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House prices stable with low mortgage rates and lack of housing supply

The low mortgage rates, high employment and a shortage of homes are helping to keep house prices at their current levels.

House price data from Lloyds Bank shows the annual rate of house price growth remained stable at 2.5% although over the month the average property value reduced slightly from £209,988 in October to £211,085 in November.

The slight fall in the price of an average home is good news for struggling first time buyers although their search may be hindered by the lack of suitable housing stock.

Demand for property has been supported by low mortgage rates, healthy employment growth and the lack of homes on the market, although this is offset by pressure on household incomes.

Robert Gardner Nationwide Chief Economist said, annual growth of house prices remains in the 2-4% range that has prevailed since March.

Housing supply slowing the market

The lack of house building in the UK has created shortages in the market maintaining higher prices but also making it difficult for buyers to find suitable homes.

Higher house prices have discouraged home movers from buying as the gap between their current home and the next increases which means they need a larger mortgage.

For remortgage buyers currently on their lenders standard variable rate, switching to a new mortgage deal would help them to reduce the cost of monthly repayments.

The older equity release buyers can now stay in their home while accessing wealth using a lifetime mortgage rather than downsizing, further reducing the supply to suitable homes.

The number of new builds remains too low and 13% below the 2007 levels although the outlook improves significantly when you add conversions from larger homes, offices and commercial properties.

A change in government policy from 2014 has allowed ‘change of use’ from shops, office and other commercial uses to residential properties such as flats.

This brings the number of new builds to just 3% below the 2007 level and the number of ‘change of use’ has nearly doubled to 37,000 in 2017, says Mr Gardner.

London benefits from more properties

The introduction of the ‘change of use’ policy has had a particular strong boost to housing supply in London representing over 20% of new dwellings in the capital in 2017.

Prices of residential land is higher than commercial property in the UK and in London the gap is significant compared to the conversion cost making these developments very profitable.

Other cities in the UK are also benefiting from the ‘change of use’ policy such as Bristol where the majority of new housing are conversions in 2017 with 1,040 compared to 900 new builds.

As the stock of the most attractive ‘change of use’ sites is limited it is likely there will be a slowdown in future years.

There has also been a slowdown in new purchases for buy-to-let investors after changes to stamp duty and taxation allowance on mortgage interest make it less attractive to buy.

The government announced in the Budget to deliver an additional 300,000 homes per year by the mid-2020s and this is still required as affordability in the UK remains stretched.

What are your next steps?

Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.

Learn more by using the property value tracker chart, mortgage monthly cost calculator and equity release calculator. Start with a free mortgage quote or call us and we can take your details.

For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property for home improvements, holidays or even pay university fees for grandchildren.

Use your dashboard to access online mortgage quotes, money off vouchers and start your mortgage application online 24/7 on desktop, tablet or smartphone.


Mortgage Best Buys

These are examples of mortgage products we can approach with many more offering interest rates and flexibility to meet your needs.

1.19% Fixed Rate
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Reverts to 3.59%
1.17% Fixed Rate
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1.18% Fixed Rate
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    Equity Release may involve a Lifetime Mortgage or a Home Reversion Scheme. To understand the features and risks, please ask for a personalised illustration. Equity Release may affect your entitlement to means tested state benefits and will impact on the size of your estate. For Equity Release London City Mortgages charge a fixed fee upon completion of £695. For Mortgages a fixed fee is charged on application. Typically this is from £295 up to £495 for the services selected.

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