Old investing habits die hard

The Brits don’t give up on their passions easily. A survey just out from Fidelity asked “property or portfolio”? UK adults “overwhelmingly chose to invest in buy-to-let property” over the UK stockmarket – even though equities have hugely outperformed the property market over the last few years.

The poll also comes against a pretty dodgy background for buy-to-let investing (buy-to-let tax-relief cuts are kicking in) and for house prices in general. Rents in London are falling. They are, says HomeLet, 1.2% lower than they were in April last year. Across the southeast they are up only 0.4% on the year. House prices are doing much the same. Mortgage approvals are down too – nearly 5% over the last year. The picture isn’t universal (prices are still soaring in the northern cities we suggested you look at last year), but something is definitely changing.

We may have reached the most fascinating point of the property cycle: the bit in which the buyers know they have reached their affordability limit and won’t (or can’t) pay the asking prices in the estate agents’ windows. However, it’s also the stage when sellers refuse to accept that it is the market (rather than them) that is in control. Some start to offer incentives. But sellers won’t cut prices. For them, whatever the wider environment, their house is special – and worth what they want it to be worth. Stand-off.

So what next? For now, expect even more of a stand-off. The new buyer enquiries balance calculated by the Royal Institution of Chartered Surveyors is at zero and, says Capital Economics, the number of people Googling “mortgage” – which “leads the approvals data by two months” – fell in January and February. Real wages are stagnant and mortgage rates have (surely!) hit bottom. There isn’t much to drive demand – and prices – much higher from here.

The good news – for what it’s worth – is that employment is strong in the UK, real wages are not actually falling (up 0.2% over the last year) and house prices in some areas are not hugely out of whack with historical averages (prices in some parts of the north are still 30% off their inflation-adjusted highs).

Things might take a nasty turn for the worse (watch out for the Renaults turning to Porsches). But if we are lucky we may find we are about to enter a period in which house prices (outside central London) are fairly static. This would be good news. It would keep the over-borrowed out of negative equity; make no odds to older homeowners; and, as nominal wages grow, houses would become more affordable for those who want to buy. In short: the holy grail of housing.