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House prices and Covid-19

Most of the non-essential parts of the British economy have been put on hold by the coronavirus lockdown and the housing market – core as it may seem to many of our lives – is no exception. With moving during the lockdown period being heavily discouraged by the government (see below) and many lenders now refusing to lend to those with anything less than a 40% deposit, property website Zoopla reckons that the number of houses sold in the UK will fall by at least 60% in the next three months.

There are several factors behind the move – the shutdown has reduced banks’ capacity to process loans, surveyors are unable to value properties as easily and estate agents can’t show people around homes. On top of that, it’s hard to value a house when transactions have dried up and there are no comparable deals going through, and it’s hard to write loans when job security across almost all industries and seniority levels is suddenly in question.

So for now, the property market is effectively frozen. Price data will be virtually meaningless in the coming months, as pretty much the only deals being done right now will be between those who are forced to sell and those who are cash buyers. Agents and sellers who were hoping for a “Boris bounce” – which we did indeed seem to be getting for a short while at the start of the year – have now had their hopes dashed.

Beyond the lockdown

So what happens when the lockdown is over? A lot depends on the state of the economy – and also the level of restrictions on movement that remain. On that front, estate agents argue that there will be plenty of “pent-up demand” from both buyers and sellers, given that mortgage approvals in February hit their highest level since 2014. Samuel Tombs at Pantheon Macroeconomics also notes that cheap funding available to banks from the Bank of England should mean the mortgage market remains open and rates stay low once the worst of the crisis is past, even if the riskiest loans are no longer on offer.

But this might be wishful thinking. House prices are indeed largely dictated by the price and availability of credit (in other words, interest rates and banks’ willingness to lend). But unemployment is another huge factor and while the government has made great efforts to protect incomes and jobs and mortgage holidays are widely available (see page 32), some forced selling is almost certain. Meanwhile, a key source of demand in some areas – mini-Airbnb empires in tourist hotspots – will also suffer as holiday landlords who were burned during the lockdown sell out.

In the longer run, interest rates are unlikely to rise because the Bank of England will be forced to hold them down, given soaring government borrowing. In time that could result in inflation, which would make property appealing as a “real asset”. But that may take time – Capital Economics expects house prices to fall by just 3% this year, but notes “there are many risks that could undermine this forecast”, a larger-than-hoped rise in unemployment being the key one.

That said, if you are keen to move, then look to the shires. In relative terms at least, if there is any wider shift to working from home more regularly, you’d expect country properties to outperform city ones, while towns and villages once deemed to be on the fringes of commuting range of London and other big cities might also see a benefit.

What if I’m buying or selling a house right now?

The first point to make is that you should not move right now unless you absolutely have to. If you’re a seller, there’s no need to take your house off the market – people have lots of time on their hands to browse – but just don’t expect any viewings.

If you hope to buy but you haven’t yet exchanged, the easiest thing to do is simply to put the process on hold. You might be inclined to try to negotiate a lower price and carry on regardless (making sure the completion date is for later in the year), but bear in mind that unless the seller absolutely has to move, they will probably simply pull out. Holding off and picking up later (when the market impact will also be more visible to all involved) makes sense.

As for those whose transactions are already in motion, moves to a vacant property can go ahead (but stick to social-distancing guidelines during the removal process). However, for those moving to occupied houses, the government has advised buyers and renters that while there is no need to pull out of deals, everyone should “do all they can to amicably agree alternative dates to move, for a time when it is likely that stay-at-home measures against coronavirus” are behind us. This is the case even where contracts have been exchanged (and thus the transaction is legally binding).

So what does that mean? Post-exchange, failure to complete can leave both buyers or sellers (depending on who fails to move) liable to penalties, so you are basically dependent on everyone being reasonable. Mortgage lenders have said that they will extend the life of mortgage offers for up to three months, so as long as all parties can agree alternative dates, your lender shouldn’t be an issue.

If it proves impossible to delay a move, it can go ahead, but everyone must observe social-distancing measures. Note too that the lockdown will create lots of extra logistical problems. Approving paperwork and moving money may take longer due to lower levels of staffing. Physical documents are still required at various stages of property deals, so that may hold things up. And finding removal firms who are still taking on jobs right now is another challenge.

