2013 is up 58% on the year before and shows that while residential activity is increasing, this is not filling a gap left by investors, landlords are still keen to bolster portfolios and take advantage of high rental demand.

Repossessions

l As well as increased purchase and remortgage activity, the surest sign that the market is in recovery mode is the annual fall in the number of repossession valuations taking place. Reposession valuations were down by a fifth (20%) in Q4 2013 compared to Q4 2012.

10

Surveys & Valuations 160 ��

140 ��

120 ��

100 ��

80 ��

60 ��

40 ��

20 ��

0 ��

Number of Mortgage Valuations (Indexed)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

180 .............................................................................................................. 160 .............................................................................................................. 140 .............................................................................................................. 120 .............................................................................................................. 100 .............................................................................................................. 80 .............................................................................................................. 60 .............................................................................................................. 40 .............................................................................................................. 20 .............................................................................................................. 0 ...............................................................................................................

Number of Surveys (Indexed)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

300 ..............................................................................................................

250 ..............................................................................................................

200 ..............................................................................................................

150 ..............................................................................................................

100 ..............................................................................................................

50 ..............................................................................................................

0 ..............................................................................................................

Number of BTL Valuations (Indexed)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

120 ..............................................................................................................

100 ..............................................................................................................

80 ..............................................................................................................

60 ..............................................................................................................

40 ..............................................................................................................

20 ..............................................................................................................

0 ..............................................................................................................

Number of Repossession Valuations (Indexed)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

Average Valuation

l Despite the growth in the number of valuations taking place year-on-year, the average property valuation has fallen, from £212,980 in December 2012 to £212,830 in December 2013.

l While the average property price recorded by estate agents has risen steadily over the last twelve months, this has not been the case with the average size of the valuations taking place over the same period.

l This can be attributed to the increase in first-time buyer activity and other buyers targeting cheaper properties because of the pressures of raising a sizeable enough deposit to secure a mortgage.

Survey Types

l Three quarters of survey activity (77%) in Q4 2013 was focussed on residential mortgage or remortgage transactions. This is down from 79% over the same period in 2012.

l The gap left by the drop in proportion has been filled by the pick-up in BTL mortgage valuations which now stand at 6% of the survey mix compared to 5% in Q4 2012.

11

Surveys & Valuations

Survey Type Split Q4 2013

n Mortgage/Remortgage

Valuation

n Homebuyer/Condition

Report

n BTL Mortgage Valuation

n Repossession Valuation

n Building Survey

n Other

2%1%

1%

6%

13%

77%

Survey Type Split Q4 2012

n Mortgage/Remortgage

Valuation

n Homebuyer/Condition

Report

n BTL Mortgage Valuation

n Repossession Valuation

n Building Survey

n Other

2%1%

1%

5%

12%

79%

£218k .................................................................................................................................

£216k .................................................................................................................................

£214k .................................................................................................................................

£212k .................................................................................................................................

£210k .................................................................................................................................

£208k .................................................................................................................................

£206k .................................................................................................................................

£204k .................................................................................................................................

£202k .................................................................................................................................

£200k .................................................................................................................................

Average Valuation


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

£212,830£215,547£215,665

£209,962

New Possessions

l Last quarter we reported that improved confidence in the property market was reflected by the stable number of repossessions over 2013. This quarter, the number of new possessions shows a 12% fall year-on-year and confirms the recovery of the property market has begun to take a firm hold.

l Stable interest rates and relatively affordable mortgages over the last few years have put less pressure on homeowner repayment costs. However, with increasing speculation that the Bank of England may increase rates sooner than expected it is possible repossession figures could rise as mortgages become more expensive.

Market comment

l The effects of demand being greater than supply applies equally well to possession sales. Connells Asset Management has been able to increase its sale price achieved to established or target value measure by selectively increasing asking prices where local markets allow and estate agent confidence is high. This has for some clients meant a reappraisal of their mandate structure to ensure that such pricing strategies are not constrained by mandates set in a harder market.

