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UK Property Market: Changes Affecting Buyers in 2018

Certain changes are expected to hit the UK property market in 2018.

A 0.25 % increase is interest rates will tentatively occur in spring, which will increase the Bank of England’s base rate to 0.75%. This will increase a tracker mortgage of £175,000 by £22.

This raise will not affect all homeowners, given the fact that over half of all borrowers are on fixed rates.

The number of new homes being produced has increased, with 217,000 properties made available in 2016-17, which represents a 20% increase from the previous year. Although this accomplishment restores the total to levels seen prior to the financial crash, it is still lower than the government-issued target of 300,000.

A combination of reduced migration and increase in construction activity means that the housing supply will face less pressure than earlier.

The property market in 2018 will likely see more first-time buyers appear, along with a decrease in buy-to-let lending. In 2015 landlords acquired approximately 120,000 homes using buy-to-let financing. The Council of Mortgage Lenders anticipates that this number be under 80,000 in 2018. Higher taxes and stricter lending criteria are favouring the homebuyer instead of property speculators.

In the 2018 budget Chancellor Philip Hammond announced the elimination of stamp duty on properties valued up to £300,000 if they were bought by first-time buyers. Four out of five such buyers will save up to £5,000.

Some believe that the break on stamp duty, combined with the ongoing availability of Help to Buy, has created ideal conditions to buy a new home.

Successive years of rent increases probably means that landlords cannot raise their rates much further during the coming year. Last year London rents rose by less than 1%.

Salaries affected by inflation will also impact the property market in 2018, which is another reason why rates are not expected to go up this during 2018.

The ban on letting agency fees will also make tenants happy. Although there is no definitive date that the ban takes effect, the Government has stated that it will arrive this year.

Source: CRL

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Northern Ireland’s commercial property market holds big draw for investors says CBRE outlook

THE north’s commercial property market is enjoying a period of renaissance, with investors currently banking some of the highest rates of return of any other region in the UK or Dublin, research from real estate firm CBRE has revealed.

The launch of its 2018 outlook in the Waterfront Hall also heard that a £100 million fund set up last year by the Department of Finance to promote investment, jobs and growth in Northern Ireland, and which is managed by CBRE Capital Advisors, is “close” to making its first big loan.

But the event, attended by more than 400 delegates, heard a caustic criticism of the current political paralysis from CBRE’s Belfast office managing director Brian Lavery, who said the last year had been “a maelstrom of uncertainty, indecision and the poorest leadership in memory”.

“In the last year we at CBRE, along with our peers in the Northern Ireland business and property world, have had to continually make excuses to potential overseas investor for our lack of local leadership.

“Our success depends on the success of the whole economy and of a whole vibrant society. The exciting and vibrant plans and aspirations put in place by our local councils, for instance, will all struggle in a headwind if we do not have stable government.”

He added: “We have added our voice to the deep concern for this part of the world and, along with other organisations, urge our politicians to finally start representing our joint economic concerns to London and Brussels rather than continually emphasising our differences.”

The CBRE report, which has been produced for the last 10 years, showed that prime yields – the annual rent achieved from a property divided by the property’s value – are higher across all sectors in Northern Ireland compared to GB and the Republic.

Prime yields for high street shops in Northern Ireland stand at 5.75 per cent compared to 4 per cent in GB and 3.15 per cent in the Republic while for offices, yields in the north stand at 6 per cent compared to 4 per cent in the City of London or 4 per cent in Dublin. Yields are also higher here for shopping centres, retail warehouses and industrials.

Andrew Marston, CBRE’s director of UK Office & Industrial Research, said: “On a global basis, we’re beginning to see rising interest rates in the US and elsewhere and that will start to weigh on prime yields for commercial property. But in Northern Ireland yields have plenty of cushion and there is a wide arbitrage between Belfast and the likes of London and Dublin.”

That, he added, has helped draw overseas property investment to Northern Ireland, as recent sales have shown (including the £123m purchase of Castlecourt in Belfast by Holywood-based Wirefox, backed by funding from China).

Elsewhere in the commercial property market, Mr Marston said waning consumer confidence is weighing on the retail lettings market while the hotel sector is enjoying growing demand from a steady increase in tourists to Northern Ireland and will soon see an increase in supply from the 1,100 hotel bedrooms which are currently under construction.

