Residential Roundup 7 June

The European Central Bank (ECB) announced its first rate cut in more than four years on 6^th June, down 25bps to 3.75%. The ECB weren’t the first to start the rate cutting cycle, with Switzerland, Sweden and Canada already dropping rates prior to the ECB announcement. But a move by one of the most influential central banks towards relaxing monetary policy undoubtedly signals a shift in the global economy, with many hoping this triggers rate cuts elsewhere. Focus will now be on the Bank of England to see if it follows its neighbours’ lead on 20^th June or leaves it until 1^st August (or beyond) to start the rate cutting process. Odds still appear to be more favourable for August over June, but the actions of the ECB could lead a few more to speculate on an early rate cut.

News feeding through on the UK economy does appear (a little) more favourable this month. Following a better-than-expected performance in Q1, when the economy grew at its fastest rate since Q4 2021, the British Chamber of Commerce upgraded their forecast for growth. Before we get too excited, growth is still only expected to hit 0.8% this year, up from 0.5%, but follows other forecasters more positive news on the UK outlook. The FTSE 100 has been performing well too, buoyed by better economic news and the prospect of rate cuts later this year, the index hitting an all-time high back in mid-May.

Transactions

Data on the housing market can be split into retrospective and forward-looking indicators. Official government transactions data, which tracks completions is a lagging indicator, with lengthy conveyancing processes and time taken to officially register sales meaning activity reflects a market often months prior. The latest April figures do show a market in recovery, with seasonally adjusted estimates suggesting 90,430 homes changed hands in April, 5% higher than March 2024 and 10% up on April 2023. This is encouraging, but worth remembering these rises come off a low base in 2023 and will reflect deals done when best-buy mortgage rates hovered around 4% briefly in the first couple of months of 2024.

Mortgage approvals

Mortgage approvals are very much a forward-looking indicator. Higher rates, which many would have hoped would be trending down at this point are still holding the market back, but there are some encouraging signs. Mortgage approvals have been north of 60,000 for three consecutive months now, the first time since September 2022. In April, mortgage approvals for house purchase were on par with March figures at 61,100 (200 fewer than March). Approvals for remortgage fell back a little more, with 29,900 approvals, down 11% on the previous month, suggesting those looking to remortgage may be holding out for more favourable rates once we have more clarity on the direction of travel. 

Prices and rents

The official government indices, provided via the Land Registry are more backward looking, reflecting completed sales. This shows prices in the year to March 2024 rose 1.8%, with average house prices £5,000 higher. Nationwide indices, a little timelier as they are based on mortgage valuations (although crucially exclude cash purchase) show an annual change of 1.3% in the year to May 2024.

Rightmove indices, tracking asking prices, show vendors are listing homes for on average 0.6% more than they were a year ago in May 2023. Mortgage reliant markets saw more modest increases, first time buyer properties seeing a 0.4% annual increase, second steppers 0.2% whereas the top end saw the amount asked rise 1.6%.

But over analysing a 150 bps spread in house prices is arguably a little too forensic. Whatever your house price index of choice, values are effectively flat, particularly when we consider annual inflation at 2.3%. Although the resilience of the market in the face of stubbornly high rates does suggest some benefit on the upside once lending conditions improve.

May figures from Homelet point to a further increase in rents on new lets. Average UK rents rose 0.2% in May to £1,297 per month, 6.5% higher than they were a year ago. The West Midlands saw the highest annual growth at 10.1%, with the lowest annual increase in the South West at 3.4%.

Student market

Undersupply and scarcity is not a concept confined to the housing market. Over the past decade, the number of students across the EU and the UK combined has grown by 15%, now exceeding 21 million. Numbers are projected to grow a further 10% by 2030/31, meaning we’d need to house an additional 2 million students. With demand outstripping supply three of the top five investment growth hotspots identified in our latest report are UK cities. To read more click here.

The UK student housing market is clearly an undersupplied sector, and interest from investors is rising. But it is vital that the sector keeps at the forefront of energy performance and efficiency, to limit the impact of obsolescence and keep costs in check. And it is not all about EPCs, our research, using data from Utopi shows EPC B rooms without controls used nearly 80% more electricity than the EPC C rooms with controls in place. Our latest report is available here.