An autumn election paves the way for a busier spring
Making sense of the latest trends in property and economics from around the globe
4 minutes to read
Prime Minister Rishi Sunak told broadcasters yesterday that it is his "working assumption" that the election will take place in the second half of this year, rather than in May as the Labour party had hoped.
That clears the path for a busier spring residential market, unencumbered by the uncertainty of a public vote. Mortgage rates will keep falling and the brighter outlook should improve consumer sentiment as the year progresses. That will give the Conservatives some chance to close what is currently an 18-point gap in the polls.
Goldman Sachs issued a new set of forecasts yesterday suggesting the Bank of England will begin reducing borrowing costs from May and believes rate setters will cut by 0.25 percentage points at each policy meeting until the base rate hits 3% by May 2025.
Mortgage rates
More lenders have announced mortgage rate cuts since Wednesday's note, including Natwest and HSBC. It'll be interesting to see how far this price war can run until the Bank does begin cutting rates - margins are already extremely thin.
Falling mortgage rates have underpinned a moderate uptick in activity. Net mortgage approvals for house purchases, a good indicator of future borrowing, rose to 50,100 in November, the Bank of England said yesterday. While that’s up from 47,900 the previous month, it’s still well below the 65,000 recorded in November 2019.
We should see two-year fixed rate mortgages below 4.3% by spring, provided the annual rate of inflation keeps easing in line with current trends, according to Simon Gammon of Knight Frank Finance. Consultancy Capital Economics reckons five-year fixed rates will dip below 4% this month.
House prices
House prices continued rising during December, Halifax said this morning. The 1.1% monthly change leaves values up 1.7% over the course of 2023.
"The growth we have seen is likely being driven by a shortage of properties on the market, rather than the strength of buyer demand," says Kim Kinnaird, Director, Halifax Mortgages. "That said, with mortgage rates continuing to ease, we may see an increase in confidence from buyers over the coming months."
The lender's central forecast is for house prices to fall between 2% and 4% in 2024. Given the drops we've seen in mortgage rates, we'll look at revising up our current forecast for UK house prices shortly. Capital Economics now reckons values will climb 3% in 2024, up from a previous forecast of a 1.5% decline.
“Annual house price growth has returned to positive territory as the economic convulsions of the last 18 months dissipate," says Knight Frank's Tom Bill. "The landscape changed at the end of last year as inflation dropped below 4%, which has put marked downwards pressure on mortgage rates and means housing transactions will keep rising from a low base."
Housing delivery
The government in December published its much-delayed Housing Delivery Test, a policy designed to encourage local planning authorities to boost housing supply to avoid the threat of losing control of development in their areas.
Those that deliver less than 75% of a previously identified requirement face a 'presumption in favour of sustainable development', a policy that approves any development unless its adverse impacts "significantly and demonstrably" outweigh their benefits.
Anna Ward breaks down the results. Some 61 local planning authorities have delivered less than 75% of their housing requirement, with most located in London, the South East or East of England. Nineteen LPAs saw delivery fall between 75% and 85% of housing need. They will need to add a 20% buffer to their calculation of five-year housing land supply. See the piece for more.
Disinflation
I talked in Tuesday's Wealth Report note about how different sentiment feels this month compared to last January. Financial markets suggest we'll see a fairly straightforward fall in inflation and the smooth retreat of interest rates until the sun comes out in spring 2025.
Are we getting ahead of ourselves? Perhaps. The annual rate of inflation in Germany accelerated to 3.8% in December, up from 2.3% a month earlier and the fastest rate for three months. Granted much of this is down to a reduction in government subsidies, but it will at least prevent the ECB from making the first cuts until summer at the earliest, according to forecasters including ING.
Meanwhile, the services PMI in the UK hints at continued price pressures. Growth in business activity accelerated to its fastest for six months during December. Strong wage pressures fuelled another month of substantial input cost increases. Overall input price inflation picked up for the second month running, despite relief from lower transport bills and raw material costs. The overall rate of inflation was the fastest since July.
In other news...
What's in store for ESG in 2024? Flora Harley makes some predictions.
Elsewhere - UK companies see rising revenue but wary of investment (Reuters), European holidaymakers turn to cooler climes after scorching summers (FT), employers turn against WFH candidates (Times), a wet December for UK retailers (Bloomberg), and finally, Manchester’s skyscrapers: towers of homebuilding ambition or ‘high-rise mania’? (FT)