12

Asset Management

Completions by Purchase Type (Q4 2012)

n Cash (unattributed)

n FTB

n Existing Homeowner (no chain)

n Existing Home Owner (with chain)

n Investor (BTL)

9%

29%

18%

7%

37%

Completions by Purchase Type (Q4 2013)

n Cash (unattributed)

n FTB

n Existing Homeowner (no chain)

n Existing Home Owner (with chain)

n Investor (BTL)

11%

34%

15%

6%

34%

120 ..............................................................................................................

100 ..............................................................................................................

80 ..............................................................................................................

60 ..............................................................................................................

40 ..............................................................................................................

20 ..............................................................................................................

0 ..............................................................................................................

Number of New Possessions (Indexed)


Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

New Instructions

l Houses continue to dominate the property type split among new instructions within asset management. However, the proportion of houses as a total of the new instruction mix has dropped slightly from Q4 2012, from 77% to 72%.

l This fall in the proportion of houses is a result of a significant increase in the proportion of flats that have been possessed from 17% to 23% over the year.

l Increase in the proportion of flats being possessed shows that the cost of living is still putting pressure on the least wealthy home owners, despite current mortgage rates being relatively inexpensive.

Purchase Type

l While cash buyers had previously dominated the proportion of repossession purchasers, the proportion of existing homeowners with no chain has increased, suggesting buyers may be purchasing repossessed property as an investment.

l The proportion of first time buyers has fallen year-on-year and shows that the introduction of schemes such as Help to Buy has opened up the market for first-timers who now no longer need to rely on cheaper, repossessed properties in order to step onto the property ladder.

13

Asset Management

New Instructions by Property Type (Q4 2013)

n House

n Flat

n Bungalow

n Other

0%

23%

5%

72%

New Instructions by Property Type (Q4 2012)

n House

n Flat

n Bungalow

n Other

1%

5%

17%

77%

14

Connells Group analyses detailed data from its estate agency, lettings, mortgage, survey and valuation and asset management businesses from between October 2012 to today. Each month, the researchers analyse tens of thousands of registrations, instructions, applications, approvals and valuations and use these trends to publish a quarterly report which reflects trends across the entire property spectrum. Where commercial sensitivity may be an issue, figures are indexed to show trends without publishing raw data.

CONFIDENTIAL

This report is produced for illustration purposes and is indicative only.

No responsibility is accepted for reliance on this report. You should always seek independent professional advice. Statistics and extrapolations obtained from various sources. These are not always referenced and may not be comprehensive. E&O excepted.

© Copyright Connells Limited 2013 All rights reserved etc.

Methodology

15

About us

Connells Group is one of the largest and most successful estate agency and property services providers in the UK. Founded in 1936 and with a network of over 485 branches nationwide, the Group combines residential sales and lettings expertise with a range of consumer and corporate services including new homes, mortgage services, conveyancing, EPC provision, surveying, corporate lettings, asset management, land & planning, LPA receivers, auctions and relocations.

Alongside the Connells brand, the Group trades under other well-known and trusted local names including Allen & Harris, Bagshaws Residential, Barnard Marcus, Brown & Merry, Fox & Sons, Jones & Chapman, Manners & Harrison, Roger Platt, Shipways, Swetenhams, William H Brown, Sharman Quinney, Pattison Lane, Burchell Edwards and Ashley Adams. Our branches cover most of the UK so whether you need estate agency services in Scotland or on the South-East coast, we can help.

Corporate clients benefit from Connells’ broad range of award-winning services and depth of experience and expertise. No surprise then that we work with some of the UK’s leading organisations and institutions on property and land acquisition and disposal, asset management, mortgage sales and distribution, corporate lettings, auctions, conveyancing and surveying, to name a few.

The Connells Group is a subsidiary of the Skipton Building Society, one of the UK’s largest providers of financial services and products.

www.connellsgroup.co.uk

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