The key – as with any property transaction – is to maintain clear lines of communication, particularly if you are part of a chain, and to have a back-up plan should the deal fall through. Good luck.

By John Stepek

Source: Money Week

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UK house prices growth ‘grinding to a halt’

UK house prices rose three per cent last month just before the coronavirus outbreak hit, according to Nationwide figures released today.

But the bank warned housing market activity is “grinding to a halt” as the coronavirus lockdown stops buyers and sellers from viewing properties.

Banks have also withdrawn mortgages or made it tougher to secure mortgages, also dampening UK house prices.

Coronavirus means outlook ‘highly uncertain’

“Housing market activity is now grinding to a halt as a result of the measures implemented to control the spread of the virus,” Nationwide’s chief economist Robert Gardner said.

“Indeed, a lack of transactions will make gauging house price trends difficult in the coming months.

“The medium-term outlook for the housing market is also highly uncertain, where much will depend on the performance of the wider economy.”

The UK is facing a severe economic retraction as a result of the coronavirus crisis. The government has closed all shops save supermarkets, pharmacies and banks.

And people are able to leave the house once per day to exercise, while maintaining two metres distant from others.

“Economic activity is set to contract significantly in the near term as a direct result of the necessary measures adopted to suppress the spread of the virus.,” Gardner added.

The value of British homes rose 0.8 per cent on a monthly basis in March, up from February’s 0.3 per cent change. And its three per cent annual growth rate outpaced February’s 2.3 per cent growth.

That left the average UK house price at £219,583 in March.

UK house prices growth ‘meaningless’

Jeremy Leaf, north London estate agent and a former RICS residential chairman, called today’s UK house prices figures “academic” in light of coronavirus.

“However, they do raise expectations that when restrictions begin to ease, hopefully relatively soon and without too much damage to the economy, there is every chance that activity will pick up nearly where it left off,” he added.

“We are finding that only those industries particularly badly affected by coronavirus are having to pull out of transactions, such as those working in the travel, hospitality or entertainment industries.”

But Lucy Pendleton, founder director of independent estate agents James Pendleton, painted a darker picture. She said UK house prices were now “irrelevant” with the coronavirus outbreak. Pendleton has put more than half its estate agents on furlough, and last week house sale numbers slumped 84 per cent.

“It wasn’t so long ago that commentators talked of Brexit uncertainty putting transactions on ice but that feels like ancient history now,” she said. “Covid-19 has brought brutal new meaning to a frozen market.”

Lenders back away from mortgages

Mark Harris, chief executive of mortgage broker SPF Private Clients, added that “lenders remain keen to lend”.

That is despite some having to pull back from high loan-to-value deals. Nationwide yesterday tightened measures on mortgage applications and no longer takes bonuses and overtime pay into account.

Nationwide also pulled its mortgage offering for low-deposit borrowers earlier this week.

Lloyds Banking Group, which owns includes Halifax and Scottish Widows and is the UK’s largest lender — has capped lending at 60 per cent of loan to value.

And Barclays has put a cap on how many mortgage applications it will accept from brokers. It has also limited high loan to value mortgages.

“In most instances this is a temporary move while they get to grips with the inability to carry out valuations, plus redirect their staff to deal with mortgage payment holiday enquiries,” Harris said.

UK house prices ‘will recover quickly’

“The only silver lining to this situation is that political uncertainty and underlying economic weakness play no part in this chaos,” Pendleton added. “The housing market will come roaring back to life as soon as the lockdown ends, aided by interest rates that are significantly lower than when it began.”

However, it is unclear how long the coronavirus lockdown will weigh on UK house prices.

“This crisis has ripped staff and customers from our hands,” Pendleton added. “Coronavirus has broken the spirits of businesses on a scale not seen since the financial crisis. It is an incredibly testing time but we must come out the other side, and come out fighting.”

By Joe Curtis

Source: City AM

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Halifax: House prices up 2.8% annually

House prices increased by 2.8% in the year to February, according to Halifax’s house price index.

On a monthly basis, house prices increased by 0.3%.

Looking at the data on a quarterly basis, house prices rose by 2.9%.

Russell Galley, managing director, Halifax, said: “The UK housing market has remained steady heading into early spring.

“Much like we saw in January, the increases seen in February reflect the continued improvement of key market indicators.

