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What Are the Biggest Factors Affecting Property Prices in Your Town?

Homeowners looking to get the best possible prices when selling their homes often ask their agents which factors have the biggest influence on house prices.  Likewise, those looking to buy homes in the UK question why some properties of a similar specification command exponentially higher prices than others.

Now, research from the Office for National Statistics (ONS) suggests that there are three primary factors that affect property prices more than anything else.

Having studied property prices across a number of towns in England and Wales, the ONS concluded that the three most influential factors on house prices are as follows:

  1. The distance of the town from London
  2. The most common types of jobs carried out by the town’s residents
  3. The level of income deprivation in the town

Specifically, the study conducted by the ONS found that where a town was located within 125 miles of London, each 31 miles further from the city resulted in a property price decline of around £50,000.

Following this initial 125-mile distance, a home’s exact distance from London had less of an effect on its value.

In addition, the ONS reported that a 10% increase in the number of people employed within high-skill-level jobs within a town contributed an average of £25,000 to property prices. This encompasses high-level management positions and occupations that necessitate a degree-level education or higher.

The third of the factors was the proportion of people in the town experiencing deprivation on the basis of low income, which likewise had a major impact on property prices.

Outside the top three, the ONS reported that a town’s distance from the nearest city, the average age of its residents and the size of the town all had an impact on house prices, though to a lesser extent.

The findings followed a previous report from the ONS published late last year, which detailed how average house prices in UK towns in 2020 varied from £1,050,000 in Northwood, northwest London to just £39,000 in Ferryhill, Co Durham.

On average, house prices in the UK have increased by more than 10% over the course of the past 12 months. Regional disparities were clear in the findings, with six of the 10 towns recording the fastest property price growth being in the southeast of England. By contrast, six of the 10 regions with the slowest growth were situated in the northeast.

Average house prices continue to skyrocket across the UK as a whole, pricing millions of potential first-time buyers out of the market entirely. The latest figures indicate that the average price of a property in the UK is now £277,000 – up more than £27,000 on the same period last year.

It now costs around £296,000 to buy a house in England, £205,000 to buy a home in Wales, £181,000 to buy a home in Scotland and £159,000 to get on the property ladder in Northern Ireland.

Average London Rents up 22% as Return to City Life Accelerates

London’s private rental market experienced an unprecedented decline in popularity during the pandemic, as millions exited the UK’s biggest towns and cities in search of solace and safety elsewhere. Working from home became the new norm, and it was no longer necessary to pay extortionate prices to rent properties in and around London.

Today, data suggests the return to city life is well underway, as average London rent prices accelerate at their fastest pace on record.

This year to date, a full 30% of all new tenancies in London have been secured by individuals moving into the capital from other parts of the country. That’s according to the Hamptons Letting Index, which also indicates a massive 12.3% average increase in monthly rental costs in London over the past 12 months.

On average, it now costs £1,886 to rent a home on the private market in London, up from £1,680 per month this time last year.

The figures for Inner London are even more astonishing, where average monthly rent prices have skyrocketed by 22% over the course of 12 months. It now costs £2,513 to rent an Inner London home today, £500 more than a year ago.

An impressive rebound

The capital’s return to popularity and prosperity has been impressive, considering that just 12% of new tenants in London came from outside the city in 2020. After this, millions set their sights on more affordable rental homes outside London or moved back in with their parents temporarily to save money.

According to the figures from the Hamptons, most of those heading back into London are relocating from Berkshire, Buckinghamshire, Essex, Hertfordshire, Kent, or Surrey.

Speaking on behalf of Hamptons, head of research Aneisha Beveridge said that the return to the new normal would most likely continue pushing average London rental prices higher.

With COVID being pushed further to the back of people’s minds, life in the capital is slowly returning to its new normal. Tenants are returning to the bright lights of the city, and this is driving rental growth to record highs,” she said.

“The rise of remote working means that fewer tenants are moving to the capital specifically for work. In fact, a growing number of tenants choosing to live in London are working fully remotely and could live nearly anywhere in the country. The footloose nature of many jobs today means that it will be culture and lifestyle rather than employment that become the capital’s biggest draw.”

