'Doors are opening for house buyers'
The chief economist at the Royal Institute of Chartered Surveyors tells us why he is tentatively optimistic about the residential property market
Estate agents have reported an increase in buyer interest
Evidence that the UK housing market may be showing signs of a revival is beginning to build. Residential property has undergone an increase in activity since the start of 2009, says Simon Rubinsohn, chief economist for the Royal Institute of Chartered Surveyors (RICS).
For the first time since the slump took hold, agents and developers have been experiencing a surge in potential buyers over the past few months and are selling around two homes a week, compared to less than one at the end of last year. The latest report from the RICS monthly survey shows an increase in buyer enquiries for the third consecutive month — the first time this has happened since 2006.
While January is seasonally a buoyant month for such activity, Mr Rubinsohn, 50, attributes this particular upturn to the recent sharp cuts in interest rates and a drop in prices by at least 20 per cent.
“There are signs that buyers are returning to the market. Enquiries have picked up over the past couple of months, which is encouraging,” he says. “The question is: Are there going to be follow-throughs?”
He says the government needs to act fast to ensure there is finance available to support consumers. “We need to see a flow of mortgage finance emerging.”
The government has announced a range of measures to get banks lending again and intends to guarantee mortgage-backed securities to restart the market for securitisation — packaging up of loans for sale to investors. The plan was recommended by under-fire former HBOS chief executive Sir James Crosby,who resigned this week from his post as deputy chairman of the Financial Services Authority after he was accused of sacking HBOS executive Paul Moore in 2005. Mr Moore warned that the bank was taking excessive risks. Last year, Sir James completed a major review of and recommendations for the mortgage market for the Treasury.
“These measures need to be implemented as quickly as possible,” maintains Mr Rubinsohn, who heads up the economics and research team at the RICS, providing analysis of developments in both the commercial and residential markets. “They haven’t been put into effect yet. I think that Sir James Crosby’s recommendation, while no panacea, will go some way to addressing the problems facing prospective purchasers. The policies are scheduled to be introduced in April but we still don’t really have a clear idea of how they will play out. “A key element in their success will be whether there are investors who want to buy these guaranteed mortgage-backed securities. If there are, this will increase the flow of finance through to banks, which will then be in a better position to lend money. But we are not at that point yet and there is a question mark as to whether we are going to see these policies put into effect and their implications.”
He argues that the Bank of England’s interest rate cut to 1 per cent, while likely to be welcomed by some homeowners whose mortgage bills are dropping, is not particularly good news. “I don’t think it will have a significant effect on the property markets. It will impact upon the spending power of consumers, who are reliant on their savings income, and although many lenders may follow the rate cut on some level, they won’t necessarily bring rates down in the same way. We need to see a higher quantity of lending from the banks.”
So when is the best time to buy? “It depends on everyone’s personal circumstance,” says Mr Rubinsohn, who lives in North London. “For those with cash, there will be good deals out there. If you are planning to buy, what you want to do is avoid the big move down. If you can find prices that are 20 or 30 per cent off the high, then even if there is another five per cent drop, you might think that over the medium term, it represents good value.
“And if buyers are in a position where they won’t be selling within 12 months of buying, then they are getting a lot better value now.” Mr Rubinsohn joined the RICS in 2007. He was previously a senior strategist for Barclays Wealth, where he played a key role in managing client asset allocation. A former lecturer in economics, he entered the financial services industry in 1985 when he joined ANZ Merchant Bank as a UK economist.
He predicts the residential property market will stabilise next year. “We will see volumes pick up over the next 10 months as I think we will see money coming through to lenders, and lenders — under pressure from the government — will lend more.”
Nonetheless, he acknowledges that the fortunes of the housing market are tied up with the performance of the general economy. “No industry is safe when financial services are taking such a beating, and you consider that a lot of foreign buyers have pulled back a bit. Most areas are suffering. The development market is grinding to a halt. There are the odd things that are being completed but a lot of private development is pretty much being mothballed.
“The government target was for 250,000 homes to be built this year. We are probably going to see around 70,000 or 80,000 built at most. It could be a lot less.”
But with last week’s interest rate cut, many savers are likely to feel that there are potentially greater returns to be found in the housing market than with the banks at present.