June housing market powered by remortgaging
The total number of all property valuations has seen a sharp increase on a monthly basis, up 30% in June compared to May.
This expands on a more gradual month-on-month recovery of 3% in May, following a sharp correction in March and April.
On an annual basis, this leaves total activity at the same level as a year ago, with a 0% annual increase compared to June 2013.
John Bagshaw, corporate services director of Connells Survey & Valuation, said: “Affordability is potentially a very real limiting factor for the housing market. And it has been for some time.
“But now, with the imposition of the Mortgage Market Review in April, alongside the latest note of caution from the Bank of England, the world of mortgages is revealing its fundamental link to household incomes.
“A rapidly improving economy with the prospect of real wage growth this year means that progress should continue. But we are now in a different phase of recovery, making new headway rather than just playing a rapid game of catch-up.
“And this is good news. There is now a sense of optimism that the housing market will be more stable and sustainable in the long term due to these developments.”
Remortgaging has formed the backbone of the monthly recovery, up 61% between May and June. In part this rapid growth can be attributed to making up ground lost in previous months – coming after a cumulative drop of 40% in March and April, and a very gradual 4% rise in remortgaging activity in May.
However this still leaves remortgaging activity 10% higher than in June last year.
Moreover, as a proportion, remortgaging made up 28% of all valuations in June 2014. This is not just higher than the temporary low of 22% of all valuations seen in April, but also significantly above the average of 26% of all activity attributed to remortgaging in the previous twelve months.
Buy-to-let activity has also seen above-average growth, seeing the same 10% increase since June last year. This follows 31% growth between May and June in the number of buy-to-let valuations.
Bagshaw added: “It appears that some mortgage lenders have decided to refocus on remortgaging and buy-to-let. There are two aspects to this dramatic month on month growth – firstly that remortgaging was severely affected by the short-term transition to the new MMR regime, and the temporary backlogs this created.
“But secondly, a more subtle shift may have taken place. Pre-MMR there was a real focus on home movers and particularly first time buyers.
“But the latest noises from the regulator and the Bank of England seem to have put a cooler on riskier lending, especially at high income multiples.
“Equally, the expectation that interest rates might increase this year may have also encouraged borrowers themselves to be more cautious when approaching new mortgage commitments.”
First-time buyer activity has returned to the same level seen in June 2013, after a 17% monthly increase in the number of valuations for new buyers between May and June.
Bagshaw said: “First-time buyer activity increasing since May but being flat on the year is a tale of two cities.
“The increase is not surprising due to the emphasis the government is putting on getting people on the property ladder.
“However, the lack of growth from this time last year suggests that there are questions surrounding the new affordability rules and fundamentally that the economy has not picked up to a level where wages are rising quicker than the cost of living.”
Further up the housing ladder, the number of valuations for those moving home followed a similar trend to first time buyer activity. Home mover valuations number 21% more than in May, though this leaves home mover activity 11% lower than in June last year.
Bagshaw concluded: “Home-mover activity has been muted due to strong property prices and the serious constraints that remain on many in the ‘stretched middle’.
“Many home-owners are staying put as they continue to recover from the recession and are happy just to sit on an asset increasing in value.
“Just as home-movers and first-time buyers are biding their time, lenders are erring on the side of caution a little more.
“Some suggested that there would be full scale jitters in the mortgage market in the aftermath of MMR and the Bank of England’s suggestions.
“So far this has not been the case. But lenders are certainly feeling a little less euphoric in the current environment. That is probably healthy.”