MAY 2024: UK PROPERTY MARKET REVIEW
Dale Anderson
Managing Director | Global Buy to Let Specialist | 18 years' Experience | ￡2bn raised | Breaking Property News & Expert Advice
In our market review of May 2024, we reflect on key surveys, reports, significant policy decisions, and other developments affecting the UK residential property sector.
Inflation and Interest Rates
One of May’s most notable developments was the news from the Office for National Statistics that inflation (as measured by the Consumer Prices Index) had fallen to a near-three-year low of 2.3%. High inflation has been a concern for the Bank of England and a key reason why it has kept the base rate of lending so high for so long.
It’s by no means a certainty, but the latest figures could provide the trigger the Bank needs to bring interest rates down. High mortgage costs have exerted a powerful braking effect on house price growth in recent years, so a reduction in the base rate could well inject new energy into the market. The ONS figures followed a comment by the Bank’s deputy governor, Ben Broadbent, who highlighted the possibility of a rate-cut “some time over the summer.”
Historically, the UK property market has tended to see a positive bounce in the months after a General Election, regardless of which party wins. This is another reason to expect growth rates to improve later this year.
House Price Indices
Various organizations have produced house price indices in recent weeks. Referring to a year-on-year gain of +1.1%, Halifax wrote:
?“This reflects a housing market finding its feet in an era of higher interest rates. While borrowing costs remain more expensive than a few years ago, homebuyers are gaining confidence from a period of relative stability. Activity and demand are improving, evidenced by greater numbers of mortgage applications so far this year, while at an industry level, mortgage approvals have reached their highest point in 18 months.”
National and Regional Patterns
On 22 May, the Land Registry published its UK House Price Index summary for March 2024. It showed the state-level pattern of annual price growth as follows:
United Kingdom: +1,8% - ￡283,000 (0.7% monthly price change)
England: +1% - ￡299,321 (￡298,000 in Feb 2024)
Scotland: +6,7% - ￡191,678 (￡188,000 in Feb 2024)
Wales: +1,3% - ￡213,753 (￡211,000 in Feb 2024)
Northern Ireland: ?+4%; ￡178,000; Q1 2024 figures
Home’s Asking Price Index for May shows a clear regional disparity, with price growth accelerating in Scotland, the North East, Yorkshire & Humber, the North West and the West Midlands, but either slowing or staying in negative territory elsewhere. Home declared the North West to be the UK’s strongest region for capital growth, delivering +3.7% year-on-year.
Zoopla’s House Price Index for May included an analysis of the best- and worst-performing UK cities. Its list was topped by Belfast (annual capital growth of +3%), followed by Burnley, Bolton and Blackburn. Of the 21 cities listed as delivering positive growth, none were in the South. Zoopla explains:
“This variation is down to the absolute level of house prices and levels of affordability in the face of higher mortgage rates.”
It expects the regional divide to continue throughout 2024.
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House Price Forecasts
Numerous reports hint at potential for price growth this year and beyond. The latest Housing Insight Report from Propertymark highlights a +4% rise in the number of prospective buyers, coupled with a “slight decrease in the number of homes coming to market.”
That will only serve to widen the gap between supply and demand, putting further upward pressure on prices. It reports that, currently, its average member branch sees around 75 buyers but only 35 properties available for sale.
A reduction in the supply of new property is the subject of a recent post from the National House Building Council, which reported that a combination of bad weather, economic challenges, and skills shortages led to a -20% decline in new home registrations in Q1 2024 compared to the previous year.
Similarly, new home completions were down 13%. Halifax, in its latest house price index, highlighted the influence of interest rates. It wrote:
?“If, as is still expected, downward moves in Bank Rate come into play later this year, fixed mortgage rates should fall. Combined with the resilience displayed by the housing market over recent months, we now expect property prices to rise modestly over the course of 2024.”
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Rental Data
Below are the average rates of annual rental growth according to the UK’s best-known rental indices.
Goodlord Rental Index: +5.7%
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Goodlord observes that average rental growth now appears to be tracking growth in average earnings—in most regions, at least. That suggests that the market may be stabilizing, producing no marked change in the real-term affordability of rental properties. If that proves to be true, that should help to keep the market steadier and more sustainable in the months ahead.
