UK residential property: prime London markets experience ‘perfect storm’
Resilient demand meets improving supply to create flurry of deals.
2 minutes to read
With the Bank of England making its fifth consecutive base rate rise in June the scene is set for house prices to cool during the remainder of the year.
However, the initial consequence has been for more sellers to come forward in the belief that prices are peaking, with the Bank of England (BoE) using some vivid language in recent months to set out the UK’s prospects.
The number of UK sales instructions in May was the fifth highest monthly total in a decade, having jumped 35% from April. The ratio between new sellers and buyers also approached its longer-run average of between six and seven last month (see chart).
It’s a reasonable assumption that supply will continue to build and put more downwards pressure on prices.
For the capital, it means a ‘perfect storm’ is underway as the market recovers from its pandemic hangover and city life comes back with vigour. On the flipside, sellers in the country market – the biggest beneficiary of the ‘race for space’ – are attempting to transact to hit a perceived peak.
However, how steeply or quickly prices will moderate this year remains open to debate. The Halifax, Nationwide and ONS indices are still showing double-digit annual growth as previously tight supply continues to improve but at a slower pace than expected.
We expect house price growth to slow (except for prime London) this year, but due to enduring demand and a slower than expected increase in supply, we have revised up our forecasts for 2022.
Meanwhile, a frustrating period for tenants looks likely to continue this summer in the prime London lettings market, however there are some signs supply may be loosening slightly.
One reason for this is that more owners are letting out their property after failing to achieve their desired price in the sales market.
Another cause is the higher churn of tenants as a growing number of workers are changing jobs or leaving the UK altogether.
One in five workers are likely to quit their jobs in the next 12 months, according to PWC. The so-called “great resignation” will happen as more workers seek improved pay and a greater sense of fulfilment.
Read more or get in contact: Tom Bill, head of UK residential research
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