“The sustained level of buyer and seller activity is strong compared to recent years, with positive employment conditions and a competitive mortgage market continuing to support demand.

“Looking ahead, there are a number of risks, including the potential impact of coronavirus, which continue to exert pressure on the economy, and we wait to see how these will affect housing market sentiment later in the year.”

Ben Johnston, director of off-market property app Houso, added: “House prices are on a continued upwards trajectory, but it remains to be seen how much of an impact the unexpected hurdle of Coronavirus is going to have on the market.

“The Bank of England could feasibly follow the Federal Reserve with a rate cut to help markets and shore up the stagnating economy in an effort to prevent other businesses going the way of FlyBe.

“Next week’s Budget gives the government the chance to stimulate growth further by reducing stamp duty although this might not be enough until the Coronavirus has stabilised and the threat has diminished.

“That all-too-precious confidence, which is so important for the market, is hanging in the balance.”

Lucy Pendleton, founder director, James Pendleton, said: “It’s no surprise to see continued healthy price growth like this. Demand and supply have both been rebounding recently but, so far, the number of new buyers is definitely outpacing the return of sellers.

“Coronavirus impacted our business for the first time on Wednesday, stealing away a sale that was just days from exchanging.

“The buyer worked in the events industry which is being rocked by large numbers of cancellations. He was unfortunately one of the employees told his job was at risk, forcing him to pull out of the purchase completely. The hope is this will remain an isolated case, but the impact of the virus will become clearer in March.

“For now, with valuations still rising and competition for certain properties still fierce, buyers have begun to put in offers on multiple properties in a bid to secure an option before stalling over exchange of contracts in case something better comes along. This could create an unappealing log jam and put more completions at risk if Covid-19 starts to become a major factor.

“Despite the newspaper and TV screens being peppered with images of people wearing face masks and plastic bottles on their heads, there’s still a huge appetite to move, and buyers and vendors have so far refused to put their searches on hold.”

By Jake Carter

Source: Mortgage Introducer

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British house prices to rise as UK-EU uncertainty fades – Reuters poll

British house prices will continue their upward climb in coming years as fears of a messy split from the European Union have waned and expectations for ongoing loose monetary policy supports demand, a Reuters poll found.

Nationally, prices will rise 2.0% this year, 2.8% next year and 3.1% in 2022, medians in the Feb. 17-28 poll of 26 housing market experts showed, much steeper than predicted in a November survey.

“It is anticipated that some of the uncertainty that has held back the UK housing market over the past year will begin to lift with the result that we see some modest pickup in house price inflation,” said Peter Dixon at Commerzbank.

Prime Minister Boris Johnson won a decisive victory in an election in December, strengthening his position, and all Reuters economic polls since a narrow majority of Britons voted to leave the EU in June 2016 have said the most likely future trading regime will be an EU-UK free-trade agreement.

But the prospect of no deal being reached by the end of 2020 will weigh on the property market, 19 of 25 respondents to an extra question said.

“The housing market doesn’t respond well to uncertainty. People do nothing rather than something, which brings the market to a standstill,” said property market consultant Henry Pryor.

Growth has been tepid in recent quarters and, with the coronavirus outbreak threatening to derail the global economy, the Bank of England is not expected to increase borrowing costs until 2022 at the earliest, easing the burden on buyers with a mortgage.

Fears the coronavirus will stoke the next global recession have raised expectations for a coordinated policy response by central banks so UK interest rates could fall further.

However, homes are still seen as slightly overvalued. When asked to describe the level of house prices on a scale of 1 to 10 from extremely cheap to extremely expensive, the median response was 6.

In London, the median rating was 8. With prices set to rise 2.0% this year and next, there will not be any respite for people looking to buy in the capital.

The average asking price for a home in London was around 630,000 pounds ($805,203) last month, property website Rightmove said, almost six times the average UK annual salary, putting dreams of getting on the property ladder out of reach for many.

Still, British lenders approved the highest number of mortgages for house purchase in nearly four years in January, Bank of England figures showed on Monday, confirming a pick-up in consumer demand at the start of 2020.

When asked what was most likely for London housing market activity over the coming year, around two-thirds of respondents replied by saying an acceleration rather than a prolonged period of sub-par activity followed by a recovery or a slowdown.

