Early February saw the Monetary Policy Committee (MPC) meet, with base rates increased by a further 50 basis points, to 4%. Although this was the tenth consecutive rate rise, the market now widely expects we are nearing the peak. With expectations that base rates will top out at between 4% and 4.5% this year.
Q4 figures showed the UK managed to narrowly avoid falling into a recession in 2022, with the economy flat in the fourth quarter, however economic output was down -0.5% in December. Forecasters are not discounting the possibility of recession this year, albeit any recession in the UK economy is now expected to be shorter and shallower than originally forecast.
The Mortgage Market
The mortgage markets have become more competitive over the past month, with more lenders joining the sub-4% club. HSBC was one of the first to launch a five-year fixed rate earlier this month. Since, the Co-Operative Bank has launched a five-year fix at 3.75%, the cheapest rate offered to borrowers since September 2022.
The number of mortgage approvals fell by -44% from November to December 2022, with December figures the lowest since lockdown months in 2020. Albeit we anticipate an increase in more competitive mortgage products on the market will result in a rise in mortgage approvals over the next few months.
The Sales Market
The latest responses from the RICS survey saw the majority of agents reporting a drop in house prices and new buyer enquiries in January. The story is similar across London with a net balance of 41% of professionals reporting a fall in house prices, more negative than the -30% in December. The fall in new buyer enquiries is also impacting the time properties spend on the market, with the number of days taken to sell a home rising to 52 days in December.
Wealthy overseas buyers have been taking advantage of a weaker pound to secure homes in central London. Analysis of JLL new homes reservations data shows the number of reservations from international buyers was up 33% in 2022 compared to 2021. Buyers from the Asia Pacific region continued to dominate the market; The number of new homes reservations from mainland China, Hong Kong and Malaysia was up 26%, 26% and 35% respectively in 2022 compared with 2021.
Outside central London, more challenging market conditions and cost of living pressures are beginning to filter through to the market. The Nationwide House Price Index reports growth nationally is slowing, prices 1.1% higher in January 2023 than they were a year ago, although it should be noted that this is on mortgaged properties only. Land Registry data, which records completion dates, is still showing a 9.8% annual increase in UK house prices for December 2022.
According to Land Registry, the East Midlands region saw the highest house price growth in the year to December 2022, at 12.3%, with London recording the lowest annual growth at 6.7%. Scotland and Wales recorded annual growth of 5.7% and 10.3% respectively.
The Rental Market
The Homelet index suggests annual rental growth remains strong at 10.2% across the UK, although the monthly change in rents have recorded marginal falls of -0.2% in January. The latest RICS survey continues to show an imbalance between supply and demand in the both the UK and London rental markets. In London there is evidence of worsening demand/supply imbalance as RICS reports a sharp rise coupled with a fall in landlord instructions.
Continued pressure on the cost of living, alongside higher borrowing costs, suggests demand for rental properties will remain strong in 2023. But affordability will continue to be challenged, with analysis of Homelet data suggesting renters in the UK are spending 31.3% of their income on rent, rising to 36.1% in London.
Forecasts
Despite some clear challenges, the UK housing market remains in a strong position. Unemployment is still at near record lows and fewer households have high loan-to-value loans secured against their properties. The outlook for the UK’s city centres remains strong, with house prices still expected to rise this year. Cities where we have seen the highest house price growth have continued to see demand outstrip supply of late, with the return of students and young professionals.
The lack of quality rental housing is an ongoing issue. This demand for rental stock supports institutional investor appetite for purpose built rental homes. We expect that more prospective buyers, as well as those who would under normal circumstances have transacted under Help to Buy, are more likely remain in the rental market in greater numbers this year. This adds further fuel to an already constrained rental market and will, we expect, perpetuate the supply demand imbalance in 2023.
| Residential Forecasts | 2023 | 2024 | 2025 | 2026 | 2027 | Total 2023-27 | Average pa |
|---|---|---|---|---|---|---|---|
| UK House Price Change (% pa) | -6.0 | 1.0 | 4.0 | 5.0 | 5.0 | 8.9 | 1.7 |
| UK Rental Value Change (% pa) | 4.0 | 3.5 | 2.5 | 2.5 | 2.5 | 15.9 | 3.0 |
Source: JLL Research
And in case you missed it….
Annual investment in the UK Living Sector soared to record heights of £18bn. Purpose-built student accommodation contributed 45% of investment. Read more in our latest UK Living Capital Markets 2022 in Review report. The average cost of a starter home is up £50,000 over the past five years. Marcus Dixon, Director of Residential Research at JLL, chats to the Evening Standard and explains the figures “clearly demonstrate the extent to which people are being priced out of the heart of the capital when looking to buy their first home”. And keep an eye out for our Big Six Residential Development Winter 22/23 Report, out soon.
JLL Research | February 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.
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