FEBRUARY 2024 PROPERTY MARKET REVIEW

Looking back at February 2024, we delve into notable surveys, reports, policy decisions, and developments influencing the UK residential property sector.

The latest house price indices reveal a generally positive trend, with several sources noting month-on-month growth. Regional disparities persist, with prices showing greater resilience in the UK's more affordable areas.

While rental growth shows less geographic variance, regional differences are stark in terms of yields. Rents are increasing across all UK regions at rates surpassing inflation.

However, markets with lower asking prices tend to offer better yields. Even in regions with lower performance, yields remain robust, providing returns that outpace inflation.

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Dale Anderson

Managing Director

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HOUSE PRICE INDICES

Recent reports from various organizations highlight positive trends in house price indices.

All sources indicate improving monthly results, with annual change figures also showing signs of improvement. Even indices that previously showed negative figures have seen better results compared to the previous month. For instance, the Home Asking Price Index reports a return to month-on-month growth (+0.2%, compared to zero last month) and an improvement in annual figures, moving from -0.5% in January to -0.1% in February.

Iain McKenzie, CEO of The Guild of Property Professionals, commented on the improving monthly figures, stating that UK house prices seem poised for a strong 2024, with January's data indicating further market recovery. He noted that buyers are returning to the market faster than expected.

Nathan Emerson, CEO of Propertymark, also expressed optimism, noting that 2024 is starting off more positively for the housing market. He hopes this marks the beginning of a period of economic recovery for the nation.

Rightmove's February House Price Index not only reports tentative movement in the right direction for values but also notes growth in sales activity. According to the index, the number of sales agreed in the first six weeks of the year is 16% higher than at the same time in 2023.

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NATIONAL AND REGIONAL PATTERNS

According to ONS data for the 12 months to December 2024, the annual price growth pattern at the national level was as follows:

Scotland: +3.3% (￡190,000, compared to ￡194,000 in November)

England: -2.1% (￡302,000, compared to ￡301,613 in November)

Wales: -2.5% (￡214,000, compared to ￡212,866 in November)

Northern Ireland: +1.4% (￡178,000, Q4 2023 figures)

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The ONS lists growth rates in English regions as follows:

North West: +1.2% (up from -2.0%)

West Midlands: +0.3% (up from -3.4%)

North East: -0.8% (down from -0.4%)

East Midlands: -1.0% (up from -3.0%)

Yorkshire & Humber: -1.2% (down from -0.8%)

South West: -2.2% (up from -4.1%)

East of England: -3.8% (down from -3.3%)

South East: -4.6% (down from -2.3%)

London: -4.8% (up from -6.0%)

Note that these ONS figures lag behind other indices by at least a month, so they will be slower to register any upturn in values.

In its February index, Home observes, "At the regional level, typical time-on-market figures indicate that the North of England, Scotland, and Wales all continue to thrive, with activity over and above the pre-COVID years.

Moreover, this enhanced momentum correlates closely with positive annualized price growth in those regions." It notes that all but three regions saw a return to monthly growth.

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HOUSE PRICE FORECAST

At the end of 2023, most sources predicted modest falls in average asking prices for the current year. However, with an improving backdrop, some are now revising their estimates upward. There is no clear consensus, but with the last two months showing better-than-forecast growth, we might expect other sources to do the same in the coming weeks.

RENTAL DATA

The following are the average rates of annual rental growth according to the UK's best-known rental indices:

Goodlord Rental Index: +7.2%

Homelet, January Rental Index: +7.5%

Home, February Asking Price Index: +3.8%

Rightmove, Q4 Rental Price Tracker: +9.2%

Zoopla, December Rental Market Report: +9.7%

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RENTAL SUPPLY and DEMAND

In January, Propertymark published its Housing Insight Report for December, stating that the number of new prospective tenants registered per member branch had fallen from 86 to 63. However, the availability of homes also fell over the same period, to just 9 per member branch. Thus, tenants still greatly outnumber lettable properties, currently by a ratio of 7:1.

Research by mortgage lender Paragon Bank produced similar findings. In a press release, Paragon stated that 63% of landlords in its survey reported growing tenant demand in the final quarter of last year, with 37% of those reporting that demand had grown significantly.

It added that the North West, Yorkshire, and East Midlands recorded the highest demand levels, with a strong correlation with rent increases across these regions. Richard Rowntree, the company's director of mortgages, said, "Although tenant demand has come off its record highs, there remains a chronic supply-demand imbalance across large parts of the country."

