When the countries of the UK are compared in economic terms, Wales is sometimes regarded as the poor relation. However, both its housing and mortgage markets are showing similar positive trends to the rest of the UK.
This is not to paint the region as an area of accelerating growth – some parts are clearly still struggling – but it is in the right gear and making steady progress across a number of areas, albeit not always to the same extent as England, Scotland and Northern Ireland.
While Welsh growth may be impeded by insufficient housebuilding – a problem shared with the rest of the UK – lending is undoubtedly increasing. Combined mortgage advances to first-time buyers, homemovers and those remortgaging in Wales rose from £4.1bn in 2013 to £4.4bn in 2014 – a 7.3 per cent rise.
While this was well below the 22.2 per cent increase across the UK for those sectors, industry experts see cause for optimism.
“Wales is a growing mortgage market for us,” says Santander for Intermediaries managing director Brad Fordham. “In 2014, we approved mortgages for around 50,000 homes across the region; and in the past year alone, we have seen a 10 per cent increase in lending.”
Judging by the rising demand, this market could continue to grow in 2015. The latest survey by the Royal Institution of Chartered Surveyors suggests that new-buyer enquiries in Wales have increased and demand has held up better than the UK average.
Wales-based surveyors have mixed views on the state of the market – probably due to regional differences – but most are agreed on one point: supply is too low.
Anthony Filice of Kelvin Francis Ltd says: “There is a shortage of first-time buyer properties and traditional three-bed semis, which are both in high demand thanks to favourable mortgages and new stamp duty rates.”
David Baker of David Baker & Company says: “The market is more positive but still short of new stock and surveyors are still extremely negative, despite the market conditions, meaning that purchasers are prepared to pay a premium close to or at the asking price to secure properties.”
While demand for housing appears to be surging, the figures show that the number of homes being built in Wales is well down on previous years. This flies in the face of Welsh government statistics, which indicate that building commenced on 9 per cent more homes year-on-year in the 2013/14 financial year.
Nevertheless, construction began on only 5,786 new homes in 2013/14, compared with 10,199 in 2007/08. And looking further back, across the previous 25 years, the number of new homes commenced each year from 1982/83 to 2007/08 was generally between 8,000 and 12,000.
While current estimates for 2014/15 are more positive than last year’s total – with the number of new starts likely to approach 7,000 – research by the Welsh government suggests that more than 14,000 new homes each year are required for the next 15 years to keep pace with demand.
A study by the Welsh Assembly suggests that demand for housing has been driven largely by a rise in one-person households, as well as an increase in the overall population, more second homes and the loss of social housing through Right to Buy.
Recent Welsh government attempts to stem the crisis include an injection of £20m to improve housing stock and bring thousands of derelict properties back into use. It has also pledged £10.8m to deliver more social housing in the 2014/15 financial year.
Minister for communities and tackling poverty Lesley Griffiths says: “One of the biggest issues facing the housing sector at the moment is the lack of homes for sale or rent.”
She adds: “One of my top priorities is increasing the number of affordable homes in Wales. We’re making good progress towards our ambitious target of building 10,000 affordable homes by May 2016, having already delivered almost 7,000 homes this assembly term.”
Within the important first-time buyer market, the average age of a new homeowner in Wales is 31, according to Principality Building Society. This compares to a UK-wide figure of 36, research from price comparison site Moneysupermarket.com shows.
While both figures vary depending on the survey, clearly buyers in Wales can get their first foot on the housing ladder at a younger age than their English, Scottish and Northern Irish neighbours. One reason for this is obvious: properties in Wales are cheaper.
According to the latest Nationwide house price index, the average price of a house in Wales is £139,171. This compares to £188,566 for the UK as a whole.
Typical wages in Wales are also lower than elsewhere in the UK, at £24,600 a year versus just under £27,000 for the entire UK, according to the Office for National Statistics.
Nevertheless, borrowers in Wales require a lower income multiple to obtain a mortgage. Figures from the Council of Mortgage Lenders put the average first-time buyer income multiple in Wales at 3.19, compared to 3.38 for the UK as a whole.
“In some areas of Wales, you can get an awful lot for your money compared with other parts of the UK,” says Principality chief executive Graeme Yorston.
First-time buyers have received assistance from the Help to Buy – Wales loan scheme, which runs in a similar way to the scheme in England.
The Welsh government says Help to Buy to date has enabled 1,200 people in Wales to buy their home. It announced in February that the scheme would run until at least March 2016.
Buyers must put up at least a 5 per cent deposit while the Welsh government provides a shared equity loan of up to 20 per cent of the property price of a new-build worth up to £300,000.