In the industrial sector, rents for existing stock are stable at £4-£4.50 a square foot while there is a significant premium for design and build options and in the office sector with take-up reaching 430,290 square feet in 2017.

Also speaking at the event was technology entrepreneur Oliver Rees, co-founder of cyber security platform Hook and freelance innovation consultant, who explored how technology is being embraced by the commercial property world.

Source: Irish News

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London most expensive European city to rent in

London has been named the most expensive city for rental accommodation in Europe, for the third consecutive year.

Last year, rent in London was £3,693 more expensive than the average monthly cost in Europe, according to figures from consultancy firm ECA International.

The average price of an unfurnished, mid-market, three-bedroom apartment in the capital costs around £5,398 per month, almost £4,000 more expensive on average than other major cities in the UK.

The research compares the rental costs of accommodation in areas that are normally inhabited by expatriate staff, such as New York and Hong Kong.

Alec Smith, accommodation services manager at ECA International, said Manchester, Edinburgh and Glasgow had seen the biggest rent increases in the UK due to high demand for rental property.

Contrastingly, Aberdeen saw rental prices fall by 16% as a result of employers sending staff back to their home locations as a result of to the downturn in the oil and gas industry.

While London’s rents were ranked the most expensive in Europe, it dropped into fifth place in the world behind Port Morseby in Papua New Guinea, due to the pound’s fall in value following the Brexit vote.

“Changes to stamp duty in 2016 led to a rush from landlords to purchase buy-to-let properties, which increased the supply of rental accommodation across prime areas in London,” said Smith.

“This increased competition among landlords contributed to modest falls in average rent in the UK’s capital, although it is still the most expensive in Europe.”

Ireland’s capital Dublin had one of the highest rent increases in Europe, resulting in it entering the top 10 of most expensive cities for rental accommodation for the first time.

“The past 10 years have seen a significant turnaround in the fortunes of Dublin’s residential market. The global financial crisis exposed a property bubble in the Irish capital and rents have increased significantly with each subsequent year of recovery,” said Smith.

He added that the cost of rents were also affected by elevated demand from international companies relocating staff while attempting to take advantage of the low corporate tax rate on the island.

Eastern European cities such as Prague and Warsaw also saw sharp increases in rental prices, climbing more than 10 places in ECA International’s rankings.

Hong Kong remained the most expensive place for rental accommodation in the world with rent averaging around $10,461 (£7,588) per month, while in the US, New York remained the most expensive for expats in the US, despite prices falling in the last year.

Source: Economia

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Will Brexit Make Or Break Commercial Real Estate In The UK?

This has only served to exacerbate the uncertainty surrounding Brexit, with a growing number of pro-Remain politicians imploring Chancellor Philip Hammond to publish some reports on how leaving the European Union will shape the national economy.

One particular area of concern is the commercial property market in the UK, which has struggled to deliver investor returns ever since the electorate voted to leave the EU.

With this in mind, the question that remains is whether Brexit will ultimately make or break this market in the long-term?

How is the Current Market Performing?

The commercial property market is difficult enough to crack at the best of times, with numerous issues surrounding the diversification of income. Without in-depth knowledge of the market and the typical real estate life cycle, it can be exceptionally difficult to achieve either short or long-term gains.

This market was therefore one of the first to bear the brunt of the EU referendum vote in the UK, as investors sought flight and an initial decline in valuations and rents was reported. Like with so many markets that have been impacted by Brexit, however, this decline was triggered by sentiment and perception rather than actual events, meaning that investors may be unable to determine the true state of commercial property in the UK.

This makes perfect sense on some levels, of course, particularly given the unprecedented and unknown nature of Brexit. This is compelling industry experts to issue cautious growth forecasts and timid valuations, regardless of the events that are shaping the real-time marketplace.

In fact, overseas investors (especially those based outside of the EU in nations such as China and the U.S.) are piling into commercial real estate in the UK like never before, with a recent purchase of the so-called Cheesegrater by Chinese developers being completed for £1.15 billion (which just happens to be 26 per cent higher than its September valuation).

Post-Brexit: What is the Future for Commercial Property Investment in the UK?

This highlights the chasm that often exists between perception and reality, especially when it comes to unknown elements such as Brexit. This does not mean that the market will remain buoyant when the UK eventually leaves the EU, of course, but it does suggest that it will have ample opportunity to diversify and grown in the future.

