Is it possible that homes are, at last, about to become more affordable? The Government announced last summer, at the Conservative party conference in Manchester, that, having won the general election, it was going to grasp the housing problem by the windpipe and sort it.
That energised Brandon Lewis, the Duracell-powered housing minister, and the Government came up with a raft of initiatives – including, most surprisingly perhaps, that investing in homes as a financial asset should be discouraged. Generation Own, rather than Generation Rent, was the aim.
The result of these policies is at last resulting in more affordable homes for the millions of people who have been queuing for a generation to get one.
But a million miles away from the real world, at the very top of the housing ladder, something is going wrong.
The number of transactions of homes worth over £2m has halved in the last year. Higher costs for those wanting to move means that even the wealthiest are thinking twice about a new home. Prices are following transactions, with some Mayfair mansions now worth 20 per cent less than they were a year ago, before the general election.
No tears for these poor unfortunates, of course, but what starts in central London often ripples out across the country. It may take another 12 months before prices are impacted in Norfolk or Shropshire, but there are a number of reasons why this may mark the start of the long-awaited price correction in the housing market.
First, the bulk of those buying on the lower rungs of the housing ladder can only do so with the help of the state (through Help to Buy) or the Bank of Mum and Dad. Last week Legal & General research showed how vital family help was for those trying to buy, with 25 per cent of all purchases this year being made with a leg up from parents or grandparents.
But what if the old family home falls in value by 30 per cent? I suspect that this will stop many parents, regardless of what they might wish.
Second, if people at the top can’t move then those moving up the ladder can’t move. This could block up the market making it harder for those trying to start out with their first home. Third, when prices fall yields will rise, as rents are unlikely to fall back too. Ironically, this may encourage more investors back into the housing market rather than to leave, as some will have done in the past few months.
A falling housing market is like parachuting in the dark: it’s not easy to tell how fast you’re falling, or where the bottom is. But there are some useful indicators.
Property websites will show price reductions and re-listings. Some will do so overtly, to encourage new interest; some will be underhand, trying to cover up the original greed of the seller. Buyers will start to get calls from estate agents encouraging viewings. The days of them setting an hour on a Saturday morning for an ‘open house’ and agreeing a sale by teatime are behind us.
Shiny new developments will look like a disaster movie set, as rich foreign buyers run back to the Riviera, leading to what one might call “Nine Elms Disease” – unsold, incomplete housing schemes that can’t be sold for love nor money.
Judging when a market has peaked is much easier with hindsight. Is this “peak property”? I don’t know, but it does feel like it.
Would I buy a home today? Yes – but I wouldn’t invest in one. That’s good news for those who have waited a generation for a home, but bad news for those who thought property would fund their retirement.
Henry Pryor is a residential property expert and commentator
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