NOVEMBER 2023, PROPERTY MARKET REVIEW
Welcome to our latest monthly review, which looks back on November, its key developments and some of the most noteworthy reports concerning the residential property sector.
The latest house price indices show that, contrary to many gloomy forecasts at the start of the year, average values have proven to be very resilient. Indeed, some sources – the mortgage lenders Nationwide and Halifax – are now reporting a return to month-on-month price growth.
Rents continue to rise and we’ve also seen a sharp fall in inflation – a development that increases the likelihood of lower mortgage rates and stronger market activity in the coming months. It also means an improvement in real-terms returns for investors.
Darren Bennett
Managing Director
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Welcome to our latest monthly review, which looks back on November, its key developments and some of the most noteworthy reports concerning the residential property sector.
The latest house price indices show that, contrary to many gloomy forecasts at the start of the year, average values have proven to be very resilient. Indeed, some sources – the mortgage lenders Nationwide and Halifax – are now reporting a return to month-on-month price growth.
Rents continue to rise and we’ve also seen a sharp fall in inflation – a development that increases the likelihood of lower mortgage rates and stronger market activity in the coming months. It also means an improvement in real-terms returns for investors.
Darren Bennett
Managing Director
HOUSE PRICE INDICES
The following organisations produced house price indices in recent weeks. (Percentages refer to capital growth rates.)
On 1st November, Nationwide published its October House Price Index, and reported the fastest month-on-month gains in more than a year (+ 0.9%). The October House Price Index from Halifax also points to a change in the market. It reports that not only did average values rise for the first time in six months, the upturn was unusually strong. On average, values rose by an impressive + 1.1% over the course of the month, taking the mean price to £281,974. Other sources also report reviving growth. The Home Buyer Bureau, for example, notes that average values rose by + 1.5% between January and August of this year.
Rightmove’s November Price Index reports a monthly dip but explains that this is typical in the run-up to Christmas. More generally, it notes that “key indicators point to a year that so far has been better than many predicted.” Zoopla’s November House Price Index made a similar point, noting that “price falls extend across the country, but declines remain modest.”
The latest ONS House Price Index relates to September. Its monthly figures are less upbeat than the lenders’ data, but they include an element of lag. Home.co.uk, in its November Asking Price Index also indicates a small pre-Christmas slowdown.
NATIONAL AND REGIONAL PATTERNS
According to ONS data, covering the 12 months to September 2023, the state-level pattern of annual price growth was as follows:
Scotland + 2.5% / £195,000 (£194,000 in August)
England - 0.5% / £310,000 (£309,000 in August)
Wales - 2.7% / £215,000 (£217,000 in August)
Northern Ireland + 2.1% / 180,000 (Q3 2023 figures)
In order of annual growth-rate, ONS lists the English regions as follows:
North East + 3.6% (down from + 3.6%)
North West + 0.6% (up from + 0.4%)
West Midlands + 0.5% (down from + 1.1%)
East Midlands + 0.4% (down from + 0.5%)
Yorkshire & Humber + 0.0% (down from + 2.2%)
London - 1.1% (up from - 1.4%)
South East - 1.4% (down from - 0.6%)
East of England - 1.4% (up from - 1.6%)
South West - 1.6% (down from - 1.1%)
Note that these figures lag behind other indices by at least a month and they will therefore be slower to register any upturn in values.
HOUSE PRICE FORECAST
While most sources predict slow or negative growth in 2024, the longer-term forecasts are more positive. For example, the latest economic forecast by the Office for Budgetary Responsibility (OBR) suggests that after a dip in 2024, prices will return to growth in 2025 and beyond, rising faster than the rate of inflation.
Rental Data
Shown below are the average rates of annual rental growth according to the UK’s best-known rental indices.
Goodlord, October Rental Index + 7.0%
Homelet, October Rental Index + 9.56%
Home, November Asking Price Index + 6.1%
Rightmove, Q3 Rental Price Tracker + 10.0%
Zoopla, November Rental Market Report + 10.1%
SpareRoom.com, in its Q3 Rental Index, examines room rents rather than rents on whole properties and, within this market, growth rates have been exceptionally high. SpareRoom states that rental values rose by + 16% year-on-year. It adds that “The average rent in both London and the UK as a whole is now at an all-time high.”
RENTAL SUPPLY & DEMAND
In last month’s Housing Insight Report, Propertymark reported that there were, on average, 11 registered tenants competing for every available property. This competition has been pushing rents steadily higher. At the time of writing (30 November), Propertymark had not published a report for either October or November.
Zoopla, however, published its own data this month, and observed that “demand for rental properties is currently running at + 27% above the 5-year average.”
