The housing market remains more resilient than many had anticipated. The latest results from the RICS Survey show market conditions remain challenging, with agents still expecting prices to fall in the coming months in response to higher borrowing costs and uncertain market sentiment. But the outlook for the next 12 months remained more positive.
Over the longer term there is a clear commitment from both Labour and the Conservatives to support home ownership. But until we see rates top out, we expect the market to continue to tread water. This means lower levels of activity, but prices will, we expect, remain more resilient as a lack of distress and high levels of equity act as a buffer to more challenging economic conditions.
The economy
The outlook for the UK economy is improving, with the IMF upgrading their 2023 UK forecast. Echoing recent announcements from the Bank of England the IMF no longer expects the UK will fall into recession this year, with their latest forecasts expecting GDP will rise in 2023. Growth is expected to be modest at +0.4% but reflects a welcome venture into positive territory following the previous -0.3% forecast in April. This improved outlook means the UK no longer sits at the bottom of the list of G7 economies for 2023, now moving ahead of Germany.
But inflation is still proving stickier than many had hoped. Rates have fallen, with single digit annual increases for the first time since August 2022. It was always anticipated that rates would drop back this month, with the impact of rising energy costs priced into rates a year ago, but the 8.7% annual increase remained higher than the Bank of England and many forecasters had anticipated.
Further falls in energy costs in the coming months will help to bring inflation down further, but annual food price inflation remains at 19.1% according to the latest ONS figures.
Core inflation (calculating the rise in costs when energy and food, alcohol and tobacco are stripped out) rose by 6.8% in the year to April, up from 6.2% in March. With the recent increase in five-year swap rates and stubbornly high inflation meaning a further rise in Bank Rate at the June MPC appears more likely.
New development
Activity in the new homes market remains muted. While schemes on site continue to deliver homes, levels of new starts have dropped and activity in the sector has been more subdued in Q1. The National House Building Council (NHBC) reported new build completions fell 7% annually in Q1 2023 but the number of new homes registered to be built fell 40% to less than 28,000. This follows news that new applications in 2022 fell 14% on 2021 levels, now at their lowest level since 2006, according to figures from the DLUHC. In London, Molior reports constructions starts down 43% on Q1 2022.
House prices
Considering the considerable change that has been thrust upon the UK housing market this year it remains remarkably robust. Activity has dropped back, but we are starting to see the reaction to the initial interest rate and sentiment shock following the mini budget recede, as prospective buyers re- enter the market. With time on the market and mortgage approvals all starting to recover from the lows of late 2022 and early 23.
Low levels of unemployment, wage growth (albeit mostly below inflation), and more equity within the market all mean forced sales are less prevalent. But for those who are looking to transact in this market there does need to be some realism about prices and additional cost facing purchasers.
The latest Land Registry figures show all regions saw a monthly fall in prices in March, with prices UK wide 1.2% lower than in February, the fourth consecutive monthly fall. Prices are now 2.4% below their November peak but remain 4.1% higher than they were a year ago.
After seven consecutive monthly falls the Nationwide reported house prices rose 0.5% in April, but prices dropped back marginally in the latest May figures, down 0.1% month-on-month with prices falling annually by -3.4%, now -4% lower than they were at the peak last summer. The Halifax reported at -0.3% fall in April, following a rise of 0.8% the previous month, with prices on par (+0.1%) with April 2022. First time buyer activity is proving more resilient than expected, with a competitive rental market driving those who can to buy instead.
Falls in achieved prices show higher rates and rising costs are impacting the housing market, although both activity and prices appear more resilient than many had expected. The latest figures from Rightmove show asking prices rose in May, up 1.8%, higher than the usual 1.0% May figure.
Uncertainty over rates appears to have put the brakes on the recovery in mortgage approvals posted in March. Seasonally adjusted figures from the Bank of England showing the number of mortgages approved for house purchase fell by 5%, from 51,500 in March to 48,700 in April. The average rate on new mortgages rose to 4.46% in April, up 5 basis points on March figures. Overall borrowers repaid £1.4bn more than was lent in April 2023, which aside from the pandemic was the biggest net repayment on record.
Rents
The rental market continues to record near double digit growth in rents on new lets. The Homelet Rental Index showing annual rental growth remains strong at 9.9% across the UK in April 2023, with a current average rent of £1,199, 1.3% higher than the March figure. London saw rents rise annually by 11.0%, with average rents on new lets exceeding £2,000 per month. Scotland saw the highest annual increase, with rents on new lets rising 12.1%.
Global view
In the US, the Federal Reserve increased its key interest rate by 25 basis points, pushing its benchmark rate to between 5% and 5.25%. This is the tenth time rates have increased since March 2022. Rates could be topping out though with the Fed hinting at a pause on further rate rises when they next meet in June.
Singapore has announced a doubling of its Additional Buyer Stamp Duty. Overseas buyers purchasing a property in Singapore will now pay 60% tax on their purchase, with those buying using a trust will pay 65%. Permanent residents buying second homes in the city will also pay more.
What’s new from JLL
Our latest Prime Central London report shows rents rose again in Q1 2023, but prices have dropped 4.3% compared with Q1 2022. Read more here
JLL Research | May 2023
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