A new survey by the National Residential Landlords Association also highlighted strong demand, with two-thirds of landlords saying that the demand for private rented housing is continuing to increase. The association emphasized the need for more housing of all types, including new homes for private rent.

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REGIONAL VARIATIONS IN RENTS

Different sources show varying regional variations in annual rental growth. The following table lists the three best-performing regions by source. Figures in brackets refer to year-on-year growth rates.

On a monthly basis, Goodlord reports that the biggest change in rents was recorded in Greater London, which saw a +1.8% increase in rents during January, bringing the average to ￡1,968. UK-wide, the average month-on-month increase was +0.6%. Goodlord also reports that average void periods have fallen slightly since January 2023, from 23 to 22 days.

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Home reports substantial regional variations in rental returns, ranging from +14.1% in the North East to -3.4% in Greater London.

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RENTAL YIELDS

No significant new yield data emerged this month. Last month, Fleet Mortgages listed the top-performing regions as Wales (8.9%), the North West (8.6%), and Yorkshire & Humber (8.4%). Rightmove's top three included the North East (8.7%), Scotland (8.1%), and Wales (7.7%). Both reported that London had the lowest yields.

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PRIME CENTRAL LONDON

Rightmove's February House Price Index continues to show a marked North/South divide, with properties in northern markets appreciating considerably faster than those further south. The East Midlands, the East of England, the South West, and the South East all saw average values continue to fall, but London bucked the trend, producing year-on-year growth of +0.2%.

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Rightmove's index also includes its usual feature on London boroughs. It notes that, on an annual basis, prices grew most strongly in Westminster (+9.9%), followed by Richmond upon Thames (+5.1%), Wandsworth (+3.7%), Hammersmith & Fulham (+3.4%), and Lambeth (also +3.4%). The poorest performer was Camden, where values fell by 7.8% annually.

On a monthly basis, and for the first time in many months, a clear majority of London boroughs saw average values rise, most notably in Westminster, where they increased by +4.6%.

Homelet's January Rental Index also includes a 'London Focus' section, reporting that average rents fell by -2.2% in London during January, reducing the year-on-year growth figure to +4.6%.

However, some individual boroughs fared better. Barking, Dagenham, and Havering saw the strongest growth in rents (+12.8% year-on-year), followed by Lambeth (+11.4%), and then Lewisham and Southwark (+9.4%). Over a five-year run, Homelet finds that Westminster has produced cumulative rental growth of +52.1%.

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INFLATION and THE BASE RATE

At the start of February, the Bank of England's Monetary Policy Committee announced that it was holding the official base rate unchanged at 5.25%. Two of its nine members voted for a +0.25% increase, while one voted for a small reduction. The Bank's governor, Andrew Bailey, said, "We need to see more evidence that inflation is set to fall all the way to the 2% target and stay there before we can lower interest rates."

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The Bank notes that although CPI inflation is projected to fall temporarily to the 2% target in Q2 2024, it could increase again in Q3 and Q4 as a result of energy price fluctuations and geopolitical factors. It adds that "CPI inflation is projected to be 2.3% in two years' time and 1.9% in three years." These are significantly better figures than those in its forecasts last year, raising hopes for rate cuts later this year.

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However, an ONS report on February 14 showed that CPI inflation had stayed unchanged at 4.0%. Food costs had come down, but the savings were offset by the rising cost of other commodities, including energy. Some members of the MPC will doubtless conclude that, as a result, the bank should keep the base rate unchanged for the time being. However, another February report showed that the UK economy entered a technical recession in the final quarter of 2023, supporting an opposing argument, as higher interest rates act to suppress economic growth.

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SUMMARY

The persistence of inflation has surprised some markets, potentially keeping the base rate of lending higher than forecasted. Mortgage rates may take longer to decline, but a future decrease seems likely. With falling inflation and lower mortgage rates expected, coupled with strong wage growth and high employment levels, the outlook for the property market appears increasingly positive.

• Market sentiment is improving, and market activity is increasing.
• The long-term expectation for CPI inflation is a decline toward 2% this year.
• As inflation decreases, interest rates on fixed-rate mortgages should also fall.
• Employment and average earnings remain strong, supporting people's ability to pay rent and mortgages.
• ONS reports that average earnings are rising by 6.2% year-on-year.
• All UK regions are experiencing real-term rental growth.
• Most price indices indicate that the UK's more northern regions are still achieving respectable capital growth.
• In the UK's more affordable markets, yields are significantly higher than CPI inflation.

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