JUNE 2023, PROPERTY MARKET REVIEW
Our latest monthly review looks back on June, its key developments and some of the most noteworthy reports concerning the residential property sector.
HOUSE PRICE INDICES
The following organisations produced house price indices in recent weeks. (Percentages refer to year-on-year capital growth.)
Halifax - 1.0% (down from + 0.1% in April)
Nationwide - 3.4% (down from - 2.7% in April)
ONS + 3.5% (April, down from + 4.1% in March)
Rightmove + 1.1% (June, down from + 1.5% in May)
Zoopla + 1.2% (down from + 1.9% in May)
Nationwide’s May House Price Index reported a small (- 0.1%) monthly fall in average values. It also reported a larger fall in the year-on-year figure, which declined from -2.7% in April to - 3.4%. However, it was careful to note that this was mainly the result of baseline effects (the mathematical results of comparing this May’s prices against the sharply rising rate 12 months ago) and said that, in reality, prices had remained “broadly flat over the month after taking account of seasonal effects.”
Commenting on the figures, Robert Gardner, Nationwide's Chief Economist said:
“Recent Bank of England data had shown some signs of recovery in housing market activity … (but) headwinds to the housing market look set to strengthen in the near term… Nevertheless, in our view, a relatively soft landing remains the most likely outcome since labour market conditions remain solid and household balance sheets appear in relatively good shape. While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once Bank Rate peaks.”
Zoopla’s June House Price Index notes that UK residential values have grown by + 1.2% year-on-year. In its accompanying commentary, it notes that market activity increased in the first half of the year but that quarterly price falls are likely to return in the second half as a result of higher mortgage rates.
Halifax published its May House Price Index on 7th June. It reported no significant change over the last month but noted that a - 1.0% annual price contraction reflected “a comparison with strong house prices this time last year” rather than any shift in values per se. On a quarterly basis, it notes that average prices rose by + 1.3%.
Kim Kinnaird, director of Halifax Mortgages, said:
“House prices were largely unchanged in May, edging down very slightly (- £130) compared to April, with the average UK property now costing £286,532… Property prices have now fallen by about £3,000 over the last 12 months and are down around £7,500 from the peak in August. But prices are still £5,000 up since the end of last year, and £25,000 above the level of two years ago.”
The company adds that although further downward pressure on house prices is still expected, a strong labour market lends the property sector an important degree of resilience. It explains that “while unemployment has recently ticked up from very low levels, brisk wage growth would, over time, help to improve housing affordability, if sustained.”
Rightmove published its June House Price Index in the week commencing 19 June. It reported a negligible (£82) decline in average asking prices but noted that this was in line with seasonal patterns, following the usual ‘spring bounce’. Annual growth is still positive, up + 1.1% year-on-year, and it has been notably stronger in some UK regions.
The company’s accompanying commentary states that “despite some significant increases in mortgage interest rates over the last few weeks, Rightmove’s statistics currently show no effect on buyer demand.” It adds that in the wake of interest rate rises, “more prospective buyers are checking their latest affordability (but) the immediate impact on activity has been limited with most movers determined to carry on if they can still afford it.”
On 21 June, ONS published its April House Price Index, which finds that average UK house prices increased by + 3.5% year-on-year, bringing the average property price to £286,000. This, it notes, “is £9,000 higher than 12 months ago, but £7,000 below the recent peak in September 2022.” On a seasonally adjusted basis, the average UK house price increased by + 0.4% in April 2023, while the non-seasonally adjusted figure was + 0.5%.
On 16 June, Home.co.uk published its June Asking Price Index, which notes that:
“Asking prices across England and Wales rose again during May by + 0.4% as the market shrugged off interest rate woes, although year-on-year growth slipped further into the negative again (- 1.3%) due to the market correction late last year.”
In other words, prices are rising again but the annual comparisons will continue to look unimpressive for a while due to the dip in asking prices towards the end of 2022. The company also notes that ‘time on market’ averages have fallen by two days, which could indicate returning buyer confidence. Observing that stock for sale is still below the 10 - year average, it makes the interesting point that sales stock may be especially constrained because attractive rental prospects may be persuading some owners to let their properties rather than to sell:
“Unprecedented demand in the rental market is playing a key role in restricting supply in the sales market. Vastly improved yields and very short void periods (typically less than three weeks) make letting an attractive option for hesitant potential vendors.”
RICS published its May 2023 Residential Market Survey on 8 June. Its tone is measured, referring to declines in downbeat trends rather than actual improvements in the market. It notes that “national house prices are still falling although downward momentum continues to ease,” and elsewhere states that “at the regional level, virtually all parts of the UK exhibit a less negative reading for new buyer enquiries when compared to the start of the year.”
