Sellers have increased their price aspirations for six months in a row but the property portal said the pace is now slackening this month’s rise far lower than April’s and May’s which were 2.6% and 0.7% respectively.
Rightmove said the suspension of Home Information Packs (HIPs), reductions in public spending and rumoured increases in Capital Gains Tax (CGT) are having an immediate effect on the housing market, with more competition among sellers and a slowdown in the number of buyers as the market begins to turn.
Miles Shipside, commercial director of Rightmove, comments: “The continuing mortgage famine has now been joined by a surge in sellers following the abolition of HIPs and investor reticence driven by rumours of CGT increases. Together, these factors are likely to put an end to this year’s recovery in house prices.
“A surge of HIP-free properties has come to the market, and mortgage-reliant buyers and wary investors are failing to match the increased supply. That spells tougher times for sellers and tenants, with more properties for sale and fewer finding their way into landlords’ hands”.
Average asking prices have risen for 10 out of the past 14 months and the first six months of 2010 saw asking prices climb a substantial 7.4%. Rightmove however, is forecasting that new seller prices will fall during the second half of 2010 to give an overall price standstill for the year.
It says the suspension of HIPs is one factor that will lead to downward price pressure, as it has removed a barrier to entry and increased the supply of properties to the market. The uncertainty and difficulty caused by the recession and the barrier to selling caused by the cost of a HIP, had helped to maintain a degree of market equilibrium by keeping the number of sellers in the same ballpark as the muted buyer numbers.
In June Rightmove recorded a 22% increase in the weekly run-rate of new sellers coming to market, up from 27,235 in May to 33,149. New listings are now up 56% nationally compared to June 2009, with London seeing the most dramatic rise in fresh stock at 88%. The site says it believes this surge will tail off but increased seller numbers will impact on price setting and competition.
Shipside added: “There is a bit of a post-HIP party atmosphere, with estate agents glad to restock their shelves and new sellers willing to give moving a go with fewer cost commitments. Estate agents will get more selective about what price they are willing to market at and the commitment of sellers to doing what it takes to achieve a sale.
“Serious sellers in all but the most popular hotspots are going to have to reduce their asking prices unless buyer demand recovers after the World Cup. That’s good news for mortgage-challenged first-time buyers, though should affordability swing enough to bring them back to the market in normal volumes, one has to question whether the wholesale funds would be available to meet the increased mortgage demand.”
Rightmove numbers suggest the average unsold stock per estate agency branch jumped from 71 to 74 in June, the fourth monthly rise in succession. Stock levels are failing to turn downwards, and are now the highest since October 2008.
Estate agents are also reporting that many investor buyers have disappeared from the market and cash-rich investors are now sitting on their hands.
Buy-to-let
The emergency Budget is expected to include increases in the rate of Capital Gains Tax (CGT), which many in the industry have said could also permanently dampen the enthusiasm of the investor market. Lettings agents already report a chronic shortage of new landlords, which will feed through into higher rents for tenants.
Shipside said: “Landlords need the right tax and funding environment to actively grow their portfolios and meet rising demand from tenants, who at present have few other alternatives to satisfy their housing needs. More investment in rented property needs to be encouraged to get cash out of investors’ pockets, and they require more certainty of a long-term favourable environment for both rental and capital appreciation”.
Rightmove said any landlords looking for a speedy and profitable sale in order to avoid CGT changes should be wary of increased competition in the price band below £150,000, the price bracket favoured by buy-to-letters.
The dearth of mortgage finance is still impacting first-time buyer activity so achieving a quicker sale, to avoid or minimise any CGT changes, could come at a price said the property website.
The Association of Residential Letting Agents (ARLA) called on the government last week to treat private rented property as an ‘entrepreneurial business activity’ for Capital Gains Tax purposes in the upcoming emergency Budget.
ARLA said increases in the rate of CGT could create a dire shortage in rental property supply as investors seek to sell off their portfolios. Further, it would likely deter future investors from entering the sector.
Ian Potter, operations manager of ARLA, said: “Landlords play a vitally important role in providing affordable housing in the UK. Yet if rental homes are removed from the sector because of changes to CGT, it will put further strain on an already struggling market and will result in fewer people being able to put a roof over their heads.
“The rental property market remains fragile and needs government protection to support it. We have many reports from member agents advising that landlords are already looking to sell. Estate agents are also reporting an upsurge from landlords enquiring about selling.”
Long-term investment appetite
Another factor of frustration for the professional investor and owner-occupier alike is that the effectiveness of property investment as a hedge against inflation is also under pressure. With the RPI now at 5.1%, the year-on-year increase in asking prices of 5.0% represents a decrease of 0.1% in real terms.
Shipside added: “We forecast the annual rate of increase in asking prices to be at zero by the year end, and RPI remains stubbornly high. Property is a traditional hedge against inflation, but as so often in this downturn, the rulebook appears to have been turned on its head.”