“The current pace of London rental growth is predominantly down to the capital playing catch up with the rest of the country.”

“Today, the average rent in London stands 103% above the average outside the capital. While this gap is up from 96% a year ago, it remains below the 120–30% pre-COVID premium, which has been eroded by strong rental growth outside the capital in recent years. But the current pace of rental growth in London is likely to push the premium closer to its pre-COVID level within two years.”

Average UK House Prices Climb £19,000 in Three Months

Once again, the average asking price for a home in the UK has leapt to an all-time high, having achieved a further 1.6% growth in a single month. According to the latest figures from the Rightmove House Price Index, average property prices in the UK hit £360,101 in April, a significant increase of £5,537 compared to March.

Over the last three months, average asking prices for UK homes have skyrocketed by more than £19,000. This is the highest three-month climb in the history of the Rightmove House Price Index, indicating that the escalating economic crisis is having no impact whatsoever on UK house prices.

Remarkably, the housing market’s performance during the first four months of 2022 has been even more explosive than at any point during the government’s temporary stamp duty holiday. According to Tim Bannister, director of property data at Rightmove, the market’s record-breaking performance continues to be a product of the growing gap between demand for affordable properties and available inventory.

“While growing affordability constraints mean that this momentum is not sustainable for the longer term, the high demand from many buyers chasing too few properties for sale has led to a spring price frenzy, a hat-trick of record price months, and the largest price increase for three months Rightmove has ever recorded,” he said.

No sudden slowdown on the horizon

Mr Bannister went on to say that while an eventual slowdown may be inevitable, it will almost certainly be gradual, far from a ‘burst bubble’ as some had predicted.

Elsewhere, Geoff Garrett, director of Henry Dannell, stated that home sellers and buyers alike should be braced for turbulent times ahead.

“While we don’t expect to see market activity evaporate completely, the growing cost of living will be a significant factor in the months to come, and as household finances are stretched, prospective buyers will likely ease off on the sums they’re willing to offer,” he said.

“As a result, sellers will need to realign themselves with these changing market conditions, and this will cause the rate of house price growth to cool.”

Data published by Rightmove indicated that more than 50% of all homes being sold in the UK are selling for their full asking price or higher. This is, again, a record high for the company’s House Price Index.

The average time it takes for a seller to find a buyer for their home is currently just 33 days—less than half the time it took to sell a home on average in 2019 when the average was 67 days.

“Over 125,000 new sellers have taken advantage of the great sellers’ market this month, but more are needed in all areas and in all property sectors to meet high buyer demand,” added Bannister.

Meanwhile, Christina Melling, chief executive at digital professional service provider Stipendium, highlighted the extent to which skyrocketing property prices are making it even more difficult for newcomers to find their way on the UK’s increasingly elusive property ladder.

“Unfortunately, it’s the nation’s first-time buyers who are paying the price, and those looking to take that first step are now paying £2,000 more for the pleasure compared to just one month ago,” she said.

“It’s yet another brick in an already substantial financial wall that’s blocking many from realising their dreams of homeownership.”

Rental Rates to Rise by Around £800 Per Annum Causing Financial Difficulty for Many Tenants

Experts from rental platform Ocasa are warning that in as little as a year’s time, rental rates could rise by as much as a whopping £800 per year for most tenants.

Even though the rental market in the UK is somewhat back on track following the COVID pandemic and the inevitable lockdowns, the report by Ocasa revealed that the average cost of a rental property is now £12,936 per year for tenants across the UK.

The yearly cost of renting a property has already increased by £1,032 in the last twelve months, and the report expects this figure to rise even more in the coming year. It is predicted that increases of around £803 in the next year will be a reality, making it even more difficult for tenants to meet their monthly rental obligations and making it even more challenging to save a deposit in order to get onto the property ladder. So looking forward to this time next year, tenants will be paying, on average, £13,739 for their annual rent.

Where are the biggest increases?