In its latest UK Residential Market Survey, RICS notes that “a headline net balance of + 33% of contributors noted an increase in tenant demand in the three months to October,” adding that, “at the same time, most UK areas (are) seeing a further reduction in listings.” Accordingly it forecasts an average UK rental growth of around + 4% over the next twelve months.
REGIONAL VARIATIONS IN RENTS
Different sources list different front-runners when it comes to average annual rental growth rates. The following table lists the top three regions by source. Figures in brackets refer to year-on-year growth rates.
SpareRoom notes that the states and regions seeing the fastest growth in room rents between Q3 2022 and Q3 2023 included Northern Ireland (+ 19%), the North East (+ 17%) and, in joint third position, London, the North West and Scotland (all + 16%).
RENTAL YIELDS
The Q3 Rental Barometer from Fleet Mortgages notes that, on an annual basis, average yields have improved in all regions of England and Wales. The top regions for yields include the North East (9.1%), the North West (7.6%), the West Midlands (7.5%) and Yorkshire & Humber (7.2%). Greater London produced the lowest yields at 5.6% but even this marked a year-on-year improvement of + 0.7 percentage points. Fleet calculates that the average yield across England and Wales now stands at a respectable, inflation-beating 6.9%.
PRIME CENTRAL LONDON
Homelet’s October Rental Index includes a London Focus section. It reports that rents rose by + 0.6% in October, to a new average of £2,192 PCM. The annual growth rate is + 10.2% and the strongest local market for growth was Barking, Dagenham and Havering, which saw rental gains of + 18.4%. In second place was Hammersmith, Fulham, Kensington and Chelsea with + 15.5%. Next came Lambeth with + 15.3%.
Rightmove’s latest house price index notes that, on a monthly basis, prices grew most strongly in Lewisham (+ 2.0%) and Westminster (+ 1.9%). For annual growth, the top performer in Greater London was Richmond upon Thames (+ 2.9%), followed by Hammersmith & Fulham (+ 2.7%).
In a news item published on 28 November, Zoopla wrote:
“Annual house price falls in London are lower than in adjacent commuter areas and in the wider South East… After slower price growth than the rest of the UK for six years, London homes are now better value for money. A steady return to office working is also supporting sales and pricing, with new sales rebounding more in London in the last two months than anywhere else. These trends have resulted in positive + 0.6% annual price growth in the EC postal area, which covers almost all of the City of London and parts of Islington, Camden, Hackney, Tower Hamlets and Westminster.”
We’ll publish a more detailed analysis of the Prime Central London market in our Q4 Quarterly Market Report but below is a summary of some key statistics published by LonRes.com.
PCL rental index (year-on-year change) + 5.7%
Rental index for London fringe (y-o-y) + 9.7%
Yields (average for PCL) 3.81%
Yields (average for London fringe) 5.05%
Strongest PCL yields (Chelsea) 4.07%
INFLATION & THE BASE RATE
On Thursday 2nd November, the Bank of England’s Monetary Policy Committee voted, by a majority of 6 votes to 3, to keep the official Bank Rate at 5.25%. However, the fact that three members had voted for a further + 0.25% rise is evidence that the MPC still has concerns about inflation. With this in mind, the Bank’s Governor Andrew Bailey said that it was far too early to be thinking about a rate cut, adding that rates would remain restrictive for some considerable time.
Nevertheless, the news does suggest that rates might have peaked. Inflation is on a clearly downward trend: the latest figures from ONS showed the Consumer Prices Index falling from 6.3% to 4.6% in a month. Looking ahead, the Office for Budgetary Responsibility is forecasting that CPI will fall to 2.8% by the end of 2024 before hitting the Bank of England’s 2% target in 2025.
In short, monetary measures seem to be working. At the same time, economic growth remains extremely weak and unemployment is rising, so the Bank will be feeling real pressure not to choke the economy by keeping rates higher than is absolutely necessary. Certainly, most lenders seem to believe that the base rate will fall slowly over the longer term. With swap rates falling, they continue to introduce more affordable mortgage deals, and this should support a more active market in 2024.
SUMMARY
House prices have surprisingly resilient in 2023, defying most market predictions.
This has been especially pronounced in the UK’s more affordable regions.
CPI Inflation now stands at 4.6% – better than the government’s 5% target for 2023. It compares with 10.1% at the start of the year.
The latest inflation figures have raised hopes that interest rates could begin to come down again in 2024, though the Bank of England remains cautious.
Average earnings are rising by + 7.7% year-on-year.
Affordability continues to improve slowly as inflation falls, wages rise and mortgage lenders introduce more competitive deals.
Rental returns have risen in all regions, at well above the rate of inflation.
Rental yields have also risen in all regions and, again, at a rate that exceeds CPI inflation.
Rental growth continues to be strongest in Central London and parts of northern Britain.
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