May
PROPERTY MARKET UPDATE
May 31, 2023
Another month – and another level for the UK property market with average London rent exceeding £2,500 for the first time and house prices registering their greatest month-to-month increase this year. There’s a lot for investors to like in the UK market at the moment. Let’s run through the highlights.
House prices “surge” at fastest pace this year
According to Rightmove, house prices reached a record high at the end of April – the average cost of a UK property now £372,894. Seasonal gains are always expected at this time of year as the warmer weather coaxes more buyers outdoors stimulating demand and boosting seller confidence. We’d normally expect a 1% boost to prices in May, but the month-to-month gain between April to May was almost double that at 1.8%; the biggest increase of the year so far.
Asking prices for new homes have risen 3.5% year-on-year outperforming nearly every single economic forecast. London’s year-on-year average asking prices climbed 2.8%, with Hackney and Southwark the top performing boroughs.
Given that higher interest rates are still around why are UK house prices still increasing?
Buyer and seller confidence in the UK market, given the positive UK economic outlook.
A mirroring of the market conditions of the more conventional pre-pandemic market – sales numbers only 3% behind 2019 levels.
Strong demand in first time buyer and second stepper purchases. Demand amongst first time buyers is 6% higher than 2019 – and demand amongst first-time buyers is a good bellwether for the market. If first time buyers are happy, everyone is happy.
Inflation lowering – what does this mean for property investors?
UK annual inflation slid to 8.7% from April ‘22 to April ‘23 – the first time it’s dropped below double figures in eight months. It stood at 10.1% in March. The fall has been attributed to a drop in the wholesale gas price after the war on Ukraine rocked energy markets last spring. UK gas and electricity prices are expected to drop from further from July, easing cost of living pressures. The Bank of England will now decide whether or not to raise interest rates further above the current base rate of 4.5% at their next review on 22nd June.
Responding to the news, mortgage industry insiders said they expected to see a return of five-year fixes sub-4%. Mark Harris, chief exec of SPF Private Clients said, “First-time buyer numbers continue to prove resilient and, with lenders returning to higher loan-to-value products, this will assist those struggling to get on the housing ladder.”
The announcement of 100% mortgages designed for first-time buyers by one UK mortgage provider showed that lenders were adopting an innovative approach to helping people negotiate higher interest rates and the steep rises in rent. Sadly, they’re not available to property investors, which is not necessarily a bad thing, however Nationwide is now offering mortgages to buy-to-let investors below 4%. Welcome progress indeed for UK landlords.
Rental market shows no signs of slowing
Figures from Rightmove showed there were 6% more properties to let than this time last year, but the number of available properties to rent was 46% below 2019 levels. This really does bring home the shortage of supply in the UK and how the pandemic has affected the pipeline of new homes to rent. Average UK rents are now up 15% year-on-year.
In terms of rents stabilising, there are few signs. Savills commented, “In the short term, the longer interest rates remain above the neutral rate, the more likely it is that property yields will continue to rise. But if rates come down relatively quickly, prices may stabilise.” With nearly 50% less properties to rent than in 2019 and a record level of renter registrations any signs of rent stabilisation seems a long way off.
Average rent in London has increased by 20.5% in the last 12 months, with the East of England (where our Sudbury Fields development is) and the West Midlands performing well too (check out our Birmingham stock here) with 6.8% and 9.1% annual increases, respectively.
All the signs from this year’s market activity point to an increasingly sunny outlook for the UK economy.
The May market in minutes:
Prices increased 1.8% between April-May, smashing the usual 1% boost we see in May.
More buyers are coming to the market, drawn by steadier rates and an end to volatility.
Buying volumes are down marginally, but this wait and see approach prevents market fluctuations builds economic confidence. Also, people on advantageous fixed mortgage rates are holding onto houses.
Houses are selling slightly faster than they did in 2019 – average sale 67 days.
New mortgages are offering attractive rates lower than the base rate – banks are not passing on the Bank of England rate rises and many lenders are floating new innovative lending products.
Average London rents exceeded £2,500 for the first time; a 20.5% year-on-year increase.
West Midlands and East of England good locations for investors looking outside of London.
Buy-to-let mortgages available under 4%.
COMING SOON
THE GOLDFINCH APARTMENTS,
HENDON WATERSIDE, LONDON
Located in a major area of regeneration, Hendon Waterside is a new residential and award-winning community for North London; 2,000 homes across 30 acres. Regeneration zones like this one are noted for their huge impact on residential prices.
Hendon Waterside is a key part of the regeneration of West Hendon alongside neighbouring Brent Cross and Hampstead. Already 1,000 homes have been built. First wave investors in 2012 have seen their apartments increase in value by 132% over 10 years.
about the AUTHOR
RPA Group Managing Director
RICHARD BRADSTOCK
RPA’s founder, Richard has worked in residential development investment for 20 years and oversees the general running of the business ensuring the RPA Group retains true to its founding principles. Over his career Richard has built an incredible network of international property investors and like-minded industry professionals. The RPA Group was born out of a duty of care to provide property investors with an industry-leading and integral service, one that connects investors with quality and desirable investment opportunities, whilst providing reliable and trustworthy market commentary and analysis alongside, enabling investors to make the best, most-educated decisions for them.