Residential Roundup - 1 December

House prices recorded their second consecutive monthly increase in November, with prices now just -2.0% down on the same point a year ago, according to figures from Nationwide. Of course, prices had already started to fall a year ago, they are down -5.5% on the August 2022 peak, but in effect have changed little since Q1 2023.

Despite little change in prices (nominally at least), the impact of higher rates continues to put pressure on the market. Fewer deals are being agreed and those looking to move are having to be more realistic on price and willing to negotiate with prospective buyers. The gap between asking and achieved prices, which averaged 3.4% in the first half of 2023 fell to 5.5% in the first half of November according to Zoopla.

Pouring over spreadsheets of housing data it is easy to forget the individual stories behind every transaction. This weeks You and Yours on Radio 4 BBCR4 You and Yours - 28 Nov set aside an hour to focus on the housing market. Those dialling in, ranging from frustrated tenants to seasoned developers, voicing their frustrations on different aspects of the property market.

The challenges of higher rates, competition in the rental market, and the sluggish buying process were all very much evident. For homeowners, higher debt costs are impacting not only those looking to buy but also those looking to sell. Even the highly prized cash purchaser, who according to the Land Registry have accounted for 32% of buyers this year, were not immune to the knock-on impact of higher rates. With many looking to sell (and free up cash) held up by a lack of buyers willing or able to access sufficient funds.

The post-lockdown race for space saw sought after family homes record some of the highest increases in prices, as buyers left urban areas with money in their pockets to purchase a larger home. But with the return to the office, and rising rates impacting buying power, larger homes are lingering on the market. Analysis of Rightmove listings shows 11% more four-bedroom homes and 18% more homes with five or more bedrooms listed now compared with the previous five-year average. Over the same period one and two-bedroom properties listed fell -0.2%.

Mortgage approvals rise (a bit)

November brought another welcome improvement in mortgage rates. Figures from Lifetime Capital showing best buy 2-year fixed rates at 4.9% and five-year fixes at 4.5%. For a 2-year fix this reflects a 100 basis point fall since July.

For those hoping for a bit more activity the latest mortgage approval numbers may provide some cautious optimism. Figures from the Bank of England show approvals for house purchase rose to 47,400 in October, up from 43,700 in September. But activity remains muted in a historic context, with numbers down 17% annually and by 29% on the five-year pre-pandemic average.

The combination of cash and mortgaged purchasers means despite mortgage approvals dropping by a third compared with pre-pandemic norms, overall transaction volumes have not dropped as significantly. With 90,920 sales recorded in October, 17% lower than the same month in 2022.

Respite for renters?

Rising rents and a lack of stock have become the norm this year. But there are signs that stock levels are rising and rental growth, while still higher than long run average is starting to cool. Rental listings are up 13% on 2022 lows (but still -15% down on pre-pandemic norms).

The Homelet Rental Index shows rents fell -0.1% in November compared with October. The first recorded monthly fall since January 2023. Rents are still 8.9% higher than they were a year ago but have reported the lowest annual change since March 2022.

A word on the Autumn Statement

Last week’s Autumn Statement left a few crumbs for the housing industry. There was nothing on stamp duty or tax relief for landlords (something for the spring perhaps….). There was welcome news on Local Housing Allowance, a topic we discussed a couple of weeks back here, with rates, previously frozen at 2019 levels, updated to reflect 2023 averages. What this increased spending power could mean for rental market next year is a topic we’ll return to later.

On planning, there were commitments to increase capacity and unlock delivery, a welcome move but undoubtedly a challenging task. More leftfield was the announcement of a consultation on new permitted development rights, where houses could be converted into two flats without planning permission, providing the exterior was left untouched. JLL analysis of average flat and house prices shows two flats in 97% of local authorities are worth more than one terraced house. But it is all about location, in a quarter of London boroughs a terraced house is worth more than two flats. Factoring in conversion costs will be key too, in only 38% of local authorities nationally are two flats worth £100,000 or more than a terraced house. Worth thinking about before reaching for the sledge hammer.

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