OCTOBER 2023, PROPERTY MARKET REVIEW
Welcome to our latest monthly review, which looks back on October, its key developments and some of the most noteworthy reports concerning the residential property sector.
Signs of a modest recovery in capital values are evident in the latest house price indices, with the majority of sources highlighting improvements in their month-on-month data. In the case of Halifax, that improvement only means a slowing in the rate of decline but for all others, it means that prices have either held steady or actively risen.
Darren Bennett
Managing Director
HOUSE PRICE INDICES
The following organisations produced house price indices in recent weeks. (Percentages refer to capital growth rates.)
Halifx:
Annual Change = - 4.7%
Monthly Change = - 0.4%
Nationwide:
Annual Change = - 5.3%
Monthly Change = - 0.0%
ONS:
Annual Change = + 0.2%
Monthly Change = + 0.3%
Rightmove:
Annual Change = - 0.8%
Monthly Change = + 0.5%
Zoopla:
Annual Change = - 1.1%
Monthly Change = - 0.0%
The September House Price Index from Halifax suggests that prices fell for the sixth consecutive month. Importantly, however, it adds: “the pace of decline (- 0.4%) slowed markedly compared to August (- 1.8%).”
For the first time in several months, Nationwide’s September House Price Index reported no net change in average values. They remained unchanged from those in August, suggesting that lower mortgage rates might be starting to drive an improvement in market sentiment.
The latest ONS House Price Index relates to August rather than September, but it indicates continuing month-on-month growth. So too does Home.co.uk, whose latest Asking Price Index
shows that the average property gained + 0.2% in value over the course of last month. Rightmove paints a similar picture. Its October House Price Index noted a monthly gain of + 0.5% (+ £1,950), which followed a gain of + 0.4% last month.
Zoopla published its latest House Price Index at the end of October. It suggested that prices had remained largely unchanged over the course of the month, but it also identified a number of cities and local authority regions where year-on-year growth remained firmly positive.
NATIONAL AND REGIONAL PATTERNS
According to ONS data, covering the 12 months to August 2023, the state-level pattern of annual price growth was as follows:
England + 0.0% / £309,000 (£310,000 in July)
Scotland + 1.1% / £194,000 (£192,000 in July
Wales - 0.1% / £217,000 (£217,000 in July)
Northern Ireland + 2.7% / 174,000 (Q2 2023 figures)
In order of annual growth-rate, ONS lists the English regions as follows:
North East + 3.6% (up from + 2.7%)
Yorkshire & Humber + 2.2% (down from + 2.5%)
West Midlands + 1.1% (up from + 0.4%)
East Midlands + 0.5% (down from + 1.9%)
North West + 0.4% (down from + 1.0%)
South East - 0.6% (down from + 0.4%)
South West - 1.1% (down from - 1.0%)
London - 1.4% (down from - 0.8%)
East of England - 1.6% (down from + 0.2%)
Note, however, that these figures lag behind other indices by at least a month and they will therefore be slower to register any upturn in values.
Generally, the same regional patterns are evident elsewhere, with most sources showing better rates of capital growth in the UK’s more affordable markets. Nationwide, for example, features a graph to show how price growth has changed across the North-South divide.
HOUSE PRICE FORECAST
In its September house price index, Rightmove reports that it is sticking by its long-standing prediction of a - 2% fall by year-end. Zoopla had previously forecast an annual fall of - 5% but it has since revised that to an estimate of - 2% by year-end.
Rental Data
Shown below are the average rates of annual rental growth according to the UK’s best-known rental indices.
Goodlord, September Rental Index + 8.0%
Home, October Asking Price Index + 9.7%
Homelet, September Rental Index + 10.1%
Rightmove, Q3 Rental Price Tracker + 10.0%
Zoopla, September Rental Market Report + 9.0%
RENTAL SUPPLY & DEMAND
In its Housing Insight Report, Propertymark reports that there are, on average, 11 registered tenants competing for every available property. This competition has been pushing rents higher and, accordingly, 52% of its member branches reported that rents had risen month-on-month.
