Residential Market Commentary

JUNE UK HOUSING MARKET OVERVIEW

On 22nd May, the Prime Minister Rishi Sunak called a General Election for July 4th. At the time of writing, the FT Poll Tracker suggests that Labour would attain 44.4% of the vote, with the Conservatives at 23.7%.

The last MPC meeting was on May 9th, when the Committee voted 7-2 to hold rates at 5.25%. The MPC has now voted to keep rates stable at 5.25% for six consecutive meetings, with the May meeting seeing only a slight softening of stance.

Most recent inflationary data for April saw CPI growth fall sharply, and to the lowest levels since July 2021 – from 3.2% to 2.3%. Despite the significant falls, there was a surprise on the upside to 0.2 percentage points on the MPC’s forecast. This suggests that cutting of interest rates will be pushed back further than June.

As for the housing market, buyer demand was flat in April as mortgage rates limited movement in house prices and activity levels. The election is unlikely to impact those in the process of moving, but might stall those buyers who were contemplating an upcoming move. The natural slowdown over summer is therefore likely to start earlier than usual. House price growth is expected to remain modest given affordability pressures and the increased levels of stock on the market.

MORTGAGE INTEREST RATES

The residential market is extremely sensitive to interest rate rises and over the last couple of years mortgage rates have increased. As we entered 2024, and interest rates peaked, mortgage rates had started to decline in anticipation of base rate cuts. However, in March and April 2024 mortgage rates experienced a small uptick following some uncertainty in softening timelines. Mortgage rates are still expected to fall later in the year, but for now they are limiting buyer demand (Bank of England).

MORTGAGE APPROVALS

Mortgage approvals are a leading indicator for housing market demand. In April there was a slowdown in demand with 61,140 mortgages approved, down 0.2% on last month, the first monthly fall since September 2023. Mortgage approvals were 26% above the same time last year but remain 6.4% below the pre-pandemic average (April 2017-2019 average) (Bank of England).

SALES

Sales data lags mortgage approvals with transactions taking several months to complete. As a result, sales data is still showing the increased demand witnessed earlier in the year as mortgage rates declined and homes available for sale increased. An estimated 90,430 sales completed in April 2024, 4.6% above last month and 9.8% above the same time last year. However, sales remain 10.1% below pre-pandemic levels (April 2017-2019 average) (HMRC).

HOUSE PRICES

Nationwide reported a 0.4% seasonally adjusted monthly increase in house prices in May 2024, following two consecutive monthly falls. A modest monthly increase resulted in an uptick in annual house price growth, increasing to 1.3% from 0.6% the previous month.

MAY UK HOUSING MARKET OVERVIEW

The MPC has now voted to keep rates stable at 5.25% at six consecutive meetings, with the voting 7 (on holding) to 2 (on reduction), highlighting a softening of stance from the MPC, and an increased likelihood in rate cuts in the short term – the next meeting is on 20th of June.

Most recent inflationary data for March saw CPI annual growth continue to fall – from 3.4% in February to 3.2% in March. Nevertheless, inflation in the UK is still running higher than other advanced economies, with Eurozone inflation now at 2.4%.

The UK economy grew by 0.4% in March 2024, following continued growth in both January and February. Overall, this led to a growth in the first quarter of 2024 of 0.6%. The outlook for growth remains muted, with HM Treasury consensus of independent forecasters suggesting growth of 0.4% for 2024 – albeit with an improved outlook for inflation at 2.1% by the end of the year.

In truth, the inflationary pressures, energy pricing shocks, and tightening of monetary policy are still having an impact and will weigh on the economy certainly during the first half of 2024. There is likely to be continued pressure on businesses and subsequently employment, and the impact of increased mortgage rates may take a while to filter through.

Some early signs of optimism in the housing market have continued, with an uptick in mortgage approvals and completed sales. However, monthly house price growth did see modest falls in March and April, and mortgage rate reductions have stalled. This is a reminder that the market isn’t fully on the road to recovery, as affordability pressures remain.

