JLL Residential Market Update – April 2023
Inflation remained stubbornly in double digits (just) in March. With a rate of 10.1% meaning expectations of a further rate rise at the next MPC meeting are looking more likely. Consensus amongst forecasters is for rates to now top out higher than the 4.25% to 4.5% anticipated earlier in the year. Albeit, then expected to fall back later this year. Confidence in the UK economy is returning, with ratings agency S&P Global upgrading the UK rating, reversing the post mini-budget downgrade, as well as reaffirming the AA rating for UK debt.
News is mixed on the jobs front too. Unemployment edged up in March to 3.8%, from 3.7% in February. The number of payrolled employees is rising, with figures showing a million more payrolled workers nationally in March 2023 compared with pre-pandemic in March 2020 (a 3.5% increase). Rates had risen the most in London (+4.0%) and Northern Ireland (+5.0%) in the three years to March. Despite this the job market has been slightly less frenetic than it has been of late, with government figures showing the number of vacancies fell for the ninth consecutive month in March, albeit at 1.1 million they remain higher than the pre-pandemic norms. Wage growth in the three months to February averaged 6.6%. But spending power continues to be eroded by increases in living costs, particularly food and energy, with real wages (accounting for inflation) dropping 2.3%.
Sales market
The latest figures on house prices show quite a spread in performance between indices, with the Nationwide figures for March suggesting an annual fall of 3.1%, with prices falling for the seventh consecutive month. Figures from the Halifax put prices in March 1.6% higher than they were a year ago, up 0.8% on the previous month (Nationwide is reporting a 0.8% monthly fall). The Land Registry, tracking completions and usually less reactive to changes in the market, is reporting February figures, with prices down 1.0% monthly but still showing an annual increase of 5.5%.
But the consensus amongst agents is that prices have softened so far this year. The latest RICS survey suggesting respondents were more likely to have seen houses prices fall in their market in the last three months, with the net balance -47% for the UK and -43% for London.
According to the RICS survey, demand for homes remained more subdued in March too. More agents reported a reduction in new buyer enquiries, with the net balance relatively unchanged from the previous month at -29% nationally. London respondents reported a fall in new buyer enquiries too, but results were less clear cut, with a net balance of -7% seeing fewer buyers.
The mortgage market
Just over 40,000 loans were approved for house purchase in February, 37% up on the lows of January 2023 but still 37% down on volumes last February and 18,000 (31%) shy of February 2019 levels. Yet despite further rises in the Bank Rate, fixed rates offered by lenders are more competitive, with both two- and five-year fixed rates at their most competitive since the mini-budget in March 2023, with rates sub 4.3% for a two-year fix and below 4.8% for a five-year according to figures from the Bank of England.
The rental market
Rents are still rising nationally. The latest figures from Homelet show all UK regions saw rents rise both annually and month-on-month. UK rents rose to a new high of £1,184 per month, up 0.8% on February 2023 and 9.8% on March 2022. London recorded the highest annual increase of any UK region, with rents up 0.2% monthly and 11.8% annually in March.
Tenant demand nationally continues to be strong. The non-seasonally adjusted net balance is at a five months high of +46%, while landlord instructions still lag, with more agents reporting landlord instructions falling in the last three months. In London, market conditions are similar, with more agents reporting an increase in tenants registering (the net balance increased from +31% to +40% month-on-month) and landlord instructions failing to keeping pace with demand, with a net balance of -20% in March. A shortage of stock combined with strong demand is expected to put additional pressure on rents. The near-term rent expectations balance (those expecting them to rise) increased from +45% to +59% month-on-month.
Forecasts
JLL forecasts remain unchanged. We anticipate price falls in most markets this year as purchasers try to balance increases in living costs and higher interest rates. But with significant levels of equity and a resilient employment market we expect these falls to be limited to single digits in 2023. Rents are forecast to rise in all markets this year, supported by increases in wages and supply shortages.
JLL Research | April 2023
JLL is a leading global professional services firm specialising in real estate and investment management, with $16.6bn annual revenue in 2020, operations in over 80 countries and a global workforce of over 90,000. With over 7,000 employees and 15 offices in the UK, we support our investor, developer and occupier clients at every stage of the property lifecycle across both commercial and residential asset classes. This includes land purchase, access to capital, planning, development advisory, leasing, building management and sales.
JLL’s Residential and Living team consists of over 300 professionals who provide a comprehensive end-to-end service across all residential property types, including social housing, private residential, build to rent, co-living, later living, healthcare and student housing.
