UK Property 2024: A Market in Flux

The UK property market in the first half of 2024 has seen mixed results. While initial optimism fuelled by falling mortgage rates in late 2023 fizzled with unexpected house price drops, there are signs of resilience and potential for growth across different sectors. The upcoming general election on July 4^th is causing some uncertainty, however, this can also provide benefits as political parties wrestle to win over voters and more importantly whether the resulting government can improve the UK economy. 

Sales: Interest Rates Dominate, Yet A Willingness To Buy

The start of the year continued with news of reduction in mortgage rates, which led to an increase in both buyer registrations and reported sales. The Royal Institution of Chartered Surveyors (RICS) reported rising buyer demand for three consecutive months. London has also seen the most significant reduction in time spent on the market compared to other regions. However, recent statistics have indicated a decline in house prices in the UK (0.2% in March and 0.4% in April), which is the biggest month to month fall since August 2023. It is important to note that these reports are based on completed house prices which were initially agreed months prior.  As a result they do not provide an accurate account of current activity.  We will have to wait a few more months to have a better understanding whether or not this year has seen a growth in sale prices.

Despite the dip, a year-on-year comparison paints a different picture. Nationwide reported a 0.6% increase in April, and Rightmove noted near-record highs. This discrepancy can be attributed to the type of property being sold. Larger properties, where buyers have more equity and are less sensitive to rates, saw a 2.7% price increase. Conversely, first-time buyer properties remained stable due to affordability constraints.

London continued to be an outlier, experiencing a 4.8% year-on-year price decline. This is likely due to a combination of higher mortgage rates and already inflated property prices. However, there's optimism that earnings growth in the capital is outpacing house prices in the future, reversing London's underperformance.

At the beginning of May, the Bank of England held the base rate at 5.25% for a sixth-time in a row. Although inflation is reducing, the Bank want to see this trajectory continue before reducing the base rate. Signs of recovery has been boosted with the announcement of the fastest growth in the economy for two years along with the news that the UK has come out of a short recession.  This is positive news.  If this pattern continues, experts expect the base rate to reduce in the coming months, which will likely be followed by reduced mortgage rates.  

The General Election

A forthcoming General Election has recently been announced. Recent polls and local council elections indicate a likely change in government, with the Labour Party poised to defeat the incumbent party. However, Prime Minister Rishi Sunak and his party may leverage the recent reduction in inflation and improving economic conditions to bolster their position.

The impact of the election on the property market remains uncertain. Historically, elections alone do not cause significant disruptions. Instead, it is the policies and legal changes enacted by the new government, along with their economic impact, that will shape the sentiments of sellers, buyers, landlords, and tenants.

Lettings: A Balancing Act

The rental market witnessed a surge in available properties in London (20-30% increase compared to 2023). This might alleviate the supply shortages that previously delivered record-high rent increases (7% in the year leading up to January 2024). The decrease in demand (30% year-on-year) is likely due to affordability pressures faced by tenants rather than a significant supply increase. Additionally, easing mortgage rates might be leading landlords to adjust their expectations.

Despite the moderation, supply remains below the long-term average and still falls short of demand. This suggests that substantial rent decreases are unlikely. High mortgage costs could push some landlords to sell and enter the owner-occupier market, further tightening supply. As we approach peak rental months (August and September), rents are expected to strengthen due to historically higher demand, but the extent will depend on factors like the economy, government policies, and mortgage rate movement.

Commercial: A Glimmer of Hope Despite Challenges

The high street faced significant pressure due to tightened consumer spending, a lingering effect of rising borrowing costs. This economic strain led to a seventh consecutive decline in commercial property deals, reaching a 13-year low. Office vacancies in London also hit a two-decade high as post-pandemic demand still wanes.

There are glimmers of hope. Hammersons reported the first increase in retail rental values in six years, suggesting continued interest in prime locations. Additionally, the anticipated decrease in interest rates could stimulate consumer spending, leading to cautious optimism for growth in the commercial property market. Limited development activity in 2023 due to high costs could also lead to future rental value increases, due to supply constraints.

Conclusion: A Market in Transition

We have both challenges and opportunities. The sales market displayed resilience despite some price fluctuations, while the rental market saw a shift in supply and demand dynamics. The commercial sector faced headwinds but holds cautious optimism for growth based on anticipated interest rate reductions. As the year progresses, navigating these complexities will be crucial for all stakeholders in the UK property market.