Welsh Real Estate Growth Beats Predictions

The difficulty for prospective homebuyers to secure financing in Wales left many doubting any chance of positive growth in the residential real estate market, but interest from wealthy …

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The difficulty for prospective homebuyers to secure financing in Wales left many doubting any chance of positive growth in the residential real estate market, but interest from wealthy purchasers has helped keep the numbers up. The most recent LSL Property Services/Academetrics index shows a 2.4% increase in Welsh home prices due in no small part to the more expensive detached properties that are being sold in the Vale of Glamorgan, which has seen an 18.1% jump in home prices. The finance roadblocks have created a two-tier housing market in the region, leaving many first-time buyers stranded in the rental market. For more on this continue reading the following article from Property Wire.

Home prices in Wales are up 2.4% on last year but a two tier housing market is emerging with prices supported by activity from wealthier buyers, according to the latest index published Wednesday (25 July).

The latest LSL Property Services/Academetrics index also shows that lower house prices in Wales have made it comparatively easier for first time buyers to get on the property ladder than their counterparts in England.
The average price is now £152,448 and although this is 2.4% up year on year prices fell 0.3% in May compared to the previous month.

The largest rise in house prices has been in the Vale of Glamorgan, up 18.1%, followed by neighbouring Cardiff, up 5.2%, with the biggest fall in Blaenau Gwent, down 8.6%.

One of the reasons is that in the Vale of Glamorgan over 50% of the housing stock is either detached or semi detached, compared to Blaenau Gwent, where there are only 30% of such properties and it is wealthier buyers who have the means to buy at present, the report points out.

‘Given how difficult it is to get a mortgage at the moment, an annual rise in prices of 2.4% is a real victory for the housing market. Predominantly, though, it is wealthier buyers and equity-rich retirees who are sustaining sales levels, which has helped nudge up prices. It’s created a two tier market where prices tend to vary regionally depending on the number of wealthier buyers,’ said Nigel Favas, managing director of Reeds Rains estate agents, part of LSL.

‘Prices have held up well, and even seen significant increases, in areas with plenty of wealthier buyers, but have fallen in areas with more first time buyers. The main stumbling block to a fluid housing market is a chronic lack of mortgage finance. It is marooning first time buyers in the rental market, which keeps sales levels suppressed and stops house prices growing,’ he explained.

He also pointed out that sales levels are still only half what they were in 2006. ‘Lending criteria is becoming tighter, with banks more concerned about protecting their balance sheets, and they are reducing lending to buyers with small deposits, which will hit first time buyers disproportionately hard,’ said Favas.

‘The best the market can for over the next few months is to stagger on. On average, banks require deposits to be twice as large as they were before the 2008 financial crisis. They are terrified by the precarious situation in the European Union and won’t have the confidence to resume lending in significant volumes until the crisis is resolved,’ he added.

He said that Wales is also more exposed to public sector austerity than the UK as a whole so banks will be reluctant to lend in enclaves where the public sector accounts for the bulk of jobs, which could lead to local disparities in sales volumes.

‘Houses prices at a local level will be closely tied to the performance of their immediate economies. With unemployment set to rise further, house price growth could prove elusive,’ he said.

Peter Williams, housing market specialist and chairman of Acadametrics, said that to understand why the annual figure has risen whilst the monthly figure is down, you need to look at what happened in the Welsh market during February, March and April of last year. ‘The Chancellor had announced that stamp duty on properties costing £1 million or more was to increase by 1% from 06 April 2011. This resulted in buyers at the top end of the market bringing forward their purchases to the early months of 2011,’ he explained.

‘Average prices in February in particular rose against trend by 0.5%. In April and May 2011, once the tax had been introduced, purchasers of high priced properties became conspicuous by their absence, with a consequent fall in average house prices of 2.5% over the two months. By May 2012, the top end of the market had returned to more normal levels, so average prices have increased over the year, particularly when compared to May 2011,’ he said.

‘The recovery in the market, especially from October to December 2011, resulted from the return of purchasers in the £1 million plus price bracket, which helped to raise average prices in Wales over this period. The other main factor which has a negative impact on the market at the moment is consumer confidence. Whilst the economy remains unsettled and job losses continue, it is mainly those with existing equity in property who feel sufficiently comfortable to commit to buying,’ he added.

Looking forward he predicts a continuation of subdued activity in the housing market, with buyers and sellers being mainly limited to those already owning properties, who are able to take advantage of the historically low interest rates currently on offer.

This article was republished with permission from Property Wire.

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