One of the biggest incentives for non-EU investors has been the depreciating value of the pound, which has improved the value proposition of commercial property in the UK. This would probably be sustained in the aftermath of Britain’s departure, so the market would most probably receive an initial boost during this period.

The long-term future of the market is far harder to call, as much will be determined by the nature of any deal with the EU and the long-term performance of the economy.

However, it’s highly unlikely that Brexit will break the commercial property business in the UK, particularly with so many opportunities existing outside of the European Union.

Source: Shout Out UK

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Buy-to-let mortgages slip as legislative changes push more landlords away

Mortgages for new buy-to-let house purchases slid 1.5% year on year in November 2017, while buy-to-let remortgages dropped by 3.6%, amid further signs that legislative changes are causing landlords to flee the market.

That’s according to new figures from UK Finance, which found there were 6,600 new buy-to-let house purchase mortgages during the month. By value, this was £900m worth of lending, which was the same as a year ago.

There were 13,500 new buy-to-let remortgages in November 2017, worth a total of £2.1bn and down 4.5% on a year ago.

But there was better news when it comes to first-time buyers and home movers.

There were 34,800 new first-time buyer mortgages in the month, up 15.2% on the same month a year earlier. That equated to £5.6bn of new lending, up 16.7% on a year ago.

UK Finance found that the average first-time buyer is 30 and has an annual income of £40,000.

Meanwhile, there were 36,200 new home mover mortgages, which was a 16.8% increase on last year. The £7.5bn of lending in the month was 19% more year on year. The average home mover is 39 and has an income of £54,000, according to UK Finance.

There were 38,400 home owner remortgages during November, some 8.5% more than the same month a year ago. The £6.5bn of remortgaging was 10.2% up year on year.

Paul Smee, head of mortgages at UK Finance, said: “The data shows housing market activity remains buoyant, despite November’s rise in the base rate.

“Steady increases in lending for house purchases together with increases in home owner remortgages reflect a keenness among consumers to benefit from still historically low interest rates, and a highly competitive marketplace.

“In contrast, declines in buy-to-let lending reflect the changing regulatory and fiscal environment for landlord businesses, where some landlords might be inclined to reappraise the viability of their portfolios.”

Source: Property Industry Eye

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Mixed New Year messages from Bank of England on next rates move

LONDON (Reuters) – The first two Bank of England policymakers to make speeches in 2018 have highlighted the debate within the British central bank about when interest rates might rise above their financial-crisis emergency levels.

Two months after the BoE raised borrowing costs for the first time in more than a decade, Silvana Tenreyro and Michael Saunders struck contrasting tones about the outlook for inflation in Britain’s Brexit-bound economy.

Tenreyro said in a speech on Monday that the BoE had “ample time” before raising rates again. And she added that productivity growth might be stronger than expected, potentially easing inflation pressure and reducing the speed of rate hikes ahead.

Sounding more urgent about the need for higher borrowing costs, Saunders said on Wednesday that unemployment was likely to fall to a greater extent than the BoE expected which would push pay growth in 2018 to near its fastest rate since the financial crisis.

At the same time, Saunders said the rate at which Britain’s economy can grow without generating excess inflation could be below the BoE’s estimate of 1.5 percent a year, thanks in part to the effects of Brexit.

In her speech, Tenreyro said she backed the central bank’s view that only a couple of rate increases were likely to be needed over the next three years.

Saunders limited himself to the BoE’s less specific message that any increases would be “limited and gradual”.

“While he gives no clear indication of doing so, these comments raise the possibility of Saunders dissenting in favour of raising rates again at one of the next two meetings,” JP Morgan economist Allan Monks said in a note to clients.

Saunders, a former Citi economist, started voting to raise rates in June last year, five months before a majority of Monetary Policy Committee’s nine members – including Tenreyro – voted to reverse a 25-basis-point cut made shortly after the Brexit vote in 2016.

That took borrowing costs back to 0.50 percent, their level for most of the past decade.

Most investors now expect Governor Mark Carney and the rest of the nine-strong Monetary Policy Committee will raise rates again only in late 2018. But a minority of economists say they think a rate increase is likely to come in May.

Philip Shaw, an economist with Investec, a bank and asset management firm, said the BoE might raise rates twice in 2018, starting in May, and once more in 2019.