NATIONAL AND REGIONAL PATTERNS
According to ONS data, covering the 12 months to April 2023, the state-level pattern of annual price growth was as follows:
England + 3.7% / £306,000 (down from + 4.1%)
Wales + 2.0% / £213,000 (down from + 4.8%)
Scotland + 2.0% / £187,000 (down from 3.0%)
Northern Ireland + 5.0% / £172,005 (down from 10% – reported quarterly)
In order of annual growth-rate, ONS lists the English regions as follows:
North East + 5.5% (up from + 4.0%)
North West + 4.8% (down from + 5.2%)
East Midlands + 4.6% (down from + 4.9%)
South West + 4.0% (down from + 5.4%)
Yorkshire & Humber + 4.0% (down from + 4.0%)
South East + 3.5% (down from + 4.6%)
West Midlands + 3.1% (down from + 3.4%)
East of England + 3.1% (down from + 3.9%)
London + 2.4% (up from + 1.5%)
Zoopla’s June index lists the top regions for capital growth as follows:
Wales + 2.5% (down from + 3.6%)
West Midlands + 2.4% (down from + 3.5%)
North West + 2.3% (down from + 2.7%)
Yorkshire & Humber + 2.2% (down from + 3.0%)
Scotland + 2.1% (unchanged)
As of the end of June, its top cities included Nottingham (+ 2.9%), Birmingham (+ 2.7%), Sheffield (+ 2.4%), Manchester (+ 2.3%) and Leeds (+ 2.3%).
The Home.co.uk Asking Price Index for June reports that “Asking prices in April rose in Scotland, Wales and all English regions except the North East and East Midlands.” The platform notes that the highest rates of annual price growth occurred in:
Scotland + 4.9% (down from + 5.5%)
North West + 2.5% (down from + 2.9%)
North East + 2.4% (down from + 4.1%)
Yorkshire & Humber + 2.4% (down from + 3.3%)
The worst performers were the East of England (- 3.0%) and Greater London, which saw values drop by - 3.5% year-on-year. (Last month, it was - 3.0%).
Rightmove’s leading regions for annual capital growth include:
North East + 5.5% (up from - 0.2%)
North West + 3.6% (up from + 2.6%)
Scotland + 3.6% (down from + 4.9%)
West Midlands + 2.5% (up from + 2.2%)
The abrupt change in asking prices in the North East suggests a possible statistical anomaly last month; these latest figures are more in line with those from other sources. According to Rightmove, all regions saw annual price gains except for the East of England, where values fell by just -0.1%. On a monthly basis, the strongest gains were seen in the North East (+ 4.9%), Wales (+ 1.8%), and the West Midlands (+ 1.1%).
HOUSE PRICE FORECASTS
In its June house price index, Rightmove states that it is leaving its longstanding projection for 2023 unchanged. It suggests that fears about higher interest rates may be supressing activity but buyer demand is still + 6% higher than it was at the same time in 2019, when more usual market conditions prevailed. The company’s spokesperson, Tim Bannister said:
“We expect asking prices to edge down during the second half of the year, which is the normal seasonal pattern, and while we sometimes re-forecast our expectations for annual price changes at this time, current trends suggest that our original forecast of a - 2% annual drop in asking prices at the end of 2023 is still valid.”
In its May Residential Market Survey, RICS notes that:
“The national house price expectations series (for the coming twelve months) now sits in broadly neutral territory… and is now signalling that a much steadier picture for house prices is anticipated in a year’s time. Within this, respondents foresee prices rising on a twelve-month perspective in Northern Ireland, Scotland, London, the North West and the South West (marginally). Away from these areas however, respondents see the outlook for prices as flat to modestly negative in most cases.”
Rental Data
Goodlord’s latest Rental Index shows that year-on-year growth rates held steady in May, hovering around the + 8.9% mark. It writes:
“Six of the eight regions monitored by Goodlord saw rents rise over the course of May. The average cost of rent per property in England is now £1,111. This is up from £1,103 in April, a + 1% monthly increase… Rents have now risen for five consecutive months. And prices are now at their highest level recorded since September 2022.”
It adds that voids have remained broadly steady across England but, encouragingly, they have dropped by over 9% in the East Midlands, North West and South West. The company interprets this as “evidence that market demand remains strong heading into summer, traditionally the busiest time of year for the sector.”
Homelet’s May Rental Index also came out in the first week of June and reported a UK-wide average annual growth rate of + 10.0%. That compares to + 9.9% last month, and marks a month-on-month gain of + 1.2%. It brings the new UK average rental value to £1,213 per calendar month.
The June Asking Price Index from Home.co.uk notes that “rents across the UK continue to rise (+ 11.4% annualised), led by Greater London (up + 18.1%). Supply remains very tight in the lettings sector… in the face of overwhelming demand.”
RICS also finds evidence of a continuing gulf between demand and supply. A + 44% net balance of respondents to its May Residential Market Survey reported “an increase in tenant demand in May (and) on the same basis, new landlord instructions were said to have fallen by a net balance of
- 23% of respondents.” In consequence of this, it states:
“Rental prices are expected to rise by a net balance of + 53% of respondents over the near term. Moreover, rental price growth is now expected to average just shy of 6% per annum over the course of the next five years.”