It was a similar split when asked the same question about activity nationally.

“While the direction of travel in the near-term is clear, the size of that gain is not,” said Hansen Lu at Capital Economics.

“House prices are still high relative to incomes, while mortgage interest rates are unlikely to fall further. That means the housing market is still constrained by limited deposit availability, loan-to-income limits and a lack of homes for sale.”

Polling by Tushar Goenka and Nagamani Lingappa

Source: UK Reuters

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UK house prices grow at fastest rate for 18 months in February

UK house prices grew at their fastest rate since July 2018 in February, according to Nationwide figures released today.

February’s annual rise of 2.3 per cent, up from 1.9 per cent in January, was UK house prices’ strongest rate of growth in 18 months.

That left the average UK house price at £216,092, up from January’s £215,897 despite the economy flatlining in the last quarter of 2019.

Prices rise but uncertainty clouds 2020

Nationwide’s chief economist, Robert Gardener, said it was a sign of gathering momentum in the UK housing market.

“While overall economic growth ground to a halt in the final three months of 2019, labour market conditions remained buoyant and borrowing costs low,” he said.

“The decisive election outcome may have provided a boost to buyer sentiment.”

But he warned that the economy faces “significant uncertainties” that could hurt UK house prices. The coronavirus outbreak and Brexit trade talks are chief among those challenges.

“The global economic backdrop remains challenging, with the coronavirus outbreak expected to weigh on global activity in the coming quarters,” he said.

“Investment is likely to remain subdued until the UK’s future global trading relationships become clearer, which is unlikely until early next year.

“Overall, we expect the UK economy to continue to expand at a modest pace in 2020, with house prices remaining broadly flat in 2020 as a whole.”

February’s monthly rise of 0.3 per cent marks the fifth monthly hike in UK house prices – the first time since May 2016 this has happened.

And house prices rose one per cent in the three months to the end of February compared to the previous three to deliver the highest such rate in two years.

Brexit clarity gives UK house prices a bump

More clarity on Brexit – despite fresh uncertainties over the likelihood of a trade deal – boosted UK house prices, economists said.

“The housing market has seemingly got a leg-up from increased optimism and reduced uncertainties following December’s election,” Howard Archer, chief economic adviser to the EY Item Club, said.

That led EY to increase its 2020 outlook for UK house price growth from 2.8 per cent to three per cent. EY’s forecast had sat at two per cent at the turn of the year.

Boris Johnson’s December General Election victory also played a major part.

“The housing market is continuing to strengthen in the wake of the General Election,” Samuel Tombs, UK economist at Pantheon Macroeconomics, said.

“Other surveys suggest that this momentum will be largely maintained. Asking prices rose at a 2.9 per cent year-over-year rate in February, according to Rightmove. In addition, the RICS survey showed the largest net balance of surveyors for four years in January expected house prices to rise over the next three months”

But Brexit trade talks still a fear factor

“However, the economy still looks set for a pretty challenging 2020,” Archer added. “There will still be appreciable uncertainties, including on the UK-EU relationship front – so that the upside for house prices in 2020 is likely to be limited.”

Coronavirus could hurt UK house prices

Marc von Grundherr, director of estate agent Benham and Reeves, warned the coronavirus outbreak could hurt UK house prices, however.

“As the world continues to tackle the Covid-19 pandemic, there are murmurings it could impact house prices as well as health across the domestic market,” he said.

“At this stage and while UK cases remain few and far between it remains unlikely. Foreign investors at the very highest level might be pausing to take stock. But it’s probably not one that will be felt by the average UK home buyer or seller.”

Mansion tax to hit London?

Von Grundherr said buyers and sellers will be more mindful of next month’s Budget, where a possible so-called mansion tax could hurt London house prices.

“A potential mansion tax via next month’s budget is far more likely to dent the sentiment of London’s high end foreign investors in particular, although they are arguably best placed to stomach such a hit. “

By Joe Curtis

Source: City AM

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Annual price growth at three year-high as supply lags demand – Zoopla

House prices across all English cities have risen above their 2007 pre-crisis peaks for the first time but Zoopla is warning sellers not to get over-excited when pricing their properties.

Figures from the portal – based on Land Registry price paid data and mortgage valuations – found annual price growth among the UK’s largest cities last month hit a three-year high of 3.9%.