It’s no surprise that London has the country’s highest rental rates and is therefore the area that is least affordable to most tenants. The average rent in the capital is currently £21,140 per year, a figure significantly higher than the rest of the UK. The report shows that Londoners can expect to see a hike in rental charges of £1,140 per year in the next 12 months.

Despite London being the most expensive place to rent, when looking at percentages, the North West is predicted to see the sharpest increase in rental rates in the next twelve months. The average price for rental property is currently £10,452, but Ocasa has forecast a significant rise of £1,504 by this time next year.

The third-largest increase can be seen in the East of England, where tenants are now paying on average £12,528 but are expected to be paying £13,426 in the next twelve months, equating to an increase of £898.

The South West will see a rental hike of around £790 in the same time period, while the South East will see rises of £750, and the East Midlands are predicted to see a £717 rise in rent per year.

The lowest figures in the report relate to the North East, where increases will, on average, equate to £617 over the next twelve months.

A spokesperson for Ocasa comments: “Despite a rather unsettled rental market landscape as a result of the pandemic, the average UK tenant is still paying over a thousand pounds more a year versus just 12 months ago.”

“This cost is set to climb even further over the next 12 months, and this will be particularly concerning for those residing within the sector.”

They add, “Renting is already the most substantial outgoing they face, but in recent weeks, many will have also seen their finances squeezed by the increasing cost of living.”

“When you add an increase in rental costs to this mix, it paints a very bleak picture for the year ahead.”

Property Sales Down by Over a Third as House Prices Continue to Rise

Figures released by HMRC show house sales across the UK have seen a decline of more than one-third in March, when compared with March 2021.

Records show 11,650 home sales for residential properties took place in March, equating to a drop of 35.7% since March 2021. However, this also indicated a slight rise of 2.6% when compared with the previous month, February.

However, HMRC cautioned that these figures be treated cautiously due to the effect that the stamp duty holiday had on the property sales market, resulting in many people rushing out to buy before it was removed in September.

Initially, the stamp duty tax relief was scheduled to be finished in March 2021 but was later extended to June and then tapered to September 2021.

Managing director of Corecon, Andrew Montlake, commented: ‘The stamp duty holiday has distorted the data, so it was inevitable that transaction levels in March were down fairly significantly on the same month last year.’

‘To make matters worse, there is an extraordinary lack of stock. Transactions need buyers and sellers, and there is a distinct lack of the latter.

‘Moving forward, households face countless headwinds during 2022, primarily in the form of rising interest rates and soaring inflation, and these are likely to restrict transaction levels.

‘However, tenants remain desperate to get out of the rental market as rents hit new highs, and this will maintain a certain level of transactions. The ongoing rush to get out of the rental market may also explain why transaction levels in March were up in February.’

The chief executive of The Guild of Property Professionals, Iain McKenzie, commented that residential property sales continue to appear to ‘inhabit a parallel world when compared against all other economic indicators.’

He added, ‘Home moves are down year-on-year, but only because of a rush to buy in March last year caused by the impending end of the popular stamp duty holiday.

‘The industry continues to see a lack of properties on the market, which is pushing up prices across the board.

‘Demand remains high, and the market looks likely to keep moving upwards as it continues to ignore all the uncertainty in the rest of the economy.’

Jeremy Leaf, a north London estate agent and former RICS chairman, said: ‘Demand still comfortably exceeds supply, and correctly priced houses continue to attract considerable interest while mortgage repayments remain relatively affordable.’

Director of Legal & General Mortgage Club, Kevin Roberts, said: ‘Despite the pressure on borrowers caused by the rise in the cost of living, demand remains high, and the overall outlook for the market is strong. This is another clear reminder of the resilience of the current housing market and its ability to weather difficult conditions.

‘Even as the market experiences a healthy spring, the more complicated conditions mean that the role of advice is now more important. Borrowers may well need more support and reassurance to find the right mortgage for their needs. This is an opportunity for advisers to really demonstrate the scope of their expertise and add value during what will be a pivotal time for their clients.’

Last month, the Office of National Statistics revealed figures that show property prices have increased by 10.9% in the year to February, up from 10.2% in January.

