For one UK real estate sector, 2023 was a record year
Making sense of the latest trends in property and economics from around the globe
4 minutes to read
The improved outlook for interest rates has underpinned a busy start to 2024 in the UK residential market.
The number of sales agreed in the first six weeks of the year rose 16% compared to the same period a year earlier and was up about 3% compared to 2019, before the pandemic, according to Rightmove figures. Asking prices rose on an annual basis for the first time in six months.
Much of this comes down to stability. Mortgage rates are lower than they were six months ago, but it is perhaps more important that they are forecast to fall over the medium term. A two-year fix at 4.5% is all the more manageable if you feel confident you can remortgage to a lower rate in 2026. Buyers that had been putting off moving are now choosing to act.
The outlook
Granted, the outlook doesn't look quite as positive as it did a few weeks ago. A couple of warm inflation prints and various other conflicting signals have prompted investors to back away from bets on the first rate cut arriving in Q2. Easing is now expected to begin in August.
“Getting to the point where we’re able to make that move on Bank rate is still some way off," the Bank's chief economist Huw Pill said during a speech in Washington late last week. "I do think we will have to wait several more months until we can be convinced that the squeezing out of the persistent component of inflation is there.”
This shift has eroded the appeal of tracker mortgages. Some 77,900 homeowners took out variable rates last year, the most since 2017, according to UK Finance figures published in the Times. Now is a good time to be exiting those deals, Simon Gammon of Knight Frank Finance tells the paper:
"To save money by opting for a tracker mortgage, you’d need the Bank of England to engage in quite an aggressive set of interest rate cuts over the next two years, probably 1.5 percentage points or more. While not impossible, it is fairly unlikely, and you’d still need to carry the small risk that inflation returns and mortgage rates move higher."
Build to Rent
For many real estate sectors, 2023 was a year to forget. For the UK Build to Rent sector, it was a record year.
Investors spent £4.6 billion on UK BTR assets during the year, boosted by a £1.9 billion splurge in the final quarter, according to Knight Frank figures. Investors spent £1.9 billion on Single Family Housing (SFH) during the year, bringing the sector to a little more than 40% of total volumes. The SFH subsector was given a substantial lift by large part by Vistry’s sale of more than 1,500 private single family homes to Blackstone-backed operator Leaf Living. But even without that deal, SFH saw a strong uptick in investment throughout the year.
Rising investment levels from North America and Asia Pacific, as well as growing domestic investment, boosted the market. The proportion of investment from all three has grown since 2020-2022, with UK investors making up 53% of the market in 2023, followed by North America (38%) and Asia Pacific (7%). In contrast, investment levels from Europe have shrunk
from just over a fifth in 2020-2022 down to 1% last year. The majority of capital invested in 2023 was private equity (36%), followed by pensions funds (22%).
Short lets
The government will tighten up the rules for short term property lettings in an attempt to prevent the "hollowing out" of communities, housing secretary Michael Gove said this morning.
Planning permission will soon be required for short-term lets, though "homeowners will still be able to let out their own main or sole home for up to 90 nights throughout a year without planning permission and Government is considering how to apply the register so it does not apply disproportionate regulation for example on property owners that let out their home infrequently," the release states.
The proposed planning changes would see a new planning ‘use class’ created for short-term lets not used as a sole or main home. Existing dedicated short-term lets will automatically be reclassified into the new use class and will not require a planning application.
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