UK Property Market Review: June 2024 Edition

In this June 2024 market review, we examine key surveys, reports, policy decisions, and developments impacting the UK residential property sector.

Despite the results of the General Election, the primary market forces have remained stable.

Demand continues to exceed supply in both home-buying and rental markets.

However, with interest rates still comparatively high, affordability remains a significant challenge across many UK regions.

Lower inflation compared to last year raises hopes for a potential cut in the Bank of England’s base lending rate, while average earnings are growing faster than the Consumer Prices Index.

This combination provides a positive outlook for improved market conditions in the second half of the year, though regional differences are expected to persist.

It will be interesting to see what steps Labour take to help boost the housing market post their election win and I will update you on this in my next newsletter.

House Price Indices

Recent house price indices from key organisations reflect the following capital growth rates:

On 19 June, the Land Registry published its UK House Price Index summary for April 2024, highlighting annual price growth patterns:

National and Regional Patterns

Annual price changes in the English regions are as follows:

House Price Forecasts

Supply and demand are fundamental factors affecting house price growth, and the latest Housing Insight Report from Propertymark provides insightful data. The report recorded a +16% increase in the number of potential buyers registered with its member branches, rising from an average of 76 in March to 88 in April.

Simultaneously, new sales instructions increased from around 10 per branch in March to 12 in April, and total stock per branch rose slightly from 35 to 40. These figures suggest a market regaining momentum, with demand still significantly exceeding supply, which should exert upward pressure on asking prices in the coming months.

The May Residential Market Survey from RICS noted a slight slowdown in enquiries ahead of the General Election. However, it stated, “near-term expectations point to sales volumes picking up modestly over the coming three months… Moreover, the outlook for twelve months ahead remains relatively upbeat, with a net balance of +43% of survey participants anticipating an uplift in sales activity (an increase from a figure of +33% in April).”

The survey also highlighted an improvement in the volume of fresh instructions for six consecutive months and an increase in market appraisals, often coinciding with price growth. RICS reported, “contributors remain firmly of the view that house prices will move higher over the next twelve months. In fact, the latest net balance of +41% for the year-ahead price expectations indicator is the most elevated reading since April 2022 (up from +38% last time).”

In its June house price index, Zoopla noted that “house price inflation was flat at 0% in May 2024, but UK house prices are on track to be +1.5% (+￡3,900) higher by the end of 2024.”

Rental Data

The average rates of annual rental growth according to the UK’s best-known rental indices are as follows:

Rental Supply and Demand

On 4th June, Propertymark published its Housing Insight Report for April, noting that “registrations increased from 82 in March 2024 to 90 in April 2024, suggesting that demand is increasing.” The number of properties listed per member branch rose slightly, from 9 in March to just under 10 in April, indicating that demand still exceeds supply by a ratio of around 9 to 1. This imbalance should continue to drive rental values higher over time. Additionally, Propertymark reported a decrease in rental arrears as cost-of-living pressures ease, with members supporting landlords reporting a fall in tenant arrears from over 4% in December 2023 to just 2%.

In its Q2 Rental Market Report, Zoopla identified a pronounced excess of demand, noting an average of 15 enquiries per rented home, more than double the level before the pandemic. Despite rising demand, the “stock of private rented homes has been static since 2016.” RICS reported a month-on-month increase in tenant demand but no significant change in landlord instructions, indicating that “near-term expectations point to rental prices continuing to move higher, even if the pace of growth is likely to be more modest than that seen during much of the last eighteen months.”

Handelsbanken’s annual Property Investor Report offered insight into evolving rental demand amid rising energy costs, revealing that “92% of investors report tenants asking for sustainable features such as heat pumps, solar generation or EV chargers. Furthermore, three in five tenants (58%) have requested properties with an Energy Performance Certificate (EPC) rating of C, with this rising to 88% of tenants in London amid high energy costs.”

Richard Winder, UK Head of Sustainability at Handelsbanken, commented, “Property investors are clearly recognising the long-term value of maximising energy efficiency across their portfolios and are eager to meet the highest sustainability standards to capitalise on the commercial benefits. Locking in value, reducing operating costs, and attracting and retaining tenants are all front of mind for investors.”

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Regional Variations in Rents

Different sources show varying regional trends in rental growth. The following table highlights the three best-performing regions according to different sources, indicating year-on-year growth rates:

Overall, these indices suggest rental growth remains stronger in more affordable regions, but geographical patterns are gradually becoming less distinct. With CPI inflation now at 2.0%, regional averages indicate that rental properties are producing real-terms growth, year-on-year, across the UK.

London’s Property Market

Homelet’s May Rental Index, published in early June, listed 21 London boroughs and their annual rental growth:

Ealing has delivered gross rental growth of +60% over the last five years, the best in the city. Only three boroughs saw negative growth in the past year: Bexley and Greenwich (–0.1%), Camden, City of London (–0.1%), and Wandsworth (–4.9%).

Rightmove’s Rental Price Index for June showed annual growth rates across London’s boroughs:

The weakest results were in Hackney (–2.7%) and Brent (–2.9%).

LonRes.com reports that in Q1 2024, its lettings index for all London boroughs rose by +1.4% quarter-on-quarter and by +1.8% year-on-year. For Prime Central London, the figures were +2.2% (quarterly) and +2.8% (annually). The average yield for all of London was 4.37%, and 3.71% in Prime Central London.

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Average Earnings

On 11 June, ONS published its latest data on UK average earnings and the jobs market. Key points included:

- Payrolled employees in the UK decreased by 36,000 (0.1%) between March and April 2024 but rose by 201,000 (0.7%) year-on-year.

- The UK employment rate (16-64 years) was estimated at 74.3% in February to April 2024, below estimates from a year ago.

- The UK unemployment rate (16+ years) was estimated at 4.4% in February to April 2024, above estimates from a year ago, and increased in the latest quarter.

- The UK economic inactivity rate (16-64 years) was estimated at 22.3% in February to April 2024, also above last year’s estimate.

- Annual growth in employees’ average regular earnings (excluding bonuses) in Great Britain was +6.0% in February to April 2024, translating into real-terms income growth of +2.3%.

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Inflation and Interest Rates

On 19 June, ONS announced that the Consumer Price Index dropped to the Bank of England’s target of 2.0%, the lowest reading in nearly three years. This raises hopes for an interest rate cut and suggests the cost-of-living crisis is easing, improving the real-terms affordability of housing. On 20 June, the Bank of England’s Monetary Policy Committee decided to leave the official base rate unchanged at 5.25%.

Governor Andrew Bailey stated, “It’s good news that inflation has returned to our 2% target… (but) we need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now.”

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Summary

Despite the General Election, housing market activity remains steady. Looking ahead, there are promising signs for investors:

- Average earnings are rising faster than inflation, easing cost-of-living pressures.

- CPI inflation has hit the Bank of England’s 2% target.

- The Bank of England is likely to reduce the base rate of lending in the second half of the year, improving affordability for mortgage holders and new applicants.

- More affordable UK regions are already seeing real-terms growth in house prices.

- Most sources indicate that all UK regions are producing real-terms growth in rental incomes.

- Strong rental growth, alongside relatively slow capital growth, has resulted in rewarding yields in most markets.

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

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Dale Anderson?

Managing Director?

Fabrik Invest Ltd

https://fabrikinvest.com/

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