However, there were big question marks about the speed of growth in the economy this year, as Brexit approaches, and about the chance of a productivity pickup, he said.

“Both of these points have a large degree of uncertainty attached to them and the outlook will be very dependent on the assessments given in the Inflation Report in February,” Shaw said.

The BoE is due to update its forecasts for the economy alongside its next interest rate announcement on Feb. 8.

Source: UK Reuters

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2017: A year of transition for the buy-to-let sector

On top of what has been a politically turbulent year, 2017 was something of a policy rollercoaster for the buy-to-let sector. From significant tax and regulatory changes to a number of underlying economic forces including rising inflation, stagnating wages, and an interest rate hike, the year was spent adjusting to the new normal.

The changes are a good thing for the ongoing sustainability of the buy-to-let sector but, whichever way you look at it, they were never going to be without their teething problems.

PRA rules

One of the most talked about changes in 2017 is the Prudential Regulation Authority’s (PRA) new rules. The first bout in January included stricter affordability tests, requiring lenders to implement into their criteria either an interest coverage ratio test or a personal income affordability test. Stricter underwriting criteria for portfolio landlords then followed in September, meaning that any landlord with four or more mortgaged properties faced robust new underwriting standards.

Through these changes, the PRA is encouraging lenders to be more prudent but it’s important that this doesn’t drive lenders or brokers to step away from cases with specialist needs. Ultimately, an experienced professional landlord will, nine times out of ten, provide better quality housing for their tenants and we should be encouraging this professional approach. The increased workload and administrative responsibilities did cause some general lenders to exit the market, whereas many specialist lenders already had many of the regulation frameworks in place.

Tax changes

Beyond the PRA changes, tax reform was also a radical change for the sector. From April, mortgage tax relief changes meant that landlords could only claim mortgage interest tax relief based on the basic rate of income tax, affecting higher-rate tax payers especially. It means that landlords will see the amount of mortgage interest and other allowable costs that they can write off against tax drop by 25% each tax year until 2020 when they will have to declare all of their rent as income, pay income tax on the total and then claim back for 20% of it as a credit.

Understandably for the estimated 440,000 basic rate tax-paying landlords who will find themselves moving into the higher rate tax bracket by 2020, these changes weren’t entirely popular. The additional costs may add to the lack of supply across lettings if landlords choose to withdraw from the market but ultimately it is another move targeting ‘dinner party landlords’ due to the rising costs of this form of investment. In this context however, the professionalisation of the buy-to-let market will continue apace.

Housing crisis

The catalogue of changes for the buy-to-let sector have all been a part of the government’s efforts to tackle the housing crisis, shore up economic stability, and improve conditions for renters. The UK’s housing shortfall needs plugging, but the initiatives designed to address the problem are a little blinkered. Yes, putting professionalisation of the market at the forefront is undoubtedly a step in the right direction, but unless the supply of new homes is seriously addressed, fewer buy-to-let landlords will simply result in higher rents, and ongoing pressure for aspiring homeowners.

Housing white paper

A more legitimate move should prompt further commitment to construction, adding to the housing stock and enlarging the sector’s supply to meet its demand. Cast your mind back to the start of the year when the government’s flagship housing white paper was released.

The white paper finally showed some acknowledgment of the importance of the private rental sector to the UK housing market, encouraging more institutional investment in large scale developments specifically designed to rent rather than buy.

However, we’re still yet to see substantial improvements here, and, apart from the announced plans for five new Garden Towns, it was disappointing not to have further commitments made in the Autumn Budget. That being said, it was a relief to not see further tax or regulatory changes.

Long-term gratification seems to be the theme of 2017 for the buy-to-let market, with many changes implemented which will eventually be positive for the sector in general and specialist lenders in particular, but as welcome as that long-term stability will be, the changes are already showing signs of hindering market growth in the near term.

Source: Mortgage Finance Gazette

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Sales volumes decline across the whole of the UK

Sales volumes fell across all UK regions, with the biggest declines in London and the midlands, the latest Land Registry data shows.

The Land Registry’s latest House Price Index reveals that volumes in London were down 21% annually in September to 6,494 sales, bigger than the 15.8% recorded a month before.

Transactions in the east midlands declined further, falling 17% year-on-year in September to 6,099 compared with a 15% annual drop recorded in August.

