Residential Market Outlook Week Beginning 8 June 2020
UK context
5 minutes to read
A range of key indicators suggest the worst economic declines in UK are behind us. The data in many cases shows small increases from the record lows posted last month, as the government takes the first, tentative steps towards easing the lockdown.
In the last week alone we’ve seen a similar readings in demand for staff, high street sales, services and manufacturing output and car sales.
Transactions
Demand is building and viewing levels are normalising as the market moves back towards its pre-lockdown state.
In London, the number of new prospective buyers in the week ending 30 May was 35% above the five-year average. Viewing numbers narrowed to 34% below the five-year average after reaching their highest level since the second week of March.
Meanwhile, outside the capital, the number of new prospective buyers in the same week was 5% below the five-year average, which compares to declines of 70%-plus during the lockdown period. The equivalent decline for viewings was 28%.
In a sign that some buyers are targeting more outdoor space after the lockdown, web views were 8% above the five-year average for properties outside the capital. In London, there was a 13% decline.
Prices
Opinions are divided on prices as supply and demand trends become clearer, as a recent Knight Frank survey showed.
For now, there is a mix of opportunistic bids that are unlikely to be accepted, bids agreed at a single-digit discount and many cases where the asking price is right and the guide price is met or exceeded after competitive bidding.
Early indicators suggest downwards pressure on prices has reduced since the market re-opened on 13 May.
This tallies with the fact that demand for UK property is recovering towards pre-lockdown levels faster than supply.
The average asking price discount in the UK during the market lockdown was 4.4%. Since the market re-opened, the figure is 2.7%. Meanwhile, the average offer made was 8.3% below the asking price while lockdown measures were in place. That has narrowed to 6.2% since 13 May.
Average prime central London prices fell by 1.4% in May, taking the annual change to -5.1%. Meanwhile, the monthly decline in prime outer London was 1.7% in May, producing an annual decline of 5.8%.
Lettings
Demand in the prime London lettings market is catching up with supply, reducing short-term downwards pressure on rental values.
The number of new prospective tenants was 4% above the five-year average in the week ending 30 May and the same number as that recorded in the second week of March, before the pandemic impacted property markets.
The number of new lettings properties on the market was more resilient while the property market was subject to lockdown measures. As demand comes back, that imbalance now appears to be reversing.
“There was a slight hangover from the lockdown in terms of more lettings properties on the market,” said Gary Hall, head of lettings at Knight Frank. “It still feels like it’s more of a tenants market but we are going into the busiest period of the year and I would expect supply to come down. It’s not in every case, but we are agreeing plenty of deals at the asking rent.”
In a further indication of strengthening demand, the number of web hits for lettings properties has risen significantly since the property market re-opened. The figure was 39% higher than the five-year average in the week ending 30 May.
Demand is expected to strengthen further as there is more clarity surrounding the re-opening of schools, which has caused some tenants to postpone their move.
Average rental values in prime central London fell by 1.7% in May, taking the annual change to -3.9%. Meanwhile, the monthly decline in prime outer London was 1.6% in May, producing an annual decline of 4.7%.
Residential Development
Construction workers were encouraged to return to work in May and, accordingly, we saw a gradual and continued re-opening of development sites in England over the course of last month.
A rise in May’s construction PMI from its previous low level is reflective of this pick-up, suggesting that April was probably the low point for construction activity.
Initial signs since the effective re-opening of the market in mid-May, meanwhile, will give developers reassurance about future demand, with new prospective buyers and viewing levels improving over the last few weeks, and this should help underpin the recovery in housebuilding.
Looking forward, both Glenigan and Barbour ABI reported that new planning applications remain fairly robust compared to pre-Covid levels, which may suggest a potentially growing pipeline of projects.
Finance and mortgage markets
The scope of the property market freeze became clear last week when the Bank of England said mortgage approvals for house purchase fell 80% between February and April.
Banks approved 15,800 mortgages, about half of the number seen during the depths of the financial crisis, while most surveyors were unable to safely visit properties to conduct in-person valuations.
Thankfully, surveyors are now able to return to work safely and are working their way through a backlog of applications built up over the course of the lockdown.
We expect to see the time it takes for borrowers to get an approval decline steadily in the weeks ahead.
Banks are now also reintroducing previously withdrawn products as normality returns. Mortgage product numbers have now risen for four consecutive weeks, increasing by 2.2% last week to reach a total of 8,635, according to lending technology company Mortgage Brain.