February saw average house prices rise to £277,000, which indicates a £27,000 increase from the same period in 2021.

Over 30% of Brits Struggling to Meet Mortgage or Rental Obligations

The cost of living crisis is taking its toll on millions of UK citizens, with as many as one-third thought to be battling to pay their monthly rent or mortgage payments, with 3% falling behind with mortgage repayments.

Analysis performed by the Office of National Statistics between the 16th and 27th of March showed a 19% increase in the number of homeowners who had seen their mortgage repayment costs rise, whereas 34% of renters reported that their monthly rent had increased. The reason for the lower-than-expected number of people experiencing mortgage increases is due to the large number of homeowners being on fixed-rate mortgage deals and therefore protected from the increases in interest rates.

Homeowners showing to have defaulted on their payments remain low at 1%, but many are expecting that figure to rise if the cost of living and inflation, already at 7%, continue to increase.

Rosie Hooper, chartered financial planner at Quilter, said: If finances are stretched even further and this difficulty becomes an impossibility, we could have a significant problem on our hands with thousands of people defaulting on their payments and potentially losing their homes.”

For anyone having serious concerns over whether they will be able to make their obligated repayments, Rosie had the following advice:

“If you feel that your mortgage is becoming unmanageable, then it’s important to talk to your lender as soon as possible,” she said.

“Burying your head in the sand is the worst course of action, although often seemingly the easiest in the short term.”

“There are a variety of ways lenders can help, and they will work with their customers to create payment plans that may be able to help ease the financial burden.”

With the cost of rental accommodation also on the rise, there is a concern that this will affect the first-time-buyer market, with many tenants only being able to meet their monthly rental payments, significantly reducing the chances of being able to save for a deposit to purchase a property.

Figures from the Office of National Statistics found that 43% of participants in the survey said that they are unlikely to be able to save any cash in the next year due to increased outgoings.

“This may further take the wind out of the sails of the housing market as fewer potential buyers reduce demand and house prices,” she explained.

“We are in for a tough few months or even years, but it is always best to seek help if you are struggling with your finances to avoid spiralling into debt.”

Rising House Prices and Equity Increases for Homeowners Sparks a Growth in the Second-Charge Loans Market

As the average cost of a home in the UK continues to rise, homeowners are reaping the benefits of the additional equity in their properties and finding financing options more readily available to them than they were before.

The Nationwide Building Society has released data showing a 14.3% rise in house prices since March 2021, benefiting many homeowners who are seeing a significant increase in the equity they have in their property.

Nationwide’s data, tracked over a two-year period, shows that since the early days of the pandemic (March 2020), the average value of a home in the UK has risen by a remarkable 21%. As an example, a property that was valued at £300,000 at the beginning of the first lockdown could now be worth as much as £363,000.

Wales has seen the biggest increase in property prices, reporting an annual increase of 15.9%, according to Nationwide’s statistics.

With the expectation that house price growth will slow down in the months to come, the Royal Institute of Chartered Surveyors is still confident that there will be further increases this year.

Borrowers looking for second-charge loans are finding it easier due to the added equity available in their homes due to the price increases. The more equity they have, the more they can lend, and the better the interest rates available to them will be. This could be a great opportunity for people looking to consolidate debt and get their finances in order, which, in the current climate, is advisable.

But second-charge loans or remortgaging are not purely for people looking to consolidate; the market is seeing a rise in the number of prime borrowers accessing the equity in their properties. This increase is not surprising when looking at the record low-interest rates for fixed 5-year first-charge loans in the last few years.

These borrowers may have committed themselves to a mortgage that has a heavy ERC (early repayment charge) if they wish to switch mortgages. Taking out a second-charge loan could be more beneficial and cheaper in this circumstance, as the first-charge loan would remain in place.

Five-year fixed-term mortgages have seen a surge in popularity over the last five years. Over 50% of the home loans approved by Santander recently were reported to be five-year fixed-term mortgages.

