Residential Market Update September 2022 – A new Head of State and Prime Minister

Market Update September 2022

The UK has experienced a turbulent and sombre month to date. Thursday 22^nd saw the Bank of England rise interest rates by a further 0.5% to 2.25%, the highest level seen since 2008. The bank had previously been expected to make an announcement on interest rates earlier on in the month, however a series of events in the UK saw this postponed. We ushered in a new Prime Minister, and sadly a new Head of State, all within a 48-hour period. Discussions on how the new PM can help support households with rising energy bills has dominated many headlines, with a plan of action announced on the 8^th. House prices have continued to rise despite increased uncertainty.

Inflation, interest rates and the mortgage market

The Bank of England rose interest rates by a further 0.5% on Thursday 22^nd September. Although many expected a 0.75% rate rise, the increase takes current interest rates to 2.25%; the highest level seen since 2008.

In the mortgage market, homeowners have taken out the largest number of five-year mortgages on record as they look to lock in mortgage deals in anticipation of further interest rate rises.  Although mortgage approvals for home purchases dipped by -9% from 74,900 in June to 68,300 in July, annual mortgage approvals of 822,200 are still mirroring the five-year average and the number of residential transactions across the UK increased by 7.2% from June to July.

The impact of a cap on energy bills

On 8^th September, just two days into the new role as Prime Minister, Liz Truss announced a plan to cap energy prices at £2,500 per annum for households, for two years. Support packages for businesses have also been offered for an initial six month period.

The initiative, to be funded by borrowing, has been estimated to cost the government over £100billion. Despite the chunky addition to the UK’s debt, some economists believe that this support package could mean inflation will now peak at just over 11% in October and reduce the severity of a recession

House prices

Arguably, with the death of Queen Elizabeth II and a new Prime Minister, the UK has experienced even higher levels of uncertainty than previous months. Despite this, house prices are still booming and defying critics expectations of a fall in prices. Annual growth (the year to June 2022), in the UK reached 7.8% in June, whilst annual growth in London was at 6.3%. Although annual growth in the UK this month is more moderate, some regions are still experiencing annual growth of almost 10%.

Rents

The rental picture remains largely unchanged across the UK. The continued return of those who left cities during the pandemic, alongside overseas students, has led to a spike in demand for rental property. According to the latest rental index data (August 2022) from Homelet, the average rent in the UK is now £1,143, after rising 8.5% annually. Every region in the UK has seen both annual and monthly rental growth.

Demand

The RICS reported demand for rental properties was still outstripping supply in August, fuelled by a continuing post-pandemic return to cities, alongside increasing numbers of overseas students. In the UK sales market, new buyer enquiries fell in August, although buyer demand in London remains robust. A net balance of +40% of agents still expect prices to rise over the next 12 months across the UK.

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