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Are signs of market improvement just a gold rush?

georgina-smith

March 11, 2013

Danny Waters is chief executive of Enterprise Finance 

 

 

 

Last week’s house price report from the Halifax was noticeably upbeat about the prospects for the property market during 2013.

The report, for February, said growth came in at 0.5% last month, 1.9% over the past three months (higher than the previous three months) and 1.9% on the year – the biggest increase since September 2010.

The Halifax noted, quite rightly, that full time employment is now a lot higher than a year ago and that transaction levels have also been rising gradually.

Martin Ellis, the lender’s housing economist, observed that: “This increase in both house prices and activity in recent months is consistent with evidence of some improvement in market conditions.”

But have market conditions really improved?

Much of the upward pressure on prices in the market at present is down to the demand for buy-to-let property. Landlords, both amateur and professional, are piling into the market or adding to their portfolios in search of the strong yields currently available.

This modern day gold rush may be driving up prices and triggering more activity but is it creating a market that is sustainable in the long term?

Put another way, do higher prices and more transactions necessarily mean a market has improved?

For a market to genuinely improve, the improvement must be sustainable and this still isn’t the case. The base of the UK’s property market, namely the first time buyer, is still not functioning and this is vital for a healthy market.

The first time buyers that have returned to the market in the past year or two have been the privileged few. The vast majority of prospective first time buyers are struggling to find a deposit or to meet the continued stringent criteria of the lenders – and until this changes, the property market will remain volatile.

In summary, while conditions may have improved on the surface, what about underneath? Is the growth we are seeing in the market truly sustainable?


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