That is only half the maximum value of the scheme in England, and there is a £1 per month charge in the first five years, whereas the English scheme is free for that period.
Home Builders Federation planning and policy adviser Mark Harris says: “The biggest constraint on housing supply in Wales in recent years has been people’s inability to buy because they couldn’t afford the deposit required to secure a mortgage.
“The Help to Buy – Wales scheme has given a tremendous boost to homebuyers.”
Also of help to buyers in Wales have been the stamp duty changes announced by the Chancellor in December’s Autumn Statement.
Under the new scheme now in operation, the relevant rate is charged on each portion of the property price, rather than a single percentage being applied to the total cost.
Figures from Nationwide show that 45 per cent of properties in Wales were already exempt from stamp duty because they were worth less than the £125,000 at which the tax was charged.
Meanwhile, the lender says 98 per cent of buyers in Wales who must pay the tax will in fact pay less under the new system. It says the tax payable on a typical homemover’s property, valued at £165,699, will be cut by around half to £814.
That said, typical house prices in Wales are rising, meaning there will be more stamp duty to pay, despite typical values in Wales failing to keep up with the UK trend of significant growth over the past few years.
In 2014, Wales posted only a 1.4 per cent rise in typical house prices, according to Nationwide. This compares to an 8.3 per cent rise for the whole of the UK, while the region with the greatest rise, London, witnessed 17.8 per cent growth last year.
Figures from other agencies vary but coincide with the general trend. The Land Registry Index shows a 2.6 per cent rise in Welsh house prices in 2014 and an increase of 6.7 per cent for England and Wales as a whole. Meanwhile, the Halifax index also shows a 2.6 per cent annual rise in Wales, compared with 7.8 per cent UK-wide.
With house price rises often regarded as a sign of positive change, the lack of major growth in Wales could be considered worrying. However, while homeowners naturally want their property to appreciate in value as much as possible, smaller growth reduces the hurdles presented to first-time buyers.
Within Wales, there are marked regional differences in house price growth. Data from Halifax shows that the city of Newport, in the south, experienced the sharpest fall in values during 2014, at 2.9 per cent. In fact, it saw the fourth-biggest fall of all UK cities, according to the lender.
On the flip-side, Wrexham, in the north of the country, experienced the largest growth in Wales at 8.9 per cent, with prices reaching a typical £155,232.
In research conducted in August last year by north Wales newspaper The Daily Post, house sales in Wrexham were found to be up by over 25 per cent on the previous year. The newspaper put this down to the recovering economy and a local prison development that increased demand due to the new jobs created; this is expected to push up sales and prices again in the coming years.
The Daily Post added that the Wrexham market had been well supported by Help to Buy, which, combined with increased confidence, had made it easier for first-time buyers to get a mortgage.
Agents reported larger increases in the prices of two-bedroom modern homes but the chief narrative for the area was rising demand.
Leigh Hayward from Wingetts estate agency in Wrexham told The Daily Post in August: “While house prices remain pretty static, the demand is certainly up and sales are going very well.
“In the modern two-bed semi market, in mid-2013 these were going for £115,000; now you are talking £125,000 in summer 2014. These are nudging close to the peak prices in 2007. The demand is there because you have first-time buyers competing with investors on these homes.”
He adds: “Part of the investor demand is from the prison plan and people thinking they will get a good return on a buy-to-let as workers will need places to live near the prison. These price increases have not yet filtered up to higher-priced homes but this could happen over time.”
Laura Chester from Town and Country estate agency in Wrexham also told the newspaper: “Sales are at levels that we have not seen since 2007. It is all very positive for us.”
Meanwhile, data from Hometrack shows that the Welsh capital, Cardiff, displayed higher house price growth in the year to January 2015 than the UK average of major cities. Its figures show an 8.8 per cent rise, which compares to the average UK city increase of 7.9 per cent over the same period.
But as the varying figures for places such as Newport and Wrexham show, Wales does not comprise one big economy. It is a large region with a series of micro economies.
Yorston says: “People think Wales is a homogeneous area but it is patchy and there are a few different markets within the country, which should be looked at like the rest of the UK with geographical changes impacting these diverse areas differently.
“In areas such as Cardiff and south Wales, demand is high and there are more job opportunities attracting people to the area, seeing prices rise.
“But other areas of Wales are blighted by unemployment with little opportunity for new jobs, seeing dramatic impacts on the local economy and, of course, house prices, with a number of areas seeing static or even decreasing house prices.”