In its Q3 Rental Price Tracker, Rightmove makes a similar point: that a shortage of homes to meet rental demand is a key reason for continuing price growth. It adds that, far from narrowing over time, the imbalance seems to be increasing.
“The average rental property across Great Britain is currently receiving 25 enquiries from prospective tenants to letting agents, which is more than triple the eight on average they were receiving in pre-pandemic 2019. It is also five more than when this figure was last reported in May… Overall, the number of unique tenants looking to move across Great Britain is 41% higher than in 2019, while the number of properties available to rent is down by 35%.”
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.
Goodlord:
London (+ 10.7%)
North West (+ 8.8%)
West Midlands (+ 8.4%)
Homelet:
Scotland (+ 13.3%)
Greater London (+ 12.0%)
North West (+ 10.4%)
Rightmove:
Scotland (+ 14.5%)
London (+ 12.1%)
North West (+ 12.0%)
Zoopla:
Scotland (+ 12.7%)
London (+ 12.4%)
North West (+ 11.0%)
Rightmove writes that September marked “the 15th consecutive quarter that average advertised rents have risen to a new record, with average rents now 10% higher than this time last year.”
RENTAL FORECASTS
For 2024, Oxford Economics predicts rental growth of + 6.5%, and RICS forecasts a growth rate of around + 5.0%. Zoopla predicts growth of between + 5% and + 6%.
PRIME CENTRAL LONDON
Homelet’s September Rental Index reports that average rents in London continued to rise in September, with a further + 1.6% increase in the month, bringing the annual rate to + 12.0%. At the more local level, it notes that “rents are rising across all London boroughs, to varying degrees, from + 3.5% in Bexley and Greenwich to + 19% in Barking, Dagenham and Havering.” Other strong performers included Hammersmith, Fulham, Kensington and Chelsea (+ 16.9%) and Lambeth (+ 16.5%).
Rightmove’s latest house price index notes that, on a monthly basis, prices grew most strongly in Kensington and Chelsea (+ 3.1%). For annual growth, the top performer in Greater London was Richmond upon Thames (+ 4.3%).
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.
House sales (year-on-year change) + 7%
Lettings (year-on-year change) + 3%
Yields (average for PCL) 3.8%
Yields (average for PCL fringe) 5.1%
Strongest PCL yield (Chelsea) 4.1%
INFLATION & THE BASE RATE
On 18th October, ONS released its latest inflation data, announcing that the Consumer Prices Index remained at 6.7% in September. This is notably lower than the annual increase in average earnings (+ 7.8%), which implies that real-terms earnings have grown for the first time in almost two years.
The fact that CPI inflation did not fall last month is disappointing but the October figure (to be announced next month) is almost certain to fall again. That’s because Ofgem introduced a new price cap on domestic energy bills at the start of the month and, since this is factored in to the ONS calculations, it is expected to see inflation fall to around 5.1%.
That expectation, coupled with rising unemployment, makes it increasingly likely that the Bank of England will keep interest rates unchanged at 5.25% at its next meeting. Most forecasters believe that to be the most likely outcome when the Bank of England’s Monetary Policy Committee next meets on 2nd November. Falling inflation suggests that its policy is working, albeit slowly, and the MPC will be conscious that the UK economy is still weak. It may therefore be wary of raising the official Bank Rate any further because it could risk a decline in both GDP and employment.
SUMMARY
Average house prices appear to be rising again on a monthly basis.
The majority of house price indices for September and October show an improvement in month-on-month capital growth rates.
As affordability improves, so sales activity should accelerate, supporting growth in asking prices.
The UK’s more affordable regions in the north continue to show the strongest capital growth.
Rental yields have also been strongest in northern markets.
Rental returns continue to be impressive in almost all parts of the UK, rising at well above the rate of inflation.
Rental growth has been strongest in Central London and parts of northern Britain.
Demand for property to buy or rent remains well ahead of supply. The continuing shortfall in the availability of homes will continue to exert upward pressure on rents and asking prices.
Inflation looks set to fall again, raising hopes that interest rates will rise no further and could begin to come down again in 2024.
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