MARCH 2024 | PROPERTY MARKET REVIEW
In our market review for March 2024, we look back on noteworthy surveys and reports, significant policy decisions and other developments affecting the UK residential property sector.
Importantly, March saw the Chancellor of the Exchequer announcing the UK Government’s Spring Budget. It was largely undramatic, producing no great surprises, but it contained some policy changes that will affect at least a proportion of investors. Consequently, we have included a brief summary at the end of this review.
More generally, the market is looking increasingly promising. Inflation fell this month and is expected go even lower over the next few months. At the same time, sales activity and mortgage applications are on the up and, as we’ll show, house price statistics are suggesting a slow but steady return to growth. And in tandem with all that, rental values are continuing to rise, and yields in many parts of the UK are proving that inflation-beating returns are still readily achievable.
Darren Bennett
Managing Director
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HOUSE PRICE INDICES
The following organisations produced house price indices in recent weeks. (Percentages refer to capital growth rates.)
Positive sentiment can be a powerful driver of house price growth, which is why it’s interesting to see a general sense of optimism reflected in these figures. In its February price index, Zoopla remarked that “All measures of sales market activity continue to improve as pent-up demand returns to the housing market.” It offered a similar message in its March Index, noting: “All the primary measures of sales market activity continue to show positive, upward momentum. New sales agreed are 9% higher than a year ago, with 7% more home sales agreed over Q1 2024 than over Q1 2023.”
Other indices have shown broad agreement. Nationwide, for example, stated: “The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market. Indeed, industry data sources point to a noticeable increase in mortgage applications at the start of the year, while surveyors also reported a rise in new buyer enquiries.” Its index reports a notable price-swing, from a - 0.2% annual decline in January to growth of + 1.2% in February.
Nathan Emerson, CEO at Propertymark made similar observations, noting that member agents had reported an + 89% increase in new properties coming onto the market and a + 129% rise in market appraisals.
NATIONAL AND REGIONAL PATTERNS
In March, the Office for National Statistics began publishing house price data in a new format, via its Private Rent and House Prices Index. On 20 March, it published data for the 12 months to January, and it showed the state-level pattern of annual price growth as follows:
ONS lists annual price changes in the English regions as follows:
Note that these ONS figures lag behind other indices by at least a month and they will therefore be slower to register any improvement in values.
RENTAL DATA
Shown below are the average rates of annual rental growth according to the UK’s best-known rental indices.
Goodlord Rental Index + 7.0%
Homelet, February Rental Index + 7.4%
Home, March Asking Price Index + 2.1%
ONS, Private Rent & House Prices + 9.0%
Rightmove, Q4 Rental Price Tracker + 9.2%
Zoopla, Rental Market Data for Q1 2024 + 7.8%
RENTAL SUPPLY & DEMAND
At the end of February, Propertymark published its Housing Insight Report for January. It stated that the average number of new prospective tenants registered per member branch had increased from 63 in December 2023 to 97 in January 2024. However, the availability of homes also rose over the same period, from just 9 lettable properties last month to a recent high of 12 per member branch. That means that demand exceeded supply by a ratio of 8:1.
A new survey by the Royal Institution of Chartered Surveyors suggests that both supply and demand are growing as the market regains momentum. RICS states that its New Buyer Enquiries Indicator posted a net balance reading of + 6% in February, with a “solid rise” in new instructions to sell. It added that:
“The latest net balance of +21% represents the strongest reading since October 2020, standing in stark contrast to the continuously negative picture throughout 2023. In keeping with this, average stock levels on estate agents’ books now sit at 42 properties, the highest since February 2021.”
In March, Zoopla reported that although rental demand had fallen, “there remain more than 15 enquiries for every home for rent” – a rate that is twice that of pre-pandemic levels. In most regions, rental inflation has been “broadly in line with a year ago despite weaker demand,” the notable exception being London, where growth has been much slower. But for the UK in general, Zoopla predicts that rents will continue to rise over 2024, albeit at a slowing rate.
REGIONAL VARIATIONS IN RENTS
Different sources show different regional variations in rental growth. The following table lists the three best-performing regions by source. Figures in brackets refer to year-on-year growth rates.
Home reports substantial regional variations in rental returns, ranging from + 15.1% in the North East, to - 6.9% in Greater London.