All cities, except for Aberdeen, where prices fell 4.3% annually, recorded annual house price inflation of at least 2% last month for the first time since February 2017.

The highest growth was in Edinburgh, up 5.9%, while Nottingham and Leicester each recorded growth rates of 5.3%.

Zoopla highlighted that stock is also up 2.6% annually, but is lagging behind demand which is up 26%.

Stock levels in nine cities are lower than a year ago by as much as 6%, Zoopla said, with most of the shortages in areas where prices are rising fastest.

Richard Donnell, research and insight director at Zoopla, said: “It has taken 12 years for house prices in all English cities to return to their previous pre-crisis levels.

“Some cities returned to 2007 levels within four years, as the economy and job growth rebounded. In others, it has taken much longer as the mismatch between demand and supply has been less pronounced.

“An imbalance between supply and demand is supporting the current rate of house price growth – a trend we expect to remain in place over the first half of 2020.

“We do not expect a material acceleration in the rate of growth in the foreseeable future, as affordability pressures will limit the scale of price growth, especially across southern England.

“There is a risk that, in some markets, sellers may become unrealistic about the expected sales price for their home. This is more likely in London and southern England where the market has been weak, and supply remains constrained. Housing demand is up, but there remains a price sensitivity amongst buyers, especially in the highest value markets.”

By MARC SHOFFMAN

Source: Property Industry Eye

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House prices return to pre-financial crisis levels

House prices across English cities have risen above pre-Financial Crisis peaks for the first time since 2007, the latest research has found.

Property in Central London recovered to pre-crisis levels in just 2.3 years, the fastest of all UK cities, as overseas buyers entered the market attracted by a weaker pound.

Oxford and Cambridge followed the capital, returning to 2007 levels at 3.7 and 3.9 years respectively.

Newcastle was the last city to exceed pre-crisis house levels, only registering recovery in late December last year, according to the Zoopla UK Cities House Price Index.

Meanwhile, London’s house prices grew two per cent from January 2019 to last month, and all English cities have recorded annual house price inflation of at least two per cent per year for the first time in two years.

Richard Donnell, director of research and insight at Zoopla, said: “While it took 12 years for all English cities to return to pre-Global Financial Crisis levels, the central London market returned to this level in just 2.3 years.

“The subsequent decrease in the value of sterling created a window of opportunity for overseas buyers to secure competitive value in high value markets and, since then, house prices in London have rebounded by almost 60 per cent, outstripping all other UK cities.

“Today London’s growth is more moderate, slowly ticking upwards at two per cent per annum. We do not expect the annual growth rate to accelerate further as affordability pressures limit buying power.”

Data by the Office for National Statistics published last month showed that London house prices jumped 2.3 per cent to £484,000 in December after the Conservative election win.

Across the UK house prices increased 2.2 per cent on an annual basis, and reported an increase of 0.3 per cent on a month by month basis.

By Jessica Clark

Source: City AM

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Are house prices about to surge again?

Spring seems to have come early for the UK housing market. The Royal Institution of Chartered Surveyors’ survey reported a sharp rise in new buyer enquiries and house price expectations in January. New instructions for house sales are rising at the fastest pace in over six years. House price inflation has edged up in the last couple of months.

The recent stirrings follow a period of sluggish housing activity. The rebound in house prices and activity which started in 2013 hit the buffers in 2016, the year of the EU referendum. The Halifax measure of house price inflation dropped from a year-on-year peak of 8.8% in the spring of 2016 to a low of 0.9% last October. House prices in London have grown far slower than the national average in the last three years, a development which has made housing in the capital marginally more affordable relative to incomes.

Yet over a longer period the picture is of house prices far outstripping general inflation and earnings. Since 2000 the Halifax measure of UK house prices almost tripled while earnings have risen by less than 80%.

A recent Bank of England working paper argues that the rise in house prices in this period can be largely attributed to the effect of lower interest rates. A lower discount rate raises the present value of an asset, thus raising house prices. (The same process has done wonders for equity prices.) But the relationship works both ways. The model developed by the author of the Bank paper suggests that a sustained increase of 1% in long-term interest rates could lead to a 20% fall in house prices.

