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The UK Housing Market

UK Property Market Update

The property market in the UK is beginning to grow this spring of 2022. Normally, across the United Kingdom, sales grow to the tune of 28% while this March’s growth numbers are much less at 18% (and up 2.6% from February).

With subdued demand, higher mortgage rates, return of the stamp duty, the War, inflation, sales are down by 36.25 to 110,990 units sold according HRMC’s report. Stamp duty holiday caused a surge in sales which skews year to year comparisons. Yet recent sales numbers shows home purchases are picking up.

Pessimism might rein right now, but not everyone believes there will be no post-pandemic recovery. In many ways, the pandemic has suppressed home construction resulting in higher prices.  And demand from buyers has changed in the UK as well as in other International housing markets.  Mortgage rates remain at historic lows, and some experts believe governments can’t raise interest rates too much.

Home Prices up 21% Since Pandemic Began

Home prices have risen 10.9% since March of 2021 to a new average UK property price at £276,755. In England, house prices have risen almost 1% since January to a new level of £295,888. With inflation and house price rises, come higher UK rent prices. Homelet reports the average rent in the UK has risen 8.7% over the last year to £1,078 per month and that is up 0.8% from last month’s figures. Brits are wondering when UK home and rent prices will fall.

Prospects for lower prices this year look doubtful as homebuyers desperately clamor to capture lower mortgage rates as the buying season ramps up. It is logical that rent prices will rise as more frustrated buyers end up in the rental market too.

UK home price index.

UK home price index. Screenshot courtesy of Trading Economics.

Trading Economics data shows a strong growth in the UK housing price index in March.

Average UK home prices.

Average UK home prices. Screenshot courtesy of Trading Economics.

Home prices in all regions have risen 8% to 12%.

UK Home prices by region 2021 2022.

UK Home prices by region 2021 2022. Screenshot courtesy of Gov.uk.

 

When Will UK Home Prices Drop?

Home price growth is expected to moderate to 2023. However, Hometrack forecasted a 3.5% growth rate in 2022 and 3.0% in 2023. The war and rising energy costs are a big drag on the industry and represent an unknown variable at this time. If Russian oil suddenly flooded back onto the market, it might change the property market forecast dramatically.

Robert Gardner, Nationwide’s Chief Economist, said “we still think that the housing market is likely to slow in the quarters ahead.”

The prospects for the housing market over the medium term now appear gloomier,” says Karl Thompson, an economist at the Centre for Economics and Business Research (Cebr). Thompson believes house prices will fall by 2 per cent in 2023. — times.co.uk.

Of course, that is the forecast for the next year.

6 Factors Causing Price Rises This Year

  1. rising mortgage rates and buyers impulsive (FOMO)
  2. subdued home supply
  3. rising inflation could persistent raising new home prices
  4. home prices on an upward trend for two years due to demand despite all the issues
  5. construction output down sharply from last year
  6. housing starts only up slightly from last year

In a Mortgage Solution’s recent report, Mark Harris, chief executive of SPF Private Clients, said: “Demand for mortgages is strong as rates remain competitive, even as swap rates continue to rise. Some heat has come out of the purchase market compared with this time last year which is welcome as that frenetic pace could not continue. Remortgaging activity is strong as borrowers attempt to lock into low mortgage rates before they disappear.

Mortgage rates are climbing fast, nearing 4% in the UK. Mortgage approvals have fallen strongly in the past 9 months and are down 12% from last March of 2021.

Harris further suggested that a revamp of stamp duty is needed to stimulate activity in the UK housing market.
And in the same Mortgage Solutions report, Jeremy Leaf, north London estate agent and former RICS residential chairman said “Demand still comfortably exceeds supply and correctly-priced houses continue to attract considerable interest while mortgage repayments remain relatively affordable.

The question then is how long demand will persist? And with such high demand, can home prices and rent prices decline appreciably?

UK Regional Property Market Report

Rightmove reports that asking prices are on the rise, up 1.7% since last month. Wealthier buyers are willing to pay more to acquire their next home.