PRIME CENTRAL LONDON
Rightmove’s March index includes a feature on London boroughs. It notes that, on an annual basis, asking prices grew most strongly in Richmond upon Thames (+ 5.6%), Hammersmith & Fulham (also + 5.6%), Westminster (+ 4.7%) and Greenwich (+ 2.7%). The poorest performers were Kingston upon Thames (- 0.3%), Kensington & Chelsea (also - 0.3%), Ealing (- 0.5%), Croydon (- 0.6%) and Wandsworth (- 0.8%).
The ‘London Focus’ section of Homelet’s February Rental Index ranks the individual boroughs in terms of rental growth. Overall, it finds that average rents fell by - 0.5% across the city during the course of February, which reduced the year-on-year growth figure to + 4.8%. However, many local results were much better. Lambeth saw the strongest growth in rents (+ 12.2% year-on-year), followed by Barking, Dagenham & Havering (+ 11.8%), and then Redbridge & Waltham Forest (+ 10.3%). Over five years, Westminster remains the best performer with cumulative rental growth of + 53.1%.
We provide a more detailed analysis of the Prime Central London market in our Q1 Quarterly Market Report.
AVERAGE EARNINGS
On 12th March, ONS published its latest data on average UK earnings. It reported 6.1% annual growth in employees' average regular earnings (excluding bonuses) between November 2023 and January 2024. This is important to investors for two reasons: first, it means that earnings are continuing to outpace inflation, which means that real-terms incomes are improving – ending the year 2% higher than they started. Consequently, buyers and tenants should gradually find themselves with more money to spend on their chosen homes. This could support a slow improvement in average values.
It’s also important because the annual rate of earnings growth is slightly lower than it was last month (6.2%). That will come as some reassurance to the Bank of England, which has been concerned that rapid wage-growth could be stoking high rates of inflation. If that rate is now falling, that could give the Bank more confidence about reducing the base rate of lending and that, in turn, could mean lower mortgage rates in a few months’ time.
INFLATION & THE BASE RATE
On 20th March, ONS announced that CPI inflation had fallen from 4.0% to 3.4%. This will be a welcome movement for investors, partly because it should ease cost-of-living pressures for buyers and tenants, and partly because it makes lower mortgage rates increasingly likely in the longer term.
The following day, the Bank of England’s Monetary Policy Committee (MPC) announced that the official base rate would be held unchanged at 5.25%. This was widely expected, given that average earnings are growing quickly and that the prices of some key commodities are still rising sharply. However, the better-than-expected CPI data, combined with the UK’s slow economic growth, provide grounds to expect that the MPC could decide to reduce the base rate within a matter of months.
THE SPRING BUDGET
The Chancellor of the Exchequer, Sir Jeremy Hunt, announced his Spring Budget on 6th March. The most notable policy change was the widely expected 2p reduction in National insurance contributions, which he said should save working people an average of £450 per annum. The Statement also mentioned several measures to support people with the cost-of-living crisis. However, for those with interests in property, the most significant new developments included:
The abolition of stamp duty relief for those buying more than one home,
The abolition of tax breaks previously available through the Furnished Holiday Lettings scheme, and a reduction in the higher rate of property capital gains tax – from 28% to 24%.
SUMMARY
The Spring Budget introduced little to change the fundamental conditions for property investors but the market appears to be improving regardless. Sales activity is on the rise and all the major price indices report month-on-month improvements. On an annual basis, too, all indices report a return to growth, with the exception of ONS, whose figures only extend to January.
The latest CPI data is also encouraging news. It reinforces the expectation that the Bank of England will reduce the base rate soon, and that will be key to reinvigorating the market. As confidence grows among buyers and sellers, the long-running mismatch between supply and demand should push asking prices upwards again.
Similarly, as cost-of-living pressures gradually ease, tenants should find themselves with a little more to spend and, thus, better able to pay rising rents. Improved spending power, combined with a continuing undersupply of good homes to let, should help to ensure that rental properties continue to produce inflation-beating returns this year.
Market sentiment continues to improve.
Capital growth rates are improving in all regions.
The UK’s best regions for capital growth continue to be the more affordable markets further north.
In most cases, the more affordable regions are also tending to produce the best yields.
Most UK regions continue to produce real-terms rental growth, though some indices report negative rental growth in London.
CPI inflation is expected to fall to its 2% target this year.
As it does, mortgage rates should also fall.
Average real-terms earnings are improving, leaving people with more to spend on their homes. This suggests capacity for further growth in capital and rental values in 2024.
If you have any questions about any aspect of property investment, please call us today.