Sales in the east of England dropped 17% to 7,701.

Figures for transactions up to August – the latest month for which sales volumes are available – show double digit declines everywhere except the north-west and east of England.

Activity in London fell the most annually in August, when 7,186 sales were recorded. This is down 15.8% on the same period last year.

Across the UK, the number of property transactions was down 12.9% annually during September 2017 to 83,374.

The biggest drop was in England, where volumes were down 14.8% to 64,812 compared with a year before.

House price growth also slowed during November, the index shows, dropping to 5.4% from 5.1% in October.

Prices were also down on a monthly basis, slipping 0.1% to give an average of £226,071 for the month.

On a regional basis, London and the north-east are now tied as the slowest growing regions with rates of 2.4% annually. There is a big difference in prices, though, with averages in the capital at £481,731 on average and buyers in the north-east paying £127,737.

Commenting on the figures, Jonathan Hopper, managing director of Garrington Property Finders, said: “London’s once all-conquering property market can console itself with one meagre statistic – it is no longer outright last, just joint last.

“Despite the gradual slowdown in the national rate of price growth, demand remains solid in many areas – albeit with one fundamental caveat.

“Even committed buyers are deeply price sensitive, and despite today’s fall in consumer price inflation, many would-be home owners are seeing their wages shrink in real terms, causing them to watch every penny and walk away from any property they feel to be overpriced.

“The market continues to flow broadly as it should, and the stand-off between limited supply and cautious demand should nudge up prices further throughout 2018. But it will be steady progress at best.”

Meanwhile, private rental prices in Great Britain rose at their lowest rate since the Government began recording them six years ago.

The latest figures from the Office of National Statistics showed that prices were up 1.2% in the 12 months to December 2017.

The rate of growth in London was particularly sluggish, with prices growing by 0.4% in the 12 months to December 2017.

In England, private rental prices slowed slightly to 1.3%, down from 1.4% in November 2017.

Wales saw growth of 1.7% in December, while Scotland saw rental prices increase by 0.4% in the 12 months to December 2017.

In the English regions, the largest annual rental price increase was in the east midlands (2.6%), down from 2.7% in November 2017.

This was followed by the east of England (2.2%), up from 2.1% in November 2017, the south-west (2.1%), unchanged from November 2017 and the south-east (2%), down from 2.3% in November 2017.

The lowest annual rental price increases were in the north-east (0.1%), up from 0% in November 2017, and London (0.4%), down from 0.6% in November 2017.

Source: Property Industry Eye

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Housing your money: Buy-to-let landlords should look beyond the obvious for opportunities

Landlords were hit by changes left, right, and centre in 2017, with new legislation affecting almost every corner of the market.

Some of the changes introduced in the past couple of years include a reduction in the amount of tax relief landlords can claim on mortgage interest costs, the scrapping of the so-called “wear and tear allowance”, and the hike in stamp duty tax.

And yet, despite the barrage of blows, buy-to-let continued to deliver competitive returns.

So what does 2018 have in store?

Sturdy foundations

From an investment point of view, the property market remains an exciting proposition built on the strong foundations of an exciting and robust asset class.

The UK may have seen its fair share of political upheaval over the past year, but none of that has changed the fact that Britain will always need homes.

In fact, the growing cohort of people who can’t buy, or don’t want to, will more than ever rely on the rental sector to house them.

In the absence of a crystal ball, landlords should instead use variations in rental growth and yields over the past year to pick out some of the most promising regions for buy-to-let.

Capital problems

The capital has experienced falling rents for over a year now, with prime locations seeing the greatest decline and rents, shrinking in 26 of the 33 London boroughs in 2017.

Rents in London fell by 0.83 per cent last year, compared to growth of 1.27 per cent elsewhere in the UK.

However, despite the closing gap, London rents remain, on average, 2.5 times greater than those across the rest of the UK.

There remains good opportunities for a range of property sizes in London.

As house prices become increasingly out of reach for aspiring homeowners, Generation Rent is growing both in volume and household size, with people more likely to be in rental accommodation as they begin and grow their families.

As a result, three-bed properties saw the greatest rental growth across UK in 2017.

For landlords, it’s clear that there’s a lot to be gained by offering a three-bed property in a London market that is crowded with smaller properties.

