?? MARCH 2024 | PROPERTY MARKET REVIEW ??

In our market review for March 2024, we look back on noteworthy surveys and reports, significant policy decisions, and other developments affecting the UK residential property sector.

Spring Budget Impact: The Chancellor of the Exchequer announced the UK Government’s Spring Budget, which contained no major surprises but introduced policy changes affecting investors. Notably, inflation is on a downward trend, boosting sales activity and mortgage applications.

House price statistics indicate a slow return to growth, while rental values continue to rise, offering inflation-beating returns.

Dale Anderson

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HOUSE PRICE INDICES

The following organisations produced house price indices in recent weeks:. (Percentages refer to capital growth rates.)

Positive sentiment is a key driver of house price growth, and it's encouraging to see a general sense of optimism reflected in recent figures. Zoopla's February price index noted, "All measures of sales market activity continue to improve as pent-up demand returns to the housing market." This sentiment was echoed in their March Index, which highlighted, "All the primary measures of sales market activity continue to show positive, upward momentum. New sales agreed are 9% higher than a year ago, with 7% more home sales agreed over Q1 2024 than over Q1 2023."

Other indices also support this positive outlook. Nationwide reported, "The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market. Indeed, industry data sources point to a noticeable increase in mortgage applications at the start of the year, while surveyors also reported a rise in new buyer enquiries." This is reflected in Nationwide's index, which showed a notable price swing from a -0.2% annual decline in January to growth of +1.2% in February.

Nathan Emerson, CEO at Propertymark, made similar observations, noting that member agents had reported an +89% increase in new properties coming onto the market and a +129% rise in market appraisals.

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NATIONAL AND REGIONAL PATTERNS

The Office for National Statistics began publishing house price data in a new format via its Private Rent and House Prices Index on 20 March, showing state-level patterns of annual price growth.

ONS lists annual price changes in the England Regions as follows:

Please be aware that the data from the Office for National Statistics (ONS) typically lags behind other indices by at least a month, meaning that it will take longer for ONS figures to reflect any positive changes in property values.

RENTAL DATA

Average rates of annual rental growth according to the UK’s best-known rental indices:

Goodlord Rental Index: +7.0%

Homelet, February Rental Index: +7.4%

Home, March Asking Price Index: +2.1%

ONS, Private Rent & House Prices: +9.0%

Rightmove, Q4 Rental Price Tracker: +9.2%

Zoopla Rental Market Data for Q1 2024: +7.8%

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RENTAL SUPPLY & DEMAND

Towards the end of February, Propertymark released its Housing Insight Report for January, revealing a notable increase in new prospective tenants registering per member branch, rising from 63 in December 2023 to 97 in January 2024. However, the report also highlighted a rise in the availability of homes during the same period, with the number of lettable properties per member branch increasing from just 9 to a recent high of 12. This indicates that demand exceeded supply, with a ratio of 8:1.

Additionally, a recent survey by the Royal Institution of Chartered Surveyors (RICS) suggests a positive trend in both supply and demand as the market gathers momentum. RICS reported a net balance reading of +6% for its New Buyer Enquiries Indicator in February, indicating a solid rise in new instructions to sell. This represents the strongest reading since October 2020, contrasting with the negative trend seen throughout 2023. Average stock levels on estate agents' books also reached 42 properties, the highest since February 2021.

In March, Zoopla noted a decline in rental demand but highlighted that there are still more than 15 enquiries for every home available for rent, double the pre-pandemic levels. Rental inflation has remained broadly consistent with the previous year in most regions, except for London, where growth has been slower. Despite weaker demand, Zoopla predicts that rents will continue to rise across the UK in 2024, albeit at a slower pace.

REGIONAL VARIATIONS IN RENTS

Different sources show different regional variations in rental growth. Home reports substantial regional variations in rental returns, ranging from +15.1% in the North East to -6.9% in Greater London.

