Demand for housing is now outstripping supply - with four house hunters for every property - but a fall in mortgage lending in May means this demand may not translate into sales.
Estate agents report an increase in registrations of potential homebuyers during May, with the average branch now dealing with 299 house hunters compared with 247 in the same month last year.
While this means that demand for property is increasing, the extent to which demand outstrips supply is largely down to the low levels of housing stock on the market. In fact, the National Association of Estate Agents (NAEA) admits that, on average, its members have just 69 properties on their books.
But Gary Smith, president of the NAEA, says: "More often than not there are also potential sellers who are at the beginning of the process - so there is bound to be a lag which creates a shortage of properties in the short term.”
Meanwhile, new figures from the Council of Mortgage Lenders (CML) show an estimated £10.3 million of mortgages were approved during May, down 2% from April and a whopping 58% decline from the same month last year.
The fact that mortgage lending remains so weak is likely to limit demand for property and prevent buyer interest translating into sales. The NAEA says that the number of successful purchases is on the up, with its members reporting a 30% increase in sales during May. However, with the average branch managing to sell just 10 properties during the month, house sales remain alarmingly low.
Meanwhile, Paul Samter, economist at the CML, believes that May’s lending figure may mask the true state of the mortgage market because it includes both loans for home purchases as well as remortgages for existing homeowners.
This means that even if house purchase activity has increased, as other data from the Bank of England has suggested, this has been offset by a fall in remortgages. Low standard variable rates and the rise in negative equity mean many people coming to the end of their discounted loan periods are staying put rather than looking for new deals.
“While recent signs from the housing market have been more encouraging, we do not anticipate a significant recovery in activity in the coming months,” Samter adds. “Lending volumes appear to have stabilised at extremely low levels, but the weak labour market and lenders’ limited access to funding will constrain activity for some time yet.”
Other research suggests that interest in property could be coming from overseas investors, rather than domestic demand from first-time buyers and home movers. Estate agency Cluttons says that foreign buyers currently make up the majority of all property purchases in prime London areas such as Chelsea, Knightsbridge and Hyde Park.
James Hyman, partner for residential sales at Cluttons, says many of these buyers are unaffected by the rise in unemployment and the lack of mortgage availability.
"Despite the downturn, London is still viewed by foreign buyers as one of the most desirable places in the world to own property, particularly those from Europe and the Middle East who are taking a long term investment view," he explains. "They have been in a position to hold out until the market picks up, and with foreign interest now reaching new heights, prices [in these areas] are close to 2007 levels.”