UK PROPERTY MARKET update: june 2023
June 30, 2023
Although inflation went down in May it didn’t ease off as much as the Bank of England hoped and so this month, we saw another increase in the base rate, taking it to 5%. If you were in the process of buying a property as this was announced- and you were buying with finance - this was no doubt an incredibly inconvenient announcement. For others, it was just another news headline from a longlist of many recently. In this month’s update we’ll be cutting through the noise to present the view from the professionals in the sector where there’s a lot more food for thought for UK property market investors than the media headlines.
Why did the Bank of England increase the base rate again?
Inflation did drop – but only to around 9% and for the bank, that wasn’t enough. They’re aiming for a target of 2% and so until then, the policy is one of putting a squeeze on spending to slowing price rises, which on the flipside, means an increase in the cost of borrowing. Data from the ONS showed that prices rose by 8.7% in the year to May – down from a previous 12 month high of 11.1%. It’s not just a UK phenomenon, the Bank of England mirrored other central banks continuing to raise interest rates including the US, Canada and the European Central Bank, where populations emerging from the restricted years of Covid-19 have begun to spend more freely again – thus sending prices rising.
What is noticeable this month, however, is that banks are coming under increasing pressure to pass on the increase in the base rate to savings account as well. For how long UK lenders are able to have their cake and eat remains to be seen.
What should property investors do in the current market?
Investors who have variable or tracker mortgages may be feeling the squeeze in their pockets more than others. For cash buyers, we’re seeing them in a strong negotiating position. But, if you can get finance that works for you, then our advice is not to put off buying to ‘wait and see’, advice that we saw mirrored by Phil Spencer in the London Evening Standard, who wrote that “trying to time the bottom of the market is extremely difficult and you should just as easily end up missing your moment.”
We certainly don’t want our investors missing any moments; of which there are many to take advantage of in the UK at the moment. Looking at a prices per square foot basis on agreed sales, house prices have continued to rise since December 2022: by April they were up 3.7% and in May the number of agreed sales reached their highest level of the year so far, 11% higher than the five-year average.
We’re not seeing steep falls in house prices for a number of reasons.
Wage growth is outpacing house price growth – and the stress testing applied to mortgage lending since 2014 (stress tested at 5% interest rates) is clearly doing its job.
The percentage of people who own a home on variable trackers is only 30% of all mortgage holders, the rest are on fixed interest rates.
There’s no one monolithic UK housing market at the moment – with certain UK cities outperforming others.
Big agencies like Knight Frank and Savills have predicted the next UK-wide housing cycle to begin in 2027, with modest or marginal price gains until then. This isn’t taking into account record gains in parts of Birmingham, Manchester and London, where in the latter, rents are now 80% of UK average take home pay.
Tom Bill, head of residential research at Knight Frank commented, “The wage growth driving core inflation higher is one of the reasons we don’t expect a steep double-digit fall in house prices this year. Record levels of housing equity, the availability of longer mortgage terms and the popularity of fixed-rate products in recent years should also prevent a collective cliff-edge moment for the housing market.”
Echoing this steady away sentiment, Jean Jameson, chief sales officer at Foxtons said, “The market is busier than expected and the volume of sales across London is in line with what we saw last year, despite the rise in interest rates. Foxtons’ housing stock has significantly increased year-on-year and we’ve not seen a significant increase in stressed sellers in the residential market as a result of the interest rates rise. Since the mini-budget, sellers have had to be slightly more competitive with their pricing in order to stimulate interest in their property.”
So, in service to the question, the answer for investors looking to navigate the UK property market at the moment, is to speak to us. We can show you the stats for properties in London, Birmingham, Manchester – and other buoyant UK markets at the moment and you can make the decision for yourselves. If you see a property that works for you and you can access the necessary finance to make it happen, the UK continues to offer plenty of promise – and profit!
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about the AUTHOR
RICHARD BRADSTOCK
Managing Director and Founder
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.