UK residential market update: February performance defies expectations
Property market activity remains strong despite economic headwinds.
3 minutes to read
The UK’s prime residential markets continued to confound expectations in February, with supply and demand both proving resilient.
After a weak final quarter in 2022, due to the mortgage market chaos unleashed by the mini-Budget, price declines in prime London markets appear to be bottoming out.
Average prices were flat on a quarterly basis in prime central London in February, which compares to the decline of 0.6% recorded in the three months to December. Meanwhile, prices in prime outer London recorded their first monthly rise (0.2%) in February since September.
In contrast, Nationwide said that UK prices in the mainstream market fell 1.1% on an annual basis in February.
The average rate for a five-year fixed mortgage is headed below 4% after spiking above 6% in the aftermath of the mini-Budget. Financial markets took fright at the inflationary potential of the previous government’s low-tax economic plans, but nerves are settling.
Demand remains strong against the relatively stable political and economic backdrop and the number of new prospective buyers registering the first seven weeks of the year in London was 28% higher than the five-year average. Meanwhile, the number of new sales instructions was 36% higher.
That said, activity is stronger in higher price brackets where there is less reliance on mortgage debt. Around half of sales in PCL are in cash, as we explored recently.
Lettings supply to remain tight
Such is the relative strength of the prime London sales market that it now looks like supply in the prime lettings market will remain lower for longer as more owners attempt to sell rather than become landlords.
Compared to the first two weeks of 2023, the number of lettings instructions in London was 21% lower in the second fortnight of the year and 12% down in the following two-week period.
Demand for rental properties in London has consistently outstripped supply since the reopening of the UK economy after the final lockdown in 2021 pushing rental growth into double digits.
Average rental values grew by 18% in the year to February in PCL while the equivalent rise in POL was 15.6%.
Supply building in sales market
Outside of London, the number of accepted offers remains high and market valuation appraisals were 19% above the five-year average in February, which hints at the possibility of a more active market ahead of the traditionally busier spring period this year.
Across the whole UK, demand and supply are proving unexpectedly strong, as the chart below shows. Offers accepted increased 39% in February versus the five-year average, and both new prospective buyers and market valuation appraisals in the UK were up by 15.5% and 10% respectively in the same period.
Ultimately the health of UK markets will be tested fully in the spring, the traditional period where volumes spike as the selling season gets underway.
We still expect UK house prices to decline by around 10% over the next two years as the impact of higher mortgage rates takes its toll on affordability, although the recovery on current evidence may come sooner. You can read our recently updated forecast.
Read more or get in contact: Tom Bill, head of UK residential research
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