The volatility in the housing market has been an ongoing puzzle for aspiring homeowners and those who would like to up or down-size. This, in turn, has made life more complicated for those trying to deliver new homes whether building for the open market, for those providing affordable housing or those in the rental market.
This uncertainty is affecting decisions in Northern Devon and right across South West England. The market has experienced notable fluctuations which have lasted over the past year. The reasons are a complicated cocktail of economic factors, Government policy changes, problems with the planning system which have disrupted the delicate balance of supply/demand and regional dynamics.
This is also frustrating to those of us trying to help improve the local economy. A thriving and vibrant housing market is a huge factor in securing good and sustainable growth. It stimulates almost all sectors, creates new jobs, supports local supply chains and provides businesses and communities with the vitality of new members in our society. All our service deliverers, such as our educators, see benefits from new arrivals. Perhaps most importantly it helps to secure the retention of our young people by getting them onto the local housing ladder.
House price trends in the year leading up to November 2024, in the South West saw a modest decline in average house prices, decreasing by 3% to £352,000. This downturn contrasts with the national average, which remained relatively stable. Notably, the median price stood at £300,000, indicating that half of the properties sold were below this threshold. However, regional variations are evident. In West Devon, the average house price rose by 9% to £330,000 to November 2024.
First-time buyers across the South West have faced the greatest affordability challenges, with average house prices at 10.35 times the average annual earnings, exceeding the national ratio of 9.32.
Despite these challenges there has been a recent surge in the first-time buyers’ market. The latest figures indicate that transactions have jumped almost 20% during 2024. This is driven by the impact of easing borrowing costs. The figures show that some 341,068 first time purchases were made, up 19% from 2023.
This comes after 2 years of contraction. First-time buyers accounted for 54% of all property transactions involving a mortgage. This is the highest figure since 2014. An interesting trend is the jump of purchasers who “coupled up” with almost two-thirds of completions made in two or more names.
Undoubtedly this trend reflects an improvement in mortgage affordability as interest rates have eased and stabilised providing more certainty and giving greater confidence to those stepping onto the housing ladder. This trend is encouraging with rates dropping from their peak in the summer of 2023 when the Bank of England started reducing Base Rate. This trend appears to be continuing with lenders factoring in a prediction of three reductions in Base Rate this year. This has just resulted in both Barclays and Santander announcing mortgage products with rates below 4%. Expect, however, at this level, to be paying a hefty deposit of probably 40%.
There is no doubt that this trend is also partly due to the stamp duty exemption on properties up to £425,000, which is set to decrease to £300,000 in April 2025. This impending change has spurred increased activity among first-time buyers aiming to secure properties before the tax adjustment.
This picture is encouraging but, despite the fall in mortgage rates, there are still serious affordability challenges. A typical new buyer was having to put down a deposit of £61,090 last year, about £7,500 higher than in 2023. The average age of a first-time buyer is now 33 years, the highest in the last 20 years. Perhaps however we can take some comfort from the fact that in London the average house price is £512,000 and a typical first-time buyer deposit required of £125,000.
This affordability challenge remains a huge problem with the Government withdrawing their first-time buyer scheme. This gap has had to be filled by the bank of “Mum and Dad” with 31% of deposits being secured from this source compared with around 22% in the mid-1990s. 9% of deposits were secured from inheritance.
It is encouraging that Estate Agents are reporting an increase in the number of properties coming to the market as the highest since the pandemic. This is a reversal of a three-year downward trend.
On a more negative tone, both Our Volume House Builders and most Estate Agents are still reporting that “buyers are very cautious”.
It is also clear that Government polices such as building 1.5 m new homes in the next 5 years is a pipe dream, with industry experts, who are in touch with the reality of the market, saying that this target will be missed by at least a third. Also, other policy initiatives such as plans of 100 new towns, a “New Homes Accelerator” programme and promised planning reforms could take years to produce results or suffer the same fate as the “Ecotowns” under Gordon Brown’s Labour Government and David Cameron’s “New Town” initiatives both of which largely failed to get off the ground.
So where next and what is the Market Forecast?
Looking ahead, property firm Savills forecasts a 21.6% increase in average house prices across the South West by 2029, equating to an average annual rise of approximately 4%. This projection suggests a return to a more robust growth trajectory in the coming years.
The rental market in the South West has also seen significant changes. In December 2024, the average monthly rent in Northern Devon was £814, marking a 9.4% increase from the previous year. This rise is higher than the regional average of 6.9%, indicating a tightening rental market. Recent building regulations changes, increased costs of energy efficiency compliance, new protections for tenants and new tax provisions (such as double council tax on 2nd homes in Cornwall effective from April this year and anticipated increases in capital gain tax on larger homes) are all going to make this a market where only a very few will want to invest. Against this background rents will inevitably continue to go up.
So, what’s my best bet?
I have never having been one for sitting on the fence, but it is difficult to say more than that the housing market in South West England will continue to be a huge conundrum, characterised by many regional disparities, evolving affordability challenges, and the influence of policy changes. While certain areas have experienced price declines, others have seen growth, reflecting the complex nature of the market. Looking forward, modest price increases can be anticipated, influenced by improving economic factors, more effective policy decisions, and the inherent ability of our region to buck the general market trend.
