More evidence of a UK residential market turning point
Making sense of the latest trends in property and economics from around the globe.
4 minutes to read
Wednesday's better-than-expected inflation result has help tee up a busier spring in the residential property market.
Generation Home dropped the price of its leading five-year fixed rate deal to 3.94% following the release of the figures, the first sub-4% five-year deal to hit the market since the spring. More lenders will follow suit in January.
The government's debt interest burden will fall if inflation continues to ease at a similar rate, which will give the chancellor an extra £15-£25 billion to use at the budget likely to take place in March, economists told the Times yesterday. In an interview with Bloomberg TV, Chancellor Jeremy Hunt confirmed he'd like to use the extra headroom to cut taxes. It'll be interesting to see whether he opts to dust off policies floated to the papers by Treasury officials ahead of November's Autumn statement, which included an overhaul of stamp duty.
Risky politics
The political environment poses as many threats as it does opportunities. As Tom Bill notes in his update on the prime London residential market, out this morning, the primary risk for London’s prime property market is now political rather than economic:
"There is a window of opportunity for buyers and sellers as the economy settles and before a general election is called. If the Rwanda rebellion is quelled, the window will presumably stretch late into the year as the government allows the impact of this year’s autumn statement and next year’s spring Budget to take effect."
Demand is strengthening as the economic news improves. The number of offers made in November was 1% higher than the five-year average.
Average prices close the year down 2.1% in prime central London, which was marginally better than our forecast of -3%. In prime outer London, the decline was 1.6%, compared to the 3% drop we forecast.
Rebalancing
Rental value growth more than halved in prime central and prime outer London over the course of 2023.
Average annual growth ended the year at 7.9% in prime central London and 6.7% in prime outer London - still not close to their long-term norms, but 2023 was the year the convulsions caused by the pandemic in the prime London lettings market began to dissipate.
Landlords have left the sector in recent years due to extra red tape and taxes, which put strong upwards pressure on rental values. However, supply is recovering as demand is gradually absorbed and more sellers become landlords in what has been a relatively weak sales market.
New rental listings were only 7% below the five-year average in November in prime central and outer London, Rightmove data shows. That has narrowed significantly from a decline of more than a third throughout most of 2022. You can read more from Tom here.
The mainstream market
Average UK house prices decreased by 1.2% in the 12 months to October 2023, the ONS said this week. That's the largest decline since October 2011.
The ONS index is comprehensive because it includes cash purchases, so it's worth noting, but a lot has changed since October. Subsequent indexes released by lenders Halifax and Nationwide suggest that house prices are rising month-to-month, though we treat them with a little extra scepticism while trading is thin.
That said, this is beginning to look more like a sustained turn with each piece of data we see. Data from Zoopla released overnight shows there have been 17% more sales agreed this winter compared with last year, when the market was reeling after the mini-budget. Sales are up 6% compared to the final weeks of 2019, before the pandemic struck. You can read the Times write up here.
In other news...
UK to sign post-Brexit financial services deal with Switzerland (FT), retailers are having a glum Christmas season, says CBI (Times), Barclays extends stay at Canary Wharf to 2039 (Times), Morgan Stanley’s James Gorman says markets will ‘take off’ as Federal Reserve turns to interest rate cuts (FT), Law firm Paul Weiss signs the biggest US leasing deal of the year (Bloomberg Law), Paris’s La Défense tries to reinvent office life (FT), and finally, China blocks exports of rare earth technology after MPs warn Beijing is ‘weaponising’ supplies (Telegraph).
That's all from me for 2023. I wish you all a happy Christmas, and thank you for reading. I will be back in the New Year with more market updates.