Residential Roundup - 17 November

It has been a busy week in Westminster. Waking up on Monday you would be forgiven for thinking we had returned to 2016, with David (now Lord) Cameron back in front line politics. The reshuffle also saw a new housing minister announced, the 16th since the Conservatives came to power in 2010. Returning to the post is Lee Rowley, reprising the position he held briefly under Liz Truss in 2022. He replaces Rachel Maclean who had held the position for nine months.

Suella Braverman issued a scathing response following her sacking, questioning the Prime Minister’s record on several key issues. One he is likely to meet is the inflation target. With the January commitment to halve inflation looking well within reach if CPI follows a similar trajectory over the next two months.

UK follows US and Eurozone as inflation falls more than expected.

The latest figures show CPI falling to 4.6% in the year to October, down from 6.7% last month. Most economists, in line with the Bank of England, anticipated rates would fall. They were of course at highs of 11.1% a year ago, but most had expected a rate nearer 5%. Core CPI, which excludes some of the more volatile sectors like food and energy, also fell back in October, down to 5.7% from 6.1% in September.

The UK follows the US, where inflation fell to 3.2% in October, the first monthly fall for three months, below expectations and down from 3.7% in September. Similarly, Eurozone inflation was 2.9% in October, down from 4.3% a month earlier.

No real change in the jobs market

Wage growth in the three months to September, excluding bonuses, was 7.7%. Total pay increased 7.9%, down from an 8.5% high back in July. Unemployment remained static at 4.2% in the three months to September, in line with expectations. This means fears of further increases in the bank rate have receded as the economy cools.

Rosier outlook on rates

Rates are certainly improving, albeit slowly. Shorter term fixed rates, which were nearing 6% a few months back are now just below 5%. The market is slower, with fewer buyers, but Rightmove figures suggest the number of sales agreed in October was down only -10% on 2019 levels, an improvement on the -15% figure in September.

Affordability pressures mean the market for smaller homes is busier. With sales agreed on home with two bedrooms or fewer down -7% on 2019, compared with a -14% fall for larger properties.

Stock levels have edged up from last year’s lows, but the number of homes for sale has only returned to 2019 levels, with stock just -1% lower. Latest figures from the RICS shows stock levels are back in line with levels pre-pandemic, despite a drop off in activity.

Asking prices on Rightmove fell -1.7% in October, compared with September figures. Potentially a sign that vendors who do need to sell are willing to price more competitively, although again a fall in asking prices pre-Christmas is not unusual, so seasonal factors could be impacting here too.

Both the Nationwide and Halifax indices showed prices rising in October, up 0.9% and 1.1% on September. Meaning annual falls of -3.3% and -3.2%. The Land Registry, which has lagged other indices, registered its first annual fall in September, with values down -0.1%.

Pressure in the run up to the Autumn Statement to address the freeze in local housing allowance.

The latest figures from Homelet show rents in the year to October rose 9.6%. With the RICS survey pointing to further increases in tenant demand, the survey reporting a positive balance nationally every month since summer 2020.

On average, tenants are paying 32.7% of their income on rent, up from 30.6% a year ago, with rents up nationally by an average of 35% in the last four years. Over the same period average wages have risen by 24% according to the ONS.

But rising rents have had an even more significant impact on households in receipt of housing benefit. Local housing allowance (LHA) has been frozen for four years, with allowances based on rents at the thirtieth percentile, set in September 2019.

Research by the Institute of Fiscal Studies suggests that despite 38% of private tenants being in receipt of housing benefit only 5% of homes listed to let on Zoopla would have been covered by LHA, down from 23% at the point rent were frozen.

Analysis of average rents regionally shows that since LHA was frozen average rents have risen the most in Scotland, with rents on new lets rising 44% (rent caps will mean increases will be lower for renewals). In England the North West saw the highest increase at 36% with all regions seeing rental increases of 25% or more.


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