Moneyfacts released data showing that the average interest rate on a five-year fixed-term mortgage was around 2.88% in March 2022, which is not a long way from the figure back in March 2017, which sat at 2.93%. However, it was up from the February 2022 figure of 2.71%.

Those with credit card debt and the self-employed may also find more doors open to them in regard to second-charge loans and may be eligible for the first time due to the added equity available for release in their homes.

These borrowers may not be eligible to apply for additional funds from their first charge lender and may have issues with their credit history, for example, if they hit hard times during the pandemic. With the added equity, it is likely that they will have more access to remortgaging and second-loan finance products.

Banks Get Tough on Home Loan Applications as Cost of Living Skyrockets

With inflation spiralling and the cost of living on the rise, banks and mortgage lenders have responded by tightening the application process and putting more emphasis on affordability testing.

April saw banks, such as Santander, increase their lending criteria with stringent new affordability parameters. Other banks, such as HSBC, Lloyds, and NatWest, are predicted to follow suit and make it more difficult for potential buyers to be accepted for a mortgage. Many will have to accept a smaller loan than they would otherwise have wanted.

With household bills rising due to energy cost hikes, increases in inflation, and fuel prices going through the roof, many people are finding their income squeezed to capacity. Banks are taking these additional financial burdens into account when approving buyers for home loans, resulting in many applications being rejected.

This signifies the biggest clampdown on mortgage application acceptance in more than ten years.

Mortgage brokers are warning home buyers that the increased monthly outgoings, coupled with the recent tax increases, are prompting the lending market to be more cautious about who is approved for finance, meaning that they will need to be realistic about the amount that they will be able to borrow in the current climate.

Santander led the way by increasing the criteria of its affordability test early in April but stating that the changes reflect the changes in the average household bill. The largest high-street banks are expected to follow soon.

Buyers looking at their dream home will find it; they may have to limit their expectations regarding the size of the property they will be able to buy, particularly those with credit card debts. Loan debt and divorcees who will need to pay out their exes will be penalised under the new stringent affordability test.

The previous clampdown was seen in 2014 but was not as harsh as the one expected to be implemented now and in the near future.

Ray Boulger, a senior analyst at broker John Charcol, said: ‘It is the biggest tightening [in mortgage lending] since 2009 because interest rates are increasing, and we are experiencing the largest rise in the cost of living since the 1980s.’

‘The difference between now and 2009 is that banks had a huge shortage of funds then, whereas now the issue is that it’s more difficult for some people to borrow.’

One banker said, ‘Some lenders are already changing affordability tests behind the scenes to try to mitigate the cost of living issues we’re starting to see.’

Many lenders use the Office of National Statistics to gain data in order to judge borrowers spending. This does not take into account the fact that an applicant’s individual outgoings may be lower than average but is used as a general yardstick to see if borrowers can afford the mortgage that they are applying for.

The ONS figures will shortly include the rising cost of energy, making it even more difficult for buyers to get home loans.

Santander announced that they will be taking the increased gas and electricity costs, national insurance contributions, and various tax rates into account when looking at affordability testing. They will be particularly looking at increasing the stress test for five-year fixed home loan deals, making them more difficult to get.

Andrew Montlake, of mortgage broker Coreco, said: ‘We’re starting to hear whispers of banks tightening affordability checks. All the lenders are talking about it. You can see a situation where some people can’t borrow what they need, which means they’ll have to look at cheaper property in cheaper areas.’

‘I suspect we’ll see some people miss out, especially those in need of large loans with small deposits.’

Other banks are continually reviewing the market conditions and will soon follow suit.

Barclays said: ‘We continuously monitor the cost of living, accommodating changes where appropriate within our core affordability models and assumptions on an ongoing basis.’

The affordability test generally checks to see if the buyers can afford to make payments at a standard variable rate plus an additional 3%. Tougher stress tests may also affect house prices.

Russell Galley, a managing director of Halifax, said: ‘Buyers are dealing with the prospect of higher interest rates and a higher cost of living.’

‘With affordability metrics already extremely stretched, these factors should lead to a slowdown in house price inflation over the next year.’