For example, average rents for three bed properties in London are 39 per cent higher than rents for two bedroom properties. This is a 39 per cent uplift in rent you can receive for a house that is likely to have no more than 30 per cent extra living space.

Cross country

This slowdown in rental growth has not been consistent across the country.

The East Midlands saw 2.1 per cent growth in 2017, while the South West and East England both saw growth around the 1.6 per cent mark. This is in stark contrast to the UK average of just 0.53 per cent.

These figures would suggest that many young professionals are moving further afield to reduce their rent burden, possibly while they save for a house of their own.

The strong demand for low-rent accommodation by long-distance commuters is thought to be pushing up rents in East England more specifically. And in turn, this shows signs of increased yields for buy-to-let property. For example, Peterborough and Thurrock are among the greatest risers, with growth sitting at around two per cent.

University challenge

It may not be a market for everyone, but those looking for better yields may even want to consider looking further afield to university cities.

Although the costs of maintaining houses in multiple occupation (HMOs) are typically higher than maintaining those housing a single family, the number of homes lived in wholly by students continues to soar, and the presence of a top university nearby is one way of ensuring a consistent stream of income.

Leading university towns include Manchester, Bristol, Birmingham, Leeds, and Nottingham, which all saw rents increase more than four times the amount of the UK average in 2017. There are some great investment opportunities out there for people prepared to target the student market.

The waiting game

On one level, 2018 is going to be a year of waiting and watching, as the impact of new regulation and tax reforms come to bear on the market.

Landlords may look back at 2017 as the year that things got tough, but in the UK’s property microcosm, there are always new locations and new opportunities.

This is the year for buy-to-let investors to branch out beyond the obvious.

Source: City A.M.

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UK house price growth falls to 5.1%

Average house prices in the UK rose by 5.1% in the year to November 2017, down from 5.4% in the year to October 2017, the November ONS House Price Index showed.

In England house prices increased by 5.3% over the year to November 2017 and Wales saw house prices rise by 4.5% over the last 12 months.

In Scotland, the average price rose by 3.6% and in Northern Ireland it increased by 6.0%.

Jeremy Duncombe, director, Legal & General Housing Partnerships said: “The first interest rate rise in a decade has evidently had only a limited impact on annual price growth, with prices continuing to rise in November.

“Though some potential buyers might have been deterred by the base rate rise, for most borrowers the Bank of England’s decision meant only a modest increase of £25 a month for the average borrower.

“However, there remains the potential for another base rate rise in the future. Hopeful buyers and existing homeowners coming to end their mortgage deals would be prudent to begin searching for a new deal now, well before a potential rise is factored in by the market.”

In Great Britain, the average price in November for first-time buyers was £191,376, up 0.6% from the month before and 5.5% year-on-year.

Craig McKinlay, sales and marketing director at Kensington Mortgages, said: “House prices are now rising at more sustainable levels across the UK than in recent years, with some areas such as London even seeing a price correction.

“However many first-time buyers continue to face the affordability challenge of getting onto the housing ladder.

“Rapid increases in the price of property over the past few years mean many hopeful buyers must still play catch-up, while an ongoing lack of housing supply continues to impact the market.

McKinlay added: “The good news is that there is help on hand for those worried about this affordability challenge.

“Not only does the government’s recent announcement of a stamp duty exemption on properties for the first £300,000 make positive reading for first-time buyers, but increased lender support for government schemes like Help to Buy also increases the options for younger buyers with their eye on the ladder.”

The UK Property Transaction Statistics for November 2017 showed that the number of seasonally adjusted transactions on residential properties has increased by 7.1% in the year to November 2017.

Between October 2017 and November 2017, transactions increased by 0.6%.

Ishaan Malhi, chief executive and founder of online mortgage broker Trussle, said: “Those looking to get onto the property ladder should see the current slowdown in price growth as an opportunity to buy. With interest rates still extremely low and the recent changes to stamp duty, first-time buyers are arguably facing better conditions than they have for some time.

“However, affordability is going to be an issue for many. Wage growth has failed to keep pace with inflation, so saving for a deposit is going to be that bit harder.

“Nevertheless, with many parts of the UK now seeing house price growth begin to level off, what was once an almost impossible task is getting a little easier, and this trend should continue over the coming months.”

Source: Mortgage Introducer