An update on the North Devon housing market - Tim Jones

Yet again, it is necessary to re-visit this hugely important topic. Over the last 12 months we have seen a dramatic shift in the fortunes of house buying and house building.

This is something which effects us all, it is vital that we have a properly functioning market where property purchases can be executed with the minimum amount of anxiety. That there is an adequate supply of new properties, particularly for first time buyers. Also, that for those who cannot afford to get on the property ladder, that there is a ready supply of properties to rent.

For many of us across Northern Devon our properties are a vital part of our personal assets. It is essential that we can all be confident that this asset is secure and that its value is stable.

It is always dangerous to pick a moment in time and assume that this is a fair representation of what will happen in the future. The housing market is famous for its peaks and troughs. Therefore, what we see today might be very different in three to six months time.

At this time, however, we are in the middle of a perfect housing storm. New house building has declined to one of the lowest levels for the last 20 years. Property sales have fallen to the slowest rate in the last 10 years. House prices have fallen for the second month running. The cost of mortgages has risen to the highest level since August 2008. A more detailed look at the reasons behind this may be helpful.

Regarding new house building. This is normally a highly efficient market. It is dominated by 6 major developers who are household names, such as, Barratts, Taylor Wimpey, Persimmon and Vistry. Britain's largest house builder is Barratts. Their latest's announcements are that they expect to build far fewer new homes in the next 12 months than in the last 12 months - around 14,000 a year as opposed to over 17,000 last year.

There are multiple reasons for this. They are greatly concerned about the rise in mortgage costs and how this will dent demand. There are also concerns about the dramatic slump in the first time buyer market, where normally the Help to Buy scheme would have assisted but this has now been stopped by the Government. There are huge delays in securing planning consent. In some cases this can take up to 4 years and is seldom less that 18 months.

In certain parts of the country, such as Somerset and East Devon, there are environmental restrictions known as nutrient neutrality rules, which are preventing new houses being built unless huge environmental mitigation is undertaken. There is also still a serious shortage of skilled labour. Finally, inflation is affecting the cost of building new houses just as badly as it is affecting our food prices.

Therefore, these huge cost increases are impacting on house prices at a time when buyers are proving to be a scarce commodity and values are dropping. The government are trying to achieve an annual house building target of 300,000. Many experts predict that only half this will be achieved. Inside the industry the view is that we might build only around 100,000 houses, this would be a huge political issue just at the time when the general election is scheduled.

The current situation regarding mortgages is deeply worrying for both those who have existing mortgages or are trying to buy a property. This is grim reading. By the fourth quarter of 2026 about one million mortgage holders will have experienced an increase of at least £500 per month to their loan repayments, as a result of the increases in the Bank of England Base Rate. Around 4.5 million home owners have been hit with monthly increases since interest rates started rising at the end of 2021. It is estimated that around 4 million more will have to bare higher costs by the end of 2026, as current fixed rate mortgages are up for review.

It is further estimated that around 650,000 households will, by the end of this year, be spending more than 70% of their post-tax income on mortgages and other essentials. The current rate for a 5 year fixed interest mortgage for 85% of the purchase price was around 5.7% but is now increasing to around 6.7%, the highest since August 2008. This situation will get worse as the Bank of England increases base rates. Despite the relatively good news about inflation reducing, it is still the case that bank base rate will increase by at least another 0.25% when the Committee meet next.

The situation regarding house prices is affected by the number of new buyer enquiries which has hit an 8 month low. This is unsurprising because of the mortgage cost situation and the lack of support for first time buyers. This does not just affect new houses. it has hit the whole of the market. The sales rate is now the slowest for 10 years. On average, it is taking 52 days for a seller to receive their first offer on a property. This is around three weeks longer than 12 months ago. When sales are achieved then over 50% are being agreed below their asking price. This is up nearly 40% from the situation 12 months ago.

If we look also at the house rental market, then this has been similarly affected. Fewer landlords are prepared to invest in Buy to Let. Partly because of mortgage costs but also because there is a whole new raft of health and safety legislation. Also, the government are imposing further restrictions on landlords to protect the rights of tenants and to restrict increases in rent. The net effect of this, is that rents will inevitably continue to rise while supply reduces.

This is a rather depressing summary of a very difficult situation. It is fortunate that Northern Devon has planned ahead well for new house building. There is plenty in the pipeline and good chances for deals to be done. It is my opinion that this situation is probably as bad as it will get and that in 6 months time we will be looking at a much improved picture. It is certainly not a time to panic.