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Rental Supply and Demand
On May 2, Propertymark published its Housing Insight Report for March. It stated that the average number of new prospective tenants registered per member branch stood at 82. That’s a little lower than the 89 reported in February, but with its members reporting an average of just 9 properties to let per branch, Propertymark notes that demand still exceeds supply by a ratio of more than 9 to 1.
Returning to the previously mentioned report from the National House Building Council, it found that the number of new-build properties aimed at the rental sector had declined by -19% in the first quarter of the year compared against the same period in 2023. That is likely to maintain the demand imbalance that has pushed rental values steadily higher in recent years.
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Rental Yields
In early May, Paragon Bank published the result of a landlords survey, which indicated that average gross yields had reached their highest levels since 2018. The Bank reports that yields have risen for three successive quarters to hit 6.1% in Q1 2024.
The last time they were higher was in Q2 2018, when they stood at 6.2%. The survey notes that the highest yields were achieved in the North East (7.0%) and Yorkshire & Humber (6.6%).
The lowest were seen in Outer London, although, even here, they were a respectable 5.2%. Other sources have reported higher yields but the figures certainly suggest a market that is delivering improving returns for investors.
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Prime Central London
Rightmove’s House Price Index for May included a feature on London boroughs. It noted that, on an annual basis, asking prices grew most strongly in Hammersmith & Fulham (+6.6%), followed by Camden (+6.5%) and Merton (+6.3%). However, most other boroughs saw considerably slower or negative growth, the poorest performer being Hackney, where values fell by -3.3% year-on-year. Nonetheless, the recent fall in the Consumer Prices Index means that a total of eight London boroughs have produced inflation-beating annual gains.
LonRes.com reports that its lettings index for Prime Central London rose by +2.8% year-on-year and by +2.2% over the last quarter. Its data suggest that the PCL Fringe fared better, producing quarterly gains of +5.5% and annual gains of +6.9%. On the measure of yields, it ranked the boroughs as follows: Chelsea (3.9%), South Kensington (3.7%), Kensington (3.6%), Knightsbridge (3.6%), Mayfair & St James’s (3.2%) Belgravia (3.1%).
Again, the Fringe markets produced better results. Borough produced average yields of 5.7%, followed by Nine Elms (5.5%) and Clapham (5.3%). The average for all Fringe boroughs was a relatively healthy 4.9%. We will provide a more detailed analysis of the Prime Central London market in our Q2 Quarterly Market Report.
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Average Earnings
On 14 May, ONS published its latest data on average UK earnings and the jobs market. It reported that the UK employment rate (for people aged 16 to 64 years) had fallen slightly to 74.5%, while both unemployment and economic inactivity indicators were up. In each case, however, the changes were relatively small.
However, those in employment have, on average, seen their earnings rise by +6% year-on-year, excluding bonuses. This remains well ahead of inflation, suggesting that millions of workers will be seeing real-terms income growth. That should help to offset affordability pressures and provide more scope for longer-term price growth in the UK housing market.
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Summary
With a General Election in prospect, sales activity might well slow for a few weeks while buyers and investors play ‘wait and see.’ However, the fundamentals of the property market are unlikely to change, and, looking ahead, conditions seem likely to improve.
Historically, house prices have risen by an average of more than 5% in the year following a general election. That’s according to research by eXp UK, which featured in many property media last week. It suggests that there could be a market bounce in Q3 and Q4 of this year, but there are other factors working in investors’ favour, too.
Inflation is falling and although it is taking longer than many predicted for that to translate into lower interest rates, some reduction in mortgage costs now looks inevitable. When it happens, the long-standing imbalance between supply and demand should trigger a return to stronger capital growth.
Values have been rising in many of the UK’s more northerly markets for some time but if interest rates ease somewhat, the rest of the country could follow.
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Summary
If you have any questions about any aspect of property investment, please call us today.
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Dale Anderson?
Managing Director, Fabrik Invest Ltd.?
#UKProperty #RealEstate #PropertyInvestment #MarketUpdate
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