Good news is a rare commodity at the moment. We’re potentially facing a global pandemic in the form of coronavirus. The global economic outlook looks gloomier than it has done since the 2008 crisis – FTSE 100 plunged by 3.5% in early March. And, to cap it all off, the prospect of a no-deal Brexit continues to cast a long shadow over the UK economy.
But there’s one area of economic life where things look a little brighter. The UK housing market is continuing on the upward trajectory we saw at the end of 2019.
First up, the ‘Boris bounce’. According to figures released by Nationwide, UK house prices grew at their fastest rate in over a year at the start of 2020. The housing market posted a 1.9% annual rise in January, bettering the buoyancy we saw in December by 0.5%. This came after 12 months of sub-one-per cent growth following November 2018’s 1.4% spike.
The good news doesn’t end there. The average price of a home climbed 2.3% year on year to £216,092 in February, the strongest growth rate in 18 months.
This comes as something of a surprise. Overall economic growth came grinding to a halt in late 2019 and, usually, where the economy leads the housing market follows.
So what’s happening?
Some commentators have dubbed this upturn in fortunes ‘the Boris bounce’. The theory goes that Boris Johnson’s resounding election victory has ‘removed a spanner from the works’, creating greater buyer confidence in the market. And, it’s true, demand does appear to have rebounded after nearly two years’ of low buyer confidence.
However, buyer sentiment isn’t the only thing driving the rise. Healthy labour market conditions and low borrowing costs are also playing their part in offsetting general economic uncertainty.
We’ve spoken about rising demand, but what about the people driving it?
Well, there’s been positive developments in this area too. January 2020 saw a yearly increase of 29% in the number of potential buyers registered per estate agency branch according to Today’s Conveyancer. The figure rose from 297 per branch in January 2019 to 382 in 2020.
What’s more, the January figure represents a 22% increase on December 2019, which posted 313 potential buyers per branch.
This surge in demand is closely linked to the rise in prices. Although buyer interest is recovering, we’re still woefully short of places for them to live. December’s increase in available housing stock was followed by a drop in January from 41 to 38 available properties per branch, and with less available houses come higher prices.
The lack of housing is particularly important to first-time buyers, who ‘currently make up 29% of all transactions. New-build transactions are on the rise – figures climbed 3% between in period January 2019-20 – but, simply put, we still need more houses. The BBC’s Housing Briefing estimates that we have built 1.2 million fewer homes than we should have and the need is only going to become more acute with growing demand.
This isn’t meant to put a dampener on what’s very good news but, if this sudden surge is to be more than a blip, we need a concerted effort to increase housing stock.
The last flower in our bouquet of spring joy comes in the form of mortgage approvals. January 2020 brought with it pre-referendum highs for mortgage approvals, hinting that maybe, just maybe, lenders are finally be getting over their Brexit-induced caution.
The 70,900 mortgage approvals for house purchases represents a 4.4 per cent increase on December 2019 and the highest rates since February 2016. The figures, released by the Bank of England, come off the back of an already promising December. In addition, the annual growth rate for mortgage borrowing continues to rise, seeing a 3.4% growth in the last year.
The BoE also reports that January’s figures are statistically higher than average, with the current numbers ‘‘taking the series above the very narrow range seen over past few years.”
Will It Last?
So, is it all sunlit uplands from here on out for the housing market?
It’s probably best to exercise caution. As Nationwide’s chief economist, Robert Gardner put it to The Guardian, “there are still significant uncertainties that threaten to exert a drag on the economy in the coming quarters.”
Chief among these ‘uncertainties’ is, of course, how Coronavirus develops. It’s already playing havoc with the global economy and few people want to move in the midst of a national crisis. But Brexit and whatever happens in the spring budget are also factors to consider. Likewise, the shortage of housing may cause a contraction if steps aren’t taken to make more homes available.
On the other hand, Nationwide expects the UK economy to continue growing at a modest pace, with house prices staying fairly flat. If this forecast proves correct, conveyancers could see their fortunes improve even further.