The triple shock of disinflation, credit liberalisation and quantitative easing helped power UK house prices. It is a remarkable combination, but one that seems unlikely to be repeated in the next 20 years.

Of course housing demand has also risen due to the growth of single person households, immigration and greater longevity; the number of English households has increased by 13% since 2000. Given the deterioration in housing affordability and rising concerns about housing shortages it is, perhaps, surprising that the official data show that the number of dwellings in England has increased at a rather faster rate than the number of households.

This is less reassuring than it might seem. There are acute regional housing shortages, evidenced by soaring rents in London. And the quality of the housing stock is hotly debated. UK housing is ageing, prompting LSE academic Paul Preston to declare that houses “are akin to Cuban cars: they are still in use but they are clapped out and polluting”. We will return to the question of housing supply in a future Monday Briefing.

Looking ahead, it seems plausible that the government’s post-Brexit migration policy, coupled with very low unemployment rates in central Europe, will slow the rate of growth of migration. Meanwhile housing supply is picking up from the lows seen in the wake of the financial crisis.

Sentiment in the housing market has perked up. But the tailwinds which drove a vertiginous rise in prices over recent decades are weakening. The scope for substantial reductions in interest rates has diminished. A period of rapid growth in immigration may be drawing to an end. Expanding housing supply seems, once again, to be a political priority. The double-digit house price inflation of the decade before the financial crisis looks increasingly like another world.

BY IAN STEWART

Source: Reaction

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House prices rise across all UK regions for first time in two years – Land Registry

House price growth ended 2019 at an all-time high for the year, Land Registry figures show.

The December 2019 Land Registry House Price Index showed that average property prices ended 2019 up 2.2% annually to £234,742.

Today’s Daily Mail has splashed the story as its front page lead, attributing the house price rises to the Boris bounce – although the data relates to deals agreed much earlier than the general election, and probably in September or before.

Many commentators yesterday also attributed the boost in prices to the so-called post election ‘bounce’.

All parts of the UK saw prices grow annually for the first time in almost two years, according to the Land Registry.

Annual house price growth was strongest in Northern Ireland where prices increased by 2.5% over the year.

Prices were more subdued on a monthly basis, up just 0.3%.

The latest provisional sales volume data from the Land Registry for October showed transactions decreased by 0.8% annually in both England and Wales, increased by 2.7% in Scotland and rose by 5% in Northern Ireland.

Gráinne Gilmore, new head of research at Zoopla, said: “The pick-up in annual price growth reflects the trends seen in Zoopla’s UK Cities House Price Index, which recorded the highest level of house price inflation in two years for December 2019.

“Zoopla data shows an increase in buyer demand since late last year, a trend that is set to continue amid real wage growth and low interest rates. However, in some areas there is still a shortage of homes coming to market to meet this demand.

“The upcoming Budget is a prime opportunity for the new Chancellor to address some of the factors affecting the housing market at present. Any review of Stamp Duty charges to help the movement of home owners up and down the property ladder would be welcome, but the extent and nature of any reform, which must be balanced against political exigencies, remains to be seen.”

By MARC SHOFFMAN

Source: Property Industry Eye

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UK house prices: Buyer boom sets scene for record-breaking spring

UK house prices are expected to break records over the coming months as buyer activity outstrips the number of new sellers, according to new research.

The average price of property coming to market jumped 0.8 per cent – or £2,589 – this month, just £40 short of a new all-time high.

The house price boom is being driven by the release of pent-up pressure following the General Election, and experts said the growth would gain further momentum on the approach to spring.

Online estate agent Rightmove said monthly traffic was up 7.2 per cent on the previous year, and the number of sales agreed nationally was up 12.3 per cent.

In London, the number of agreed sales jumped 26.4 per cent compared to last year, according to data from Rightmove.

Rightmove director and housing market analyst Miles Shipside said: “There is a boom in buyer activity outstripping the rise in the number of new sellers, which we expect to lead to a series of new price records starting next month.

“The average price of newly-marketed property is just £40 below its all-time high from June 2018, with the typically busy spring market still to come.

“This means that spring buyers are likely to be faced with the highest average asking prices ever seen in Britain.

“Buyers who had been hesitating and waiting for the greater political certainty following the election outcome may be paying a higher price, but they can now jump into the spring market with renewed confidence.”

By Jessica Clark

Source: City AM