Synthetic boom continues as vast demand chases dwindling supply
Asking prices (and rents) outside of London continue to inflate at an alarming rate, as vast artificial demand dwarfs paltry supply, according to Home.co.uk’s Asking Price Index for May.
Thanks to the stimulus measures of the extended Stamp Duty holiday (till the end of June), furlough scheme and government-backed 95% mortgages, together with the urban flight trend, home prices in England and Wales have gained 8.6% overall during the last twelve months, despite a lacklustre London market plagued by oversupply and reduced demand.
This is the largest overall growth we have observed since Sept 2014 when the London property boom was at its height. Of course, this growth may well extend higher next month, driven by a record-breaking surge in mortgage lending that has soared far above the previous high set in 2007.
Pumped up by £11.8bn of fresh mortgage lending in March alone, the market is on fire. Surging demand is evident everywhere except London, with seemingly unlimited credit feeding an insatiable appetite for the little stock available. Across the UK, the number of properties entering the market is currently 16% less than it was two years ago, and in many regions the supply shortfalls are much more severe.
Put simply, supply is overwhelmed by demand and consequently the total stock of property for sale in England and Wales has dropped again, setting a further all-time low of 291,025, 25.8% lower than in May 2020 and 36.1% less than in May 2018.
Greater London remains the exception despite the flood of mortgage credit, showing the lowest growth in home prices and plummeting rents due to the de-urbanisation trend and lack of foreign visitors. Oversupply in sales and letting remains evident and this trend looks set to continue despite the successful vaccine rollout.
Further sales supply (up 35% compared to April 2019) into an already saturated market will further hamper asking price growth in London going forward. Flats have been most affected and the median asking price within a 10-mile radius of the centre remains 9% down on May 2020.
Beyond beleaguered London, rents continue to rise rapidly in most regions due to lack of supply.
Supply was already falling pre-Covid due to increased taxation and greater red tape deterring landlord investment and now demand has been boosted by urban flight. Given the overwhelming demand for rental property in the non-urban settings, supply cannot rise anytime soon to meet demand. We therefore expect that rents will continue to rise in the near term.
The annualised mix-adjusted average asking price growth across England and Wales is currently +8.6% and further increases look inevitable; in May 2020, the annualised rate of increase of home prices was just 0.4%.
Headlines
- Asking prices across England and Wales add a further 1.1% since last month, pushing annualised average growth up to 8.6% (the highest annualised growth since Sept 2014).
- The total stock of property for sale in England and Wales has dropped again, setting a further all-time low of 291,025, 25.8% lower than in May 2020 and 36.1% less than in May 2018.
- Monthly supply remains well below expectations in all regions except Greater London where urban flight has increased new listings by 35% compared to April 2019.
- Phenomenal demand chasing fewer properties again forced up prices in every English region and Scotland since last month, with the largest hikes in the East Midlands (+1.9%), South East (+1.7%) and East of England (+1.6%).
- The North West property market now leads the 12-month regional growth chart at 11.4%, followed by Yorkshire, Wales and the East of England with annualised price rises of 10.9%, 10.8% and 10.8% respectively.
- Plagued by oversupply, Greater London remains the UK’s worst-performing region with 4.8% annualised growth. Next worst is the West Midlands where prices have risen 7.8% over the last twelve months.
- Market momentum has increased again as buyers grab the little sales stock available: Typical Time on Market for unsold property in England and Wales has fallen by a further 10 days since last month to just 76 days. This figure is 13 days less than in May 2019.
- Still no sign of rents stabilising in the Greater London lettings market. Falls continue due to oversupply, down 13.3% year-on-year, while Hackney and Wandsworth boroughs register reductions in the average rent greater than 20%.
- By stark contrast, a drought in rental properties persists in all other English regions, Scotland and Wales, thereby driving up rents. During the last 24 months the total number of properties available to let has fallen by 37% across the UK, although in some areas the stock has fallen considerably further over the same time period (e.g. Wales is down by 70%).
- The largest annualised average rent hikes are in the East of England (+11.6%) and the South West (+12.2%).