Zoopla’s UK Rental Market Report for Q2 2023 notes that, nationwide, rents have risen by an average of + 10.4%, which means that growth has been in double figures or each of the last 15 months. It notes that “rents have grown faster than average earnings over last 21 months” and it sees “no let-up in supply/demand imbalance as we enter busier summer period when demand typically increases by up to 40%.”
REGIONAL VARIATIONS IN RENTS
Homelet’s May Rental Index includes a breakdown of price growth by region. Its top five locations for rental growth include.
Scotland + 13.4% (up from + 12.1%)
Greater London + 11.3% (up from + 11.0%)
Wales + 10.9% (up from + 10.5%)
West Midlands + 9.6% (up from + 9.0%)
South East + 9.6% (down from + 9.7%)
Month-on-month, the strongest gains were seen in Scotland (+ 2.6%) and Greater London (+ 1.8%). Those figures compare to a national monthly average of + 1.2%.
Commenting on the latest data, Andy Halstead, HomeLet and Let Alliance CEO, said:
“As a broad rule, there is a shortage of rental properties to meet demand, with many prospective tenants facing a real battle to secure a property. This frenzied market is likely to see prices continue to rise in the coming months.”
Goodlord’s regional analysis shows a very similar pattern to last month, with London again seeing the highest rates of annual rental growth.
Greater London + 11.8%
East Midlands + 11.1%
North West + 10.1%
South East + 9.5%
North East + 9.2%
West Midlands + 8.5%
South West + 7.0%
Goodlord reports that the strongest shift in prices during May was recorded in the South West, where rents were up by nearly + 3%, rising from £1,062 to £1,092. It adds that “only two regions recorded a decline in the cost of rent, albeit negligible. The East Midlands saw costs drop by - 0.47% and the North East by - 0.19%.” (Note that the company has not published data for Scotland, Wales, Yorkshire & Humber or the East of England.)
The latest quarterly data from Zoopla suggests that annual rental growth has been strongest in the following regions:
London + 13.5%
Scotland + 13.1%
North West + 10.5%
Wales + 9.6%
West Midlands + 9.3%
Of the 15 cities that it lists, the fastest rates of rental growth were seen in Edinburgh (+ 13.7%), Manchester (+ 13.0%) and Glasgow (+ 12.3%). Southampton, Aberdeen and Cardiff also saw rental values rise by more than + 10%.
INFLATION & THE BASE RATE
On 21st June, the ONS released its latest inflation data. Last month’s Consumer Prices Index had reflected a higher and more stubborn rate of inflation than many had expected. This, together with news of unusually high wage inflation led many to predict that the Bank of England would feel forced to announce one or more further rises in the base rate of lending. Consequently, May’s inflation figures were the subject of intense interest.
In the event, ONS announced that the CPI rate of inflation had remained unchanged at 8.7% – another unwelcome result – so the Bank of England’s decision to raise the official Bank Rate the following day (22 June) came as little surprise. Its Monetary Policy Committee (MPC) voted to increase the base rate of lending from 4.5% to 5.0%. Predictions had ranged between 4.75% and 5.0%, so the half-point rise represented a more aggressive, anti-inflationary stance, and was designed to send a strong signal to uneasy markets that the Bank remains focused on beating inflation. The minutes of its latest meeting can be read here, and its next announcement will come on 3rdAugust.
The rise – the 13th in a row – will inevitably exacerbate the ongoing cost-of-living crisis for homeowners who face having to remortgage, and for first-time buyers who need a mortgage to get onto the property ladder. However, only around 15% of existing mortgage holders are currently on variable rate deals so the impact won’t be felt so widely as it might in previous decades. Nevertheless, this added pressure on at least a segment of the residential market could cause average rates of house price growth to slow even further in the coming months even if, logically speaking, the effects should only be temporary.
Although CPI inflation remains a concern in the immediate term, the longer-term forecasts suggest that it will continue to decline. And, after a period of lag, the Bank Rate should follow.
The Bank of England expects inflation to reach around 5.1% by year-end, while the Office for Budget Responsibility (OBR) predicts that it will fall to 2.9% over the same timeframe. If that proves to be the case, we can expect the Bank of England to slowly reduce the Bank Rate and thereby take pressure off a housing market that has undoubtedly been dampened by concerns about the current affordability of mortgages.
Summary
Although inflation figures have been disappointing, fears over higher mortgage costs don’t appear to have presented too many obstacles for would-be buyers and tenants. The general impression is one of caution and resilience. Sales are still progressing and, at the level of national averages, values are tending to hold steady.
At the more regional levels, there is considerable disparity and, as we have noted elsewhere, it is the more affordably priced regions that are tending to deliver the strongest returns. Some of the UK’s more northerly markets are producing decidedly healthy rates of capital growth and, indeed, some of the fastest rates of rental growth too. In short, well-chosen and carefully reached investment properties still have the potential to deliver excellent returns.
* * *
If you have any questions about any aspect of property investment, please call us today.