The borrower group which has been hit hardest over the past few years by the changing nature of the UK mortgage market is that of home movers, according to the Nationwide’s Building Society’s senior economist, Stefano Silvestrin.
He was speaking at the Financial Services Expo London on Wednesday (16 September).
Analysing transaction levels and categorising those areas which had seen weakest growth, Silvestrin said home mover activity was down 52% from its peak, while first-time buyer levels were 26% below their highest level. Even buy-to-let transactions – a sector widely thought to be growing at record levels – were 44% below their peak level prior to the credit crunch. Only cash transactions were ahead of their pre-crunch peak, up 3%.
Silvestrin said: “Housing transactions are currently well below the average. It has been surprising how the pace of recovery has been a little sluggish compared to what we, and the Bank of England, were expecting.”
Silvestrin said there was a great deal of uncertainty about why home mover transactions were so low but highlighted the lack of housing supply and the low level of stock on estate agents’ books, properties not being the ‘right ones’ for home movers to move into, and the wide divergence in prices across the region which was getting worse and creating a more pronounced North/South divide.
He did believe however that home mover activity would improve. “Activity is expected to increase gradually mainly when more first-time buyers come to the market, kicking off a chain and allowing more homeowners to move,” he said.
The outlook however for first-time buyers was also deemed to be less than sparkling with demand impacted by affordability constraints particularly with house price to earnings levels being high compared to the historical average. “Regionally there is quite a big difference in terms of this measure; with affordability stretched particularly in London and the South East,” said Silvestrin.
There was however some positive news for first-time buyers – mortgage payments as a percentage of take home pay are currently in line with the long-term average, 30% while recent moderations in house price inflation mean they are now roughly in line with earnings.
Silvestrin did however highlight the major risk across the entire UK housing market – the continued poor level of new housing supply coming to market, particularly when compared to the number of new households likely to be formed over the course of the next decade. “The number of new housing starts is nowhere near enough to satisfy demand; it is anticipated that we will have 250,000 new households per year between 2015 and 2025,” he said. “The biggest risk is this imbalance between housing supply and household formation – it will likely lead to increases in house prices.”