Buy-to-let is an important sector in Wales and data from property analyst LSL shows the market has picked up over the past few years. Buy-to-let lending increased by 32 per cent in 2014 and, while total yields in January 2008 were 3.6 per cent, they have been trending ever since at between 4 per cent and 4.5 per cent and are currently at 4.3 per cent.
Typical rents, however, have not increased much, rising gradually from £520 a month in January 2010 to £566 now. This compares to a much larger rise across England and Wales, from £656 to £766 over the same period.
Yorston predicts that the huge changes to the UK’s pension system this month – where those aged over 55 will be able to cash in their pension pot with a much more favourable tax charge – could boost Welsh buy-to-let further as they will create more potential landlords with the funds to purchase properties for rent.
Yorston says: “The buy-to-let market has seen a big resurgence in the past few years in Wales. With interest rates at an all-time low, many people are turning to buy-to-let to try to get higher returns on their money, rather than have it sitting in lower-interest savings accounts.
“With the new pension reforms, we could see even more people turning to buy-to-let within the next few months and years.”
Another factor in the generally positive Welsh housing market equation is the fact that repossessions are falling. According to Ministry of Justice data, 1,360 homes were seized by lenders in 2007 and 2,490 the following year but, since 2009, there has been a steady decline, with 1,448 homes seized in 2012, 1,189 in 2013 and 955 in 2014.
Equally positive are government figures published in March that show that, over the three months to January, the employment rate in Wales grew more quickly than that of any other region of the UK.
Additionally, unemployment fell by 13,000, or 0.9 per cent, over the same period – the third-largest fall of all the UK regions – and by 8,000 over the year. Welsh unemployment now stands at 6.2 per cent, compared with 6.6 per cent at the same point last year.
Secretary of state for Wales Stephen Crabb says: “More people in Wales are benefiting from the security of a meaningful job, a regular wage and a better standard of living.”
On the mortgage front, experts are optimistic. Yorston says: “The housing market continues to look positive along with the wider economy.
“Arrears levels continue to fall as the market gets stronger. This should lead to increased competition among lenders and, hopefully, see more people take the step onto or up the housing ladder.”
Comment: Increasing evidence of a recovery in the Welsh housing market
Peter Hughes, chair of CML Cymru
There is no doubt that there are increasing signs of a recovery in the Welsh housing market, which in 2014 witnessed the strongest annual house purchase figures since 2007.
Another positive is that the number of first-time buyers needing mortgages was up 14 per cent on 2013.
Aside from the emergence of more favourable mortgage conditions within the lending industry and the Welsh economy, other measures have unquestionably helped. In particular, last year the Welsh government launched Help to Buy – Wales. Feedback suggests the system is working effectively.
Yet the key to the recovery is surely sustainability and signs here in Wales are encouraging. Employment levels are up and house purchase and first-time buyer loans are at their highest and most consistent levels since 2008, with 2014 seeing steady figures in each quarter. Many previous fears about the MMR seem to be unfounded and buyer appetite continues to be strong.
We are also seeing optimistic signs within the commercial markets: industrial schemes, offices and retail and leisure investments have all seen a boost in prime locations, with consequent increases in residential new-builds in those areas.
Activity has extended beyond the typical M4 locations, with signs also that the Welsh government is seeking to address concerns around planning and viability in more challenging areas.
This year, we will see major advances in policy, not least with the Planning (Wales) Bill and the devolution of certain taxes. The former in particular should modernise the delivery framework and ensure clear focus on future supply, especially around key regions such as Cardiff, Swansea Bay and the A55 corridor.
With regard to the latter, the Welsh government has recently launched a consultation on its proposed stamp duty equivalent – the Land Transaction Tax – and will be keen to ensure that any implementation does not destabilise local housing markets while achieving policy objectives.
A potentially more significant piece of Welsh legislation is the Renting Homes (Wales) Bill, which is intended to rationalise and rebalance the landlord/tenant relationship with a clearer legal framework for renting in Wales.
It will include a new form of ‘standard contract’, which will be similar to the current AST framework used mainly in the private rented sector. There has been extensive consultation around the Bill, with generally mixed views on timing and necessity of changes although the underlying aims of seeking to drive up standards in the increasingly important private rented sector are to be commended.
Based on current timelines, an implementation date of mid-2017 is anticipated, giving the lending industry time to assimilate its requirements.
Overall, therefore, the view from Wales is an increasingly positive one with improving economic conditions manifesting in a stronger and more sustainable housing market.
The devolvement of various powers to the Welsh government enables some local policy ambitions to take place and policymakers will be keen to ensure that none of the initiatives undermine the industry’s appetite to support mortgage lending in the country.