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Fall in homemovers impacts the whole of the property market, says CML

Posted 27 January 2017 by Ben Salisbury

The fall in the number of existing homeowners moving means less options for other buyers, warns the CML as Lloyds Bank reports first fall for 5 years

New research from the Council of Mortgage Lenders (CML) looks at the impact of the fall in the number of property transactions and its impact on homemovers.

The CML says that the trend of older homeowners not "trading up" and moving on to a different property means those homes are not freed up for the next generation.

The fall in the number of property transactions, down from around 1.6m transaction annually in the early 2000's before the financial crisis to around 1.2m means the housing market is less liquid.

The CML says the "prospects of a meaningful recovery in the number of transactions look increasingly slim," and the organisation expects sales to fall this year and next.

The financial crisis affected sales of homes to first-time buyers and home movers in a similar way. The difference comes in the direction sales to the two groups have taken since.

Thanks to government schemes like Help to Buy, sales to first-time buyers have gone up by 63% since the low after the 2008 credit crunch, but home mover numbers have only rallied by 17%.

Cash buyers were less affected by the crisis and are the only group that have seen transaction levels actually go up beyond the level they were at before 2008. Buy to let buyers dropped sharply after the crisis but recovered strongly before being hit by new tax laws that have caused a contraction in the last year.

Out of the four groups it is existing homeowners with a mortgage, homemovers, who have seen the biggest drop in numbers moving home.

Out of the four, movers have been the worst performers. The CML says the government could intervene as it has done for first-time buyers and by doing so could free up more properties for first-time buyers.

The CML says that although first-time buyers may need more help, if one part of the market is not moving, there are fewer properties on the market and less opportunities for others to move.

The CML says this undersupply of property for sale contributes to higher house prices as more people bid for fewer properties and people live in unsuitable homes for their current situation because growing families live in homes that are too small and are reluctant or are priced out of trading up and retired people continue living in large homes because fewer smaller homes are available to downsize to.

The CML notes that even if ambitious housebuilding targets are met and 250,000 new homes a year are built for the next 10 years, that is only 10% extra on top of the current housing stock we already have. so there needs to be better use of the current housing stock.

Meanwhile, Lloyds Bank Homemover Review shows homemover numbers have fallen for the first time in five years from 367,300 in 2015, down 4% to 354,000. This is the first fall since 2011.

Overall there has been a 12% rise in homemovers since the low point in 2009 when just 315,000 moved. However, the current figure is still 50% below the 712,000 seen 10 years ago.

Lloyds confirmed that the average homemover paid a record £291,777 in 2016, up 7% from 2015 and up by 46% or £92,000 since the 2009 low.

This means homemovers have to find a larger deposit or if there financial circumstances have changed they may not be able to borrow enough to move. This means average homemover deposits have risen by 33% (£23,978) from £72,270 in 2009 and by 6% or £5,640 in the last 12 months.

Illustrating the contrast in different parts of the UK, Londoners need to find an average of £192,432 to move onto the next rung of the housing ladder, whereas homemovers in Northern Ireland have seen average deposits required fall by 25% since 2009 to £45,371 - the lowest in the UK.

Lloyds research shows that the continued rise in prices means homeowners are increasingly opting for longer term mortgages beyond the traditional 25 years.

In 2006, 83% of homemovers had a term of between five and 25 years. 10 years later and 39% of homemovers mortgages were for a term of between 25 and 35 years.

However, low interest rates have kept mortgage affordability under control. In the final quarter of 2016, mortgage payments accounted for 38% of homeowners' disposable income, down from 57% in 2007.

Andrew Mason, Lloyds Bank Mortgages Director, said: “Despite favourable economic conditions including record low mortgage rates, high employment levels and rising real pay growth, the number of homemovers fell in 2016 for the first time in five years.

"Whilst higher prices will have lifted equity levels for many current owners, the low availability of the ’right type‘ of homes for those looking to move up the housing ladder may have constrained market activity. Of course, higher prices may explain why more homemovers are opting for longer mortgage terms.

“The ability of homemovers, particularly those in their first homes, to move on is an important component in the housing market as it increases the supply of properties, providing homes for new first-time buyers.”

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