Update for Investors on Residential Sales and Lettings- February 2024

Posted on February 16th, 2024.

The current state of the UK housing market presents a nuanced landscape, offering both opportunities and challenges for prospective buyers and sellers. Recent economic shifts, including a rapid decrease in inflation leading to mortgage rates dropping below 4.0 per cent, have injected some optimism into the market. However, according to my recent research, there’s a cautionary note regarding the delay in reflecting these changes in certain housing market indicators.

Nationwide reported a 0.7 per cent increase in house prices in January, narrowing the annual decline to 0.2 per cent, the Bank of England’s announcement of slightly higher mortgage approvals in December.

I would like to point out that these three recent announcements underscore this disparity. While hinted at modest improvement, on the contrary, HMRC’s revelation of a decrease in housing transactions in December painted a less optimistic picture.

Looking beyond the surface, I would emphasise that these announcements offer insights into the prolonged timeline associated with property transactions rather than solely reflecting market sentiment.

On speaking with other industry professionals and those in the financial services sector, the lagging indicators shall gradually improve, there will likely be an uptick in sales volumes and house prices throughout the year, especially if Rishi Sunak adheres to his proposed election timeline. Additionally, leading indicators in prime London postcodes are showing positive signs, with an increase in market appraisals and new buyer registrations.

I note a discrepancy between leading and lagging indicators, as evidenced by a decrease in sales instructions and exchanges. Despite average prices in prime central London experiencing a marginal decline, there’s stability in prime outer London, suggesting a more balanced market dynamic.

While economic conditions and mortgage rates have stabilised, there is  increasing political volatility, particularly concerning potential Tory conflicts and the timing of the general election. This uncertainty could influence market dynamics in the coming months.

Lettings Market

For London, rental values in January edged closer to their long-term averages amid a surge in supply. Prime central London witnessed a notable decrease in annual growth compared to the previous year, while prime outer London experienced more moderate growth rates.

The increase in supply can be attributed to a subdued sales market, prompting more property owners to explore the rental market. During the pandemic, a robust sales market led to a decrease in rental properties available as owners capitalised on favourable conditions by selling.

Data from Rightmove indicates a return to normal levels of supply, with new rental listings in prime London areas nearing their five-year averages. This increase in supply has led to adjustments in asking rents, with a growing number requiring reductions.

Observing the broader trends, indicating a shift in Investor confidence, with some exiting the sector due to regulatory burdens and tax implications. Those remaining are opting for shorter tenancy lengths for increased flexibility, amidst anticipation of tighter green regulations and impending legislative changes, such as the Renters Reform Bill.

However, concerns loom over the potential impact of the upcoming general election on legislative timelines and market dynamics, with implications for both landlords and tenants.

Look out for next week’s article, where I explore how might the recent economic shifts impact the long-term trajectory of the UK housing market. With increase in supply in the rental market, what strategies could landlords employ to maintain profitability and in what ways might political volatility influence buyer and seller behaviour in the property market leading up to the general election.

As ever, if you have comments , questions or topics you would like to discuss, you can email to chris@ashmoreresidential.com