New CPI figures show UK inflation held steady at 2.2% in the year to August 2024. Although only marginally higher than the Bank of England’s target of 2%, the latest figures confirm inflationary pressures are persisting. The main culprit of the stubborn inflation is air fares, rising 22% between July and August. This was offset by falling prices at petrol pumps however, alongside restaurants and hotels. Oil prices remain low, by historical norms. At the time of writing, the average price of Brent Crude is trading at around $73.5 USD per barrel, but perhaps much of this can be attributed to excess supply as opposed to falling demand.
The Bank of England (BoE) held interest rates at 5% at their latest MPC meeting. This was almost a foregone conclusion following Wednesday’s news that inflation remains marginally above the 2% target, with some fearing another rate cut would further spike inflation. The BoE are now forecasting that inflation could rise to near 3% by year end, fuelled by rising energy prices. A recent article by Reutershighlighted that all 65 economists in the September poll predicted the base rate will remain at 5% in September, with 48 of 65 economists predicting the next cut will come in November. The majority expect just one more rate cut by year end.
Meanwhile, GDP growth flatlined in July for the second consecutive month, meaning the UK is no longer the fastest growing economy in the G7. This is not exactly the economic bounce back that Labour were hoping for and puts even more pressure on Rachel Reeves in the upcoming Autumn Budget, who is likely to deliver news of tax raises and spending cuts. The Chancellor acknowledged she has a large black hole to fill, but there will be fears that cuts to public spending could result in further lacklustre economic growth for the UK.
Competition heating up amongst lenders
Since the Bank of England announced the first rate cut in four years on 1st August, competition amongst mortgage lenders has been rife.
Cooling inflation, a change in government and falling mortgage rates have brought about a new sense of enthusiasm from buyers since July 5th. Major lenders have embraced increased demand in the market, with key players continuing to reduce rates to new lows. At the time of writing, the current average 2-year fix (75% LTV) across the big six lenders is 4.65% while the average 5-year fix across the big six lenders stands at 4.18%.
Despite falling mortgage rates, first-time buyers are still having a hard time gaining a foot onto the ladder. A recent report from UK Finance revealed that 22% of loans taken out by first-time buyers in June were for extended terms, with most opting for 35 or 40 year loans. This reflects a significant rise from 6% five years ago.
The struggle faced by first-time buyers is mirrored by the results of our latest JLL Buyers and Tenants survey. This year, 41% of tenants said that higher mortgage rates were impacting their ability to purchase a home. Meanwhile, 26% of buyers this year decided to delay their home purchase, 61% of whom said this was because they were waiting for rates to fall.
Housing market
New ONS data on house prices and private rents illustrates a continued strength within the housing market. Private rents increased by 8.4% in the year to August 2024, taking average rents to £1,327 per calendar month in England. Although this represents a small decrease from 8.6% in July, rental growth is still proving bullish, particularly in central locations. ONS reported annual rental growth was 9.6% in London, the highest of all regions.
The story is almost the opposite for house prices. House price growth across London was the lowest of all regions, at -0.4% in the year to July. The ONS recorded average house prices across the UK reached £290,000 in July, up 2.2% annually.
Halifax are now reporting the largest annual increase in house prices across the UK. According to their latest house price index, average house prices were 4.3% higher in August 2024 than a year prior, rising 0.3% on the previous month. Nationwide have reported annual growth of 2.4% in August, while the Rightmove September index is reporting 1.2% annual growth.
Improved sentiment amongst buyers is having a positive impact on sales activity and house prices. We anticipate this continuing into the autumn as lenders continue to bring competitive rates to the market.
Renters Rights Bill
Last week, the government introduced the Renters Rights Bill, Labour’s version of the previous Renters Reform Bill, first introduced by the Theresa May Conservative government in 2019. A raft of updates to the bill have now been announced, of which some of the most significant changes from the perspective of landlords and tenants are detailed below:
Tenants:
There will be an end to fixed-term tenancies, moving to rolling period tenancies. Tenants will have power to end the tenancy, by giving two months’ notice.
There will be a single date after Royal Assent and Commencement for the removal of Section 21 evictions, which is not dependent on court reform happening first. This will give tenants immediate security, meaning that the tenancy will only end if the tenant leaves by choice, or if the landlord has a valid reason to evict them.
Landlords:
Landlords can end tenancies if they can evidence a valid ground for possession. Landlords will need to give four months notice to move in or sell the property. However, there will be a new protected period for the tenant at the beginning of the tenancy. A new ground for possession will allow landlords renting to students in HMO’s to seek possession ahead of each new academic year.
Rent Repayment Orders will be expanded so they are wider in scope and for repeat offenders, with fines increasing in line with inflation. There will be a ban on in-tenancy rental increases written in to contracts, with landlords only allowed one rent raise per year, to market rate. In addition, there will be a ban on rental bidding wars with lettings agents, with legal requirement for landlords/agents to be unable to ask or accept any bid above the published rent for the property.
Neil Short, Area Director – Residential Lettings, at JLL says “As an industry we welcome reforms that will improve living standards within the Private Rented Sector. However, the bill in its current form does raise a few concerns, given Labour’s large majority it’s unlikely that there will be any dramatic changes to the bill. That being said, a lot can happen between now and the Renters Rights Bill gaining Royal Assent. Ensuring that there is a limited negative impact on the supply of new private rental homes is of utmost importance. We will keep our clients up to date on how things develop as the bill makes its way through Parliament”.
JLL Research | September 2024
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.
JLL’s Residential and Living team consists of over 300 professionals who provide a comprehensive end-to-end service across all residential property types, including social housing, private residential, build to rent, co-living, later living, healthcare and student housing.
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