Oversupply weighs heavy onpricing in London and the South
Sellers across Greater London and the South of England are resorting to competitive pricing due to high stock levels, according to Home.co.uk’s February asking price index.
Contrary to seasonal expectations, the mix-adjusted national average asking price has dipped since last month, driven by significantly lower pricing in the capital as well as the South East and South West of England.
Even the Bank of England’s cut in the base rate, which was arguably already priced into mortgage rates, was not enough to bolster confidence in a property market plagued by increasing taxation and regulation.
Consequently, vendors in these regions are increasingly willing to take a hit on their expectations to secure a sale.
In stark contrast, vendors in the North and Scotland are much more confident in their pricing. Among these top performing regions, Yorkshire indicated the largest monthly rise of 0.8%, seemingly a world apart from the pain felt in the South.
Undoubtedly, the relative performance of the Private Rented Sector (PRS) is a key factor in the North-South divide. Yields remain significantly better in the North and this factor does not look set to change soon.
In certain postal districts of London and the South East, rental yields are less than 3%; certainly not enough to pay a significant mortgage and all the other associated expenses.
Meanwhile, savvy investors can find yields as high as 12% in certain postal districts, all of which are to be found in the North.
These are the key factors driving the current market. Oversupply stems largely from landlords deciding to quit in low-yielding areas. Vendors and agents alike understand that demand is unlikely to be able to grow sufficiently to match the surge in new instructions, especially after the increase in stamp duty on April 1st.
The upside for savvy buyers is that there are certainly bargains to be had in some locations but, as many investors acknowledge, “catching a falling knife” is a risky business. The question that is difficult to answer is: When will the rate of supply return to more normal levels?
Since rental returns fundamentally underpin the value of property, the answer may well be: When yields return to a tenable level for investors. Logically, this would only be achieved through a combination of rising rents and falling prices.
Despite the difficulties in London and the South, the vital signs of the UK property sales market indicate a positive state of health overall, thanks to continued demand in the North. The current volume of property moving through the market is higher than in February last year, although the risk of a significant slowdown in London and the South is apparent.
The annualised mix-adjusted average asking price growth (sales) across England and Wales is now 1.7%; in February 2024, the annualised growth of home prices was -0.1%.