Regardless of your age September has a distinct back to school feel. Those of us ditching the beach bag for the briefcase will be looking closely at the latest numbers to see what impact the new government and more importantly the August rate cut are having on the market. Despite the usual summer slowdown making it a bit more difficult to tell, there are signs that the market is waking up.
UK economic outlook improving
With economic growth across the UK coming in broadly above expectation so far this year, a raft of forecasters have begun upgrading their outlook for growth. Consensus forecasts now expect the UK economy will grow by 1.0% this year (they were at 0.6% at the start of 2024). The Bank of America and the British Chamber of Commerce are the latest to upgrade, both now expecting growth of 1.1% in 2024. Before we get too excited, these aren’t big numbers and still mean the UK lags many of our mainland European neighbours. However, a brighter picture will embolden investors as many of the other key economic and housing market indicators turn positive in H2.
More favourable rates
Following the Bank of England’s August rate cut and more competitive five-year interbank lending rates (SONIA) emerging we’ve seen a flurry of more competitive mortgage rates enter the market. The latest being a five-year fix at sub 3.8%. While these rates would still make your average 2020 borrower wince, in the ‘new normal’ a sub 4% rate appears to be sufficient for the wheels of the mortgaged housing market to begin turning more freely again.
It's still a little early for the latest mortgage approval figures to fully reflect the impact of lower rates and certainly many have had other things on their mind over the summer break. But the July approval figures do appear to be showing the early signs of an uptick in activity. The latest figures from the Bank of England showing July approvals rose to 62,000, the highest since September 2022.
More stock entering the market
Rightmove reported an uptick in listings this summer, with July recording an 11% annual increase in stock reaching the market for sale. Rate cuts in early August added further to vendors propensity to list, with listings to mid-month in August up 19% on the same period a year earlier.
Prospective buyers are returning to the market. Here at JLL the number of viewings in July and August are up 48% compared with the same period a year ago. Prices are rising too, with Nationwide reporting prices up 2.4% annually in August, having risen on an annual basis every month since February.
Transactions rise
Transaction data is always a lagging indicator. With lengthy conveyancing delays also meaning the time between a buyer committing to purchase and the sale completing often stretching to more than three months. However, even accounting for these delays we are starting to see the number of homes changing hands edge up. The latest government figures showing just shy of 91,000 seasonally adjusted transactions in July, up 7% on July 2023.
Rents
The latest new lets figures from Homelet show a disparity between rental growth nationally. London, often the most reactive market, has seen annual rental growth of just above flat this month at 0.1% (albeit up 2.2% on last month). Whereas some regional markets are still seeing rents rise by up to 9.4% (East of England).
Conflicting reports on landlords selling up
Rightmove data shows an increase in listings of homes for sale which have been previously let on the portal. With 18% of homes currently on the market nationally previously listed to let, up from 8% in 2010 and 14% over the last five years. This rises to 29% in London, although it is worth noting that around 30% of households in London rent privately, far higher than in other regions.
There are a few reasons homes are being listed. Obviously, debt costs for leveraged buy-to-let investors have risen, in addition to the removal of tax breaks on mortgage interest payments. Uncertainty around capital gains and inheritance tax post budget alongside the expected return of the 2030 EPC C obligation will also be impacting investors’ choices. However, this too could be a sign of a stronger sales market, with reluctant landlords who in a more challenging market have looked to rent rather than sell simply returning to the market to test the water.
New development
Delivering more homes was one of the key pledges of the Labour manifesto, with all regions aside from London set to see their housing targets increase (even London’s new targets still expected to be more than double recent delivery). For more on what this means at a local level click here.
But the latest starts and completions figures for Q1 demonstrate the scale of the task ahead. The Q1 2024 figures, released at the end of August show there were 22,310 house building starts (seasonally adjusted) in England, a 11% increase compared with the previous quarter, but 41% down on the same quarter of 2023.
The introduction of new building regulations just over a year ago caused starts to spike in Q2 2023 at almost 67,000. This meant schemes which would under normally (regulatory) circumstances have been delivered later were pulled forward. As a result, falls in more recent quarters could be overstated, but in any case, we’ll need to see a reversal of this trend soon to get near the 1.5 million homes target within this parliament.
In case you missed it….
Our latest Big Six Residential Development Report, Click here to read more.