PRIME CENTRAL LONDON

In Rightmove's March index, a special feature focuses on London boroughs, highlighting the annual growth in asking prices. Richmond upon Thames and Hammersmith & Fulham saw the strongest growth at +5.6%, followed by Westminster at +4.7% and Greenwich at +2.7%. Conversely, Kingston upon Thames, Kensington & Chelsea, Ealing, Croydon, and Wandsworth were the poorest performers, all experiencing declines in asking prices.

Homelet's February Rental Index, particularly its 'London Focus' section, ranks boroughs based on rental growth. While average rents in the city fell by -0.5% in February, leading to a year-on-year growth rate of +4.8%, several boroughs performed exceptionally well. Lambeth experienced the strongest growth at +12.2% year-on-year, followed by Barking, Dagenham & Havering at +11.8%, and Redbridge & Waltham Forest at +10.3%. Westminster has been the top performer over five years, with cumulative rental growth of +53.1%.

AVERAGE EARNINGS

On March 12th, the ONS released its latest data on average UK earnings, revealing a 6.1% annual growth in employees' average regular earnings (excluding bonuses) from November 2023 to January 2024. This growth is significant for investors for two key reasons. Firstly, it indicates that earnings are outpacing inflation, leading to an improvement in real-term incomes, which could result in buyers and tenants having more money to spend on their housing choices. This trend could support a gradual increase in average property values.

Secondly, the annual rate of earnings growth, although still strong, is slightly lower than the previous month's figure of 6.2%. This slight decline may provide some reassurance to the Bank of England, which has been wary of rapid wage growth potentially fueling high inflation rates. A decrease in the rate of earnings growth could give the bank more confidence in reducing the base rate of lending, potentially leading to lower mortgage rates in the coming months.

INFLATION & THE BASE RATE

On March 20th, the ONS announced that CPI inflation had decreased from 4.0% to 3.4%. This is a positive development for investors, as it should help alleviate cost-of-living pressures for buyers and tenants, and it also increases the likelihood of lower mortgage rates in the long term.

The following day, the Bank of England's Monetary Policy Committee (MPC) decided to keep the official base rate unchanged at 5.25%. This decision was widely anticipated, as average earnings are increasing rapidly and the prices of key commodities are still rising.

However, the better-than-expected CPI data, coupled with the UK's sluggish economic growth, suggests that the MPC could opt to reduce the base rate in the coming months.

THE SPRING BUDGET

On March 6th, the Chancellor of the Exchequer, Sir Jeremy Hunt, unveiled the Spring Budget, which included several significant policy changes. The most notable change was the anticipated 2p reduction in National Insurance contributions, expected to save working individuals an average of ￡450 per year.

The budget also outlined measures to assist people during the cost-of-living crisis. However, for those involved in property, the key developments included the elimination of stamp duty relief for multiple home buyers, the removal of tax breaks previously available through the Furnished Holiday Lettings scheme, and a reduction in the higher rate of property capital gains tax from 28% to 24%.

SUMMARY

The Spring Budget introduced few changes to the fundamental conditions for property investors, but the market appears to be improving nonetheless. Sales activity is increasing, and all major price indices report month-on-month improvements. On an annual basis, all indices show a return to growth, except for the ONS, whose figures only extend to January.

Market sentiment continues to improve.

• Capital growth rates are improving in all regions.
• The UK's best regions for capital growth continue to be the more affordable markets further north.
• In most cases, the more affordable regions also tend to produce the best yields.
• Most UK regions continue to produce real-term rental growth, though some indices report negative rental growth in London.
• CPI inflation is expected to fall to its 2% target this year, just as mortgage rates should start too fall
• Average real-term earnings are improving, leaving people with more to spend on their homes. This suggests capacity for further growth in capital and rental values in 2024.

If you have any questions about any aspect of property investment, please call us today. ??

Kind regards

Dale Anderson

UK Tel: 020 8175 9899

Email: [email protected]