Monthly UK Residential Property Market Update: October 2020

House price growth continued to beat expectations in September, but there are signs that the residential property market will not be able to defy economic gravity indefinitely.

Halifax said house prices were 7.3% higher than a year ago in September. This was the strongest rate of growth since June 2016. On a monthly basis house prices were 1.6% higher than in August. 

The lender said that while the performance of the housing market had been extremely strong since lockdown, it was unlikely to remain immune to the economic impact of the pandemic. Nationwide reported annual house price growth of 5.8% in October, the highest rate since January 2015. Ahead of news of a new national lockdown from 5 November, it cautioned that the outlook remained highly uncertain.

It came as provisional data from HMRC revealed that the volume of residential property transactions on a seasonally adjusted basis had returned to normal levels, although the total amount of completions year to date in 2020 clearly show the impact of lockdown early this year and the loss of activity while the market was closed.

There were 98,010 transactions in September, very similar to September 2019 at just 0.7% lower, and 21.3% higher than August 2020, completing the recovery that began and has continued each month since  April's low point of just more than 42,000 transactions.

Mortgage approvals increased from 85,500 in August to 91,500 in September. The Bank of England said this was the highest number of approvals since September 2017.

RICS reported a fourth month of rising housing market activity in September. A positive net balance of +52% of respondents to its UK Residential Market Survey reported an increase in new buyer enquires, albeit this was a moderation on the +75% and +63% posted in July and August respectively.

New instructions coming onto the market also rose for the fourth month in a row. While survey respondents expect the upturn in sales to continue in the next three months, sales expectations for the twelve-month period moved deeper into negative territory, with a net balance of minus 34 in September compared with minus 17 in August

However, current momentum is likely to support the market over the next few months. Analysis of Knight Frank transactions in August and September found that almost two-thirds were instructed for sale before the market reopened on 13 May, and 83% of exchanges originated from market valuations that were carried out before mid-May. 

It means that the majority of exchanges over the last two months were unconnected to the post-lockdown burst of activity, so unless deals start to fall through at an unusually high rate there should be strong levels of transactional activity for the rest of 2020.

While further Covid-19 restrictions will weigh on sentiment, the threat continues to act as a spur for many people to act. Future expectations for house prices over the next twelve months strengthened according to October's IHS Markit UK House Price Sentiment Index, with a reading of 55.4 compared with 54.4 in September.

Taking this and other factors into account, Knight Frank’s updated forecast predicts prices in Prime Regional markets will finish 1% up this year. Prime central London prices are expected to be down 3% in 2020 but outperform the rest of the UK next year.

According to newly published data covering August 2020 from the ONS, the annual price change of a property in the UK was 2.5% taking the average price to £239,196. This compared with growth of 2.1% in July 2020. The East Midlands registered the highest regional growth at 3.6% on an annual basis in the month. At 0.2% in the year to August the North East had the lowest growth. The period takes in sales largely agreed before July's stamp duty holiday.

Prime London sales

Quarterly price growth returned to the prime central London property market in September for the first time since February this year. An average increase of 0.2% was the same figure recorded during the so-called ‘Boris bounce’ that followed the general election in December 2019. 

This recovery followed six consecutive months of quarterly price falls in PCL, which is shorter than the 13-month run of declines during the global financial crisis. In prime outer London, September marked the second consecutive month of rising prices over a three-month period. It meant the annual price decline narrowed to 3.9%. 

See our latest Prime London Sales Report for more. 

Prime London Lettings

Rental values continued to fall in September, talking the annual decline to -8.1% in prime central London. The combination of relatively high levels of supply and weaker demand has led to the largest annual falls in more than a decade. In prime outer London, the annual decline was 6.9% in September. 

Supply has been driven higher by the addition of short-term rental properties onto the market, as well as owners opting to let rather than sell. Meanwhile, demand has been affected by weaker demand from international students and corporate tenants.

However, there are signs the imbalance is starting to reduce. This forms the basis for our revised rental value forecasts for the next five years, as the below table shows. 

See our latest Prime London Lettings Report for more.

Country Market

Scotland’s property market reopened on the 29 June, and in an echo of the country market in England since lockdown, pent-up demand and the pursuit of more space and greenery has boosted activity.

Viewings in Scotland between 29 June and 22 September hit a twenty-year high, while the number of market appraisals for sale were at their second highest level in 15 years, and instructions the highest in 13 years. Offers made were at a nineteen-year high.

It comes after offers accepted in the Country market since lockdown began converting into transactions. The number of exchanges in the week ending 26 September in the Country market was second only to the number of exchanges in the week ending the 29 August 2020, and both represent the largest weekly totals since the final week in December 2018.

Knight Frank's Monthly UK Residential Market Update, which is updated regularly, provides a snapshot of the health of the UK housing market, assessing its performance, and proving analysis of the latest economic developments and Knight Frank's view on events. PDF available on request.