With the populous focused on MP’s claiming for Kit Kats and who would win yet another Simon Cowell talent show it hardly registered on the current affairs radar. Prices rose again in May, the average home appreciating by £2,300 to £154,000, according to Nationwide Building Society. That’s the second rise in three months.

Hometrack said that the number of buyers registering with estate agents was up 21 per cent in the three months to May, while the number of new properties listed increased by only 2.5 per cent.

The average time for a property to stay on the market fell from 10.4 to 9.9 weeks from April to May, while the percentage of postcodes where there had been a price decrease over the past month fell from 32 per cent to 13 per cent.

These figures support mounting evidence that conditions in the housing market are past their worst point, a view increasingly shared by economists and estate agents. Just remember that no one rings a bell to announce the bottom of the market and the time you realise that it was indeed the bottom is a few months down the line when prices are already picking up.

Stage 4: High demand/High supply.

In the last issue we discussed how mortgage liquidity will become more readily available and free up the market that has been constrained for so long. This final stage of the recovery will be characterised by first time buyers, being able to borrow at higher levels once again, getting back into the market.

I still maintain that the recovery of the mainstream market will start in London and the South East where the shortage of good quality housing is most severe.  This recovery will eventually ripple out to the northern cities but the high number of unsold new-build stock and large pool of reposed properties in these areas will keep prices suppressed for longer.

Housing Stock – In the final stage of the recovery the supply of property will increase significantly from current levels as builders start more new projects but this increase will be smaller and slower than what the market will demand. Some speculators may look at selling stock they picked up at rock bottom prices during the downturn and developers will start completing projects they mothballed. Private sellers will also return to the market but the need for Home Information Pack (HIPS) and the much reduced number of estate agents could slow them down.

Mortgage finance – Just what banks will do in the long term remains to be seen. They have been stung by reckless lending and will be less likely to return to their old habits of free flowing credit for every man and his dog. They will however start increasing their loan books and mortgage exposure as the market recovers and the demand for mortgage finance grows. Lenders too like the protection of the herd and it will only take a few bold banks to start offering competitive rates before the rest will follow. Competition is healthy in any market but when it comes to finance its paramount. More competition will mean better products at better rates and as the liquidity increases so will house prices. The big what-if remains the government’s policy on “quantitative easing” and what effect this printing of money will have on the UK’s inflation figure. More money in the system normally means higher inflation and this in turn may force the Bank of England to increase the base rate from its historically low level.    

Buyer’s activity – As we move into this stage the herd mentality will once again take a firm hold and buyers will pile back into the market. As property prices start increasing due to the higher demand more buyers will join the fray either driven by greed or fear that they might “miss the boat”. Some would have used the prolonged period of low interest rates to save up considerable deposits or pay off large chunks of debt and will now be in a great position to buy.  

This week financial regulators revealed that they were stress-testing the British banks to ensure that they could cope with a 50 per cent peak-to-trough slide: that would see the average price tumbling to £93,000. But buyers sitting on their hands in anticipation of that happy day are likely to be disappointed.

Wishing you health, wealth and happiness,

Mike Smuts

Property investor and MD of Smuts & Taylor.