 

Past Rightmove and Homelet Reports on 2021

“2021 has a lot of variables, and so is not an easy one to call, but with Rightmove’s unique leading indicators of buyer and seller behaviour we are confident that the housing market will continue to outperform general expectations next year as it did this. Our 2021 forecast of a 4% price rise is more conservative than the unsustainable 6.6% national average seen this year. — RightMove’s Tim Bannister

  • Rightmove’s 2021 forecasts a 4% national average price growth in 2021. They attribute that to buyers seeing housing as a top priority.
  • Q1 2021 will be as the end of the stamp duty approaches in spring. There is a huge volume of properties
  • They predict that price rises will be slower in 2021
  • Home prices rose in 2020 up by 6.6% (up by £19,920 to £319,945 median) despite a small monthly fall of 0.6% (-£2,080).
  • Homelet says the average rent in the UK is now £974, up 2.9% vs November 2019 (£947)
  • Wales had the highest monthly growth (+2.4%) and the southwest had the largest yearly growth (+8.6%)
  • Greater London suffered the larget rent price drops (-1.4% vs last month) and (4.4% vs last year)

What’s Causing UK Home Price Rises?

The cause of the price increases?  Let’s list them all:

  1. strong buyer demand from immigration, equity-rich buyers
  2. inflation, new construction costs rising
  3. inventory growing slightly
  4. migration out of London to larger homes in suburbs and northern England and Scotland
  5. low mortgage rates
  6. pent up demand from the pandemic shutdown
  7. speculation as economy improves and foreign buyers return

In our previous update on the UK real market forecast, we predicted house prices would rise and demand for homes would pick up. It’s actually done much better. And UK rent prices are on the rise too.

Savill’s 5 Year Home Price Forecast – 2022 to 2026

As you can see in this 5-year forecast chart of the 2022 to 2026 period,  Savills UK predicts moderating in property prices.

Economic factors for UK housing markets.

Economic factors for UK housing markets. Screenshot courtesy of Savills.co.uk.

 

5 year regional forecast of home prices

5 year regional forecast of home prices. UK, Wales, England, Scotland, East Midlands, South west, South East. Screenshot courtesy of Hometrack.co.uk.

 

However, Savill’s notes that UK average incomes will not keep pace with home price rises.

Hometrack and Zoopla data shows buyer demand remains strong.

UK Home Buyer demand.

Screenshot courtesy of Hometrack.co.uk. UK Home Buyer demand.

 

City by city home price growth.

City by city home price growth. Screenshot courtesy of HomeTrack and Zoopla.

UK Rent Prices

Rent prices have been sliding for many years, keeping UK renters happy

UK house rental prices. Screenshot courtesy of ons.gov.uk.

UK Rent Prices (up to date from homelet.co.uk)

Homelet’s April 2021 the rent report shows that the average rental price for a new tenancy in the UK was £996 per month, a rise of 2.9% from last year. Their rent report further shows:

  • average UK rent grew .4% to reach £996 per month
  • ex-London, the average rent in the UK is now £853, a rise of 0.7% on last month and 6.2% on last year.
  • 11 of the 12 regions showed an increase in annual variance, with the largest being the South West at 8.6%.
  • The South West had the biggest increase of 8.6% between April 2021 and April 2021.
  • Average rents in London are down YOY, showing a 5.3% fall between April 2020 and April 2021
  • average rental value in London (£1,580) is still 85.2% higher than the rest of the UK

UK Renter Statistics

The English Housing Survey, published by the Ministry of Housing, Communities and Local Government (MHCLG) revealed 4.5 million households live in the private rented sector in England and another (4.0 million) live in the social rented sector. They comprise more than 1/3rd of the UK population. 84% state they are satisfied with their current accommodation. They believe tenants move because they must move.

According to the English Housing Survey, private renters spent a third (33%) of their household income on their rent. That compares 28% for social renters, and 17% for mortgagors. Rents percentage of household income was 6% higher for private renters in London (42%) than for the rest of England (30%).

Most private renters (71%) said they found it easy or very easy to pay their rent. They are paying about a third of their income on rent (according to the report).

Tenants Aren’t on the Move

The report indicated that the main reasons for moving in the last 3 years were job-related (18%)and moving to a better neighborhood (16%) and moving for a larger residence (13%). 12% moved due to the landlord’s request.

63% of private renting tenants have no savings, and a third report having a small amount of savings. Given housing prices, it is a reach to say British renters are ready to buy a home. Although 58% says they would like to buy. 77% of younger Brits believe they will buy at some point.

 

See also: Property Management Software | Property Market UK | German Rental Housing Market | Berlin Property Market | Buy Property in BerlinAustralia Housing Market | Sydney Australia Property Market  Housing Market and Property Management |  How to Increase Rental Returns |  Property Management Trends  | Property Management Metrics | California Housing Market | Property Maintenance Tips |  Apartment Rental Prices | Best Cities for Rental Property | Cloud-Based Property Software |  Property Software Reviews |  US Housing Market |

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