City Res: Market gets better day by day

The Liverpool city centre residential market is showing signs of recovery, writes Alan Bevan in his latest quarterly commentary.

Having seen numerous false dawns in the potential recovery of city centre residential prices, we have become a little cynical to increases in activity in the past and for the right reason.

However, during the last quarter of 2012 we saw a distinct improvement in sentiment and levels of viewings, offers, sales agreed. October was a particularly good month – some 35% up year-on-year. Although the comparison with the previous year was affected by a particularly poor Q4 in 2011 it was still a healthy increase. It was not just City Residential that saw this increase, many of the other agents in the city reported stronger sales activity.

When this is backed up by the national figures from the likes of Halifax (prices up 0.6%) and Nationwide (prices up 0.7%) we can't help but wonder that the market is at last beginning to improve.

So what's driving these higher levels of activity? Logically one of the most important factors is price. As we have stated in previous reports prices in Liverpool city centre are probably back to where they were in 2005 and many apartments are offering investment yields of up to 10%.

As interest rates on savings accounts continue to drop it is of little surprise that both new and existing landlords are looking to enter the market for new stock. Over the last two or three years buy-to-let has lost its reputation of being a "graveyard for investors" to once again becoming a sensible and alternative option to stock market investment and cash savings.

Indeed we have even seen the return of TV programmes enthusing about the benefits of buy-to-let, such as Generation Rent on ITV on 10 January.

We continue to mention the growing interest in the market from owner occupiers. Whilst they are still looking to get a very good deal, and negotiations can be particularly fraught at times, they genuinely want to buy in the right locations.

Although price is important we are finding that if the product is right these buyers are more than happy to pay a decent price even though they know it is a buyer's market. Interestingly many of the buyers we are seeing have substantial deposits and are choosing now as a suitable time to enter the market.

This provides us with some comfort that they have decided that they are unlikely to see much better value in the market or their individual financial circumstances are strong at present.

Many of these buyers are in rented accommodation and seeing rents rise thus making the buying decision an apparent good use of money.

At the start of 2012 mortgage rates were at the lowest for a generation and almost every expert you spoke to was convinced that we had seen the bottom of the market. As rates began to edge up in the first quarter of the year it looked like the experts were right and those buyers and home owners that had not chosen to buy or remortgage had missed out on probably the lowest mortgage rates we were likely to see for many years.

Over the past few months however rates have been dropping again whilst loan-to-value percentages have been creeping up. Don't for one minute think that it is a great market – it is not – but it is certainly getting better day by day. A five-year fixed rate at 2.99% on a 75% loan to value basis may look particular cheap in five years' time.

Perhaps even more importantly is that buy-to-let rates are falling and this will no doubt continue to encourage investment in the private rented sector.

• Alan Bevan is managing director of City Residential, Liverpool
• To read his Q4 2012 report in full click here