December saw a further base rate hike as rising rents continued to dominate the headlines. But there are signs that rising rates are starting to hit prices. Despite annual inflation remaining in double digits, marginal monthly falls suggest it could be topping out. Supporting the consensus view of gradual decline in the rate of inflation as we move into 2023.
Rising interest rates and the mortgage market
The 15 December saw the MPC add a further 50 basis points to the base rate, the ninth increase in a year, meaning the base rate reached 3.5%. The Bank is still having to contend with double digit inflation, far higher than the 2% target. However, the latest CPI figures do suggest that we could have reached the crest of the wave. CPI for November shows rates were marginally below forecast at 10.7% (forecast at 10.9%) and down from 11.1% in October. Governor Andrew Bailey remained cautiously optimistic that inflation had begun to ease in the latest statement.
House prices
The latest UK house price data from the Land Registry shows annual growth reaching 12.6% in October 2022. House prices grew 6.7% across London over the same period, having peaked this year at 9.2% in July.
The slowdown in the market has yet to the Land Registry figures, partly due to the time lag between offer and completion. But there are signs that the market is slowing. The latest figures from the Halifax and Nationwide indices suggest a slowing in the rate of growth in the final months of 2022. With November figures from the Halifax showing prices up 4.7% annually, and Nationwide up 4.4%.
Rents
Rents are still rising, as tenant demand continues to outpace properties reaching the market to let. According to Rightmove, demand for rental properties rose 20% year-on-year, with tenants returning to cities adding further pressure on these markets. The impact of higher interest rates also means tenants are staying in the rental sector for longer as affordability is squeezed, and potential buyers wait to see where the market is heading before committing to purchase. Rightmove figures suggesting the number properties on the market to let fell 9% annually in November.
The Homelet Index show average UK rents rose 11.1% in the 12 months to November 2022, with all UK regions recording annual increase in achieved rents. Greater London recorded the highest annual growth in rents (14.5%) whilst Yorkshire and The Humber recorded the lowest at 7.3%.
Demand
The latest set of responses from the RICS survey saw more agents reporting a drop in new buyer enquiries in the UK, albeit showing a marginal improvement since October. The story remains similar within London too, where more agents reporting falls in prices and buyer demand over the last three months. Reflecting the drop in demand, figures from Dataloft show the number of days taken to sell a home is increasing, with the average now 45 days (up from 40 days in October).
And in case you missed it…
We released our latest JLL forecasts at the end of the year, explaining how we believe the housing market is set for a price correction, rather than a crash. As seen in the Guardian, we expect a 6% fall in house prices during 2023, with recovery in 2024. Meanwhile, Marcus Dixon, Director of UK Residential Research at JLL, discusses the latest rate hike with Prime Resi. And JLL talk all things 2023 with React News.