MORTGAGE INTEREST RATES

The residential market is extremely sensitive to interest rate rises and over the last couple of years mortgage rates have increased. As we enter 2024, and interest rates are thought to have peaked, mortgage rates had started to decline in anticipation of base rate cuts. For example, if you take a 2-year fixed mortgage with a 90% LTV, average mortgage rates peaked in August 2023 at 6.6%, falling to 5.25% in February 2024. However, in March and April 2024 mortgage rates experienced a small uptick, following some uncertainty rate cuts and a surge in buyer demand. However, mortgage rates are still expected to fall over the year, once rate cuts commence (Bank of England).

MORTGAGE APPROVALS

Mortgage approvals are a leading indicator for housing market demand. 60,383 mortgages were approved in February 2024, 7.7% above last month and 39.8% above the same time last year, showing a continued increase in housing market demand. However, mortgage approvals remain 7.3% below the pre-pandemic average (February 2017-2019 average) (Bank of England).

SALES

An estimated 84,200 sales completed in March 2024, 1.4% above last month, the third consecutive monthly increase. Sales however still remain 6.5% below the same time last year and 14.2% below pre-pandemic levels (March 2017-2019 average) (HMRC).

HOUSE PRICES

Nationwide reported a 0.4% seasonally adjusted monthly decrease in house prices in April 2024. Two consecutive monthly falls in house price growth have led to annual house price growth slowing to 0.6%, down from 1.6% last month.

APRIL UK HOUSING MARKET OVERVIEW

The MPC has now voted to keep rates stable at 5.25% for five consecutive meetings, with the voting 8 (on holding) to 1 (on reduction), highlighting a softening stance from the MPC, and an increased likelihood of rate cuts in the short term – the next meeting is on 9th of May.

The most recent inflationary data for February saw CPI growth fall sharply, from 4% to 3.4%. Nevertheless, inflation in the UK is still running higher than other advanced economies. Eurozone inflation is now at 2.6%, with flash estimates putting that even lower at 2.4%.

The UK economy grew by 0.2% in January 2024, following a fall of 0.1% in the final month of 2023. Nevertheless, in the three months to January, this still put GDP in negative territory of 0.1%. In all, GDP is estimated to have increased by 0.1% for the year. The outlook for growth remains muted, with HM Treasury consensus of independent forecasters suggesting growth of 0.4% for 2024, albeit with an improved outlook for inflation at 2.1% by the end of the year.

In truth, the inflationary pressures, energy pricing shocks, and tightening of monetary policy are still having an impact and will certainly weigh on the economy during the first half of 2024. There is likely to be continued pressure on businesses and subsequently employment, and the impact of increased mortgage rates may take a while to filter through, with only half of the interest rate rises estimated to have filtered through to the market.

As for the housing market, early signs of optimism continued, with mortgage rates slowly reducing and an uptick in mortgage approvals and completed sales. Monthly house price growth did see a modest fall in March, a reminder that the market isn’t fully on the road to recovery, as affordability pressures remain.

MORTGAGE INTEREST RATES

The residential market is extremely sensitive to interest rate rises and over the last couple of years, mortgage rates have increased. As we enter 2024, and interest rates are thought to have peaked, mortgage rates have started to decline in anticipation of base rate cuts. For example, if you take a 2-year fixed mortgage with a 90% LTV, average mortgage rates peaked in August 2023 at 6.6%. As of February 2024, they were down to an average of 5.3% (Bank of England External Link).

MORTGAGE APPROVALS

Mortgage approvals are a leading indicator for housing market demand. 60,383 mortgages were approved in February 2024, 7.7% above last month and 39.8% above the same time last year, showing a continued increase in housing market demand. However, mortgage approvals remain 7.3% below the pre-pandemic average (February 2017-2019 average) (Bank of England External Link).

SALES

An estimated 82,940 sales completed in February 2024, 1.2% above last month, the second consecutive monthly increase. Sales however, still remain 5.6% below the same time last year, and 15.5% below pre-pandemic levels (February 2017-2019 average) (HMRC External Link).

HOUSE PRICES

Nationwide External Link reported a 0.2% seasonally adjusted monthly decrease in house prices in March 2024. Despite negative monthly growth, annual house price growth still increased to 1.6%, up from 1.2% last month.

MARCH UK HOUSING MARKET OVERVIEW

“We are not out of the woods yet” is the general message on inflation after CPI stayed at 4.0% y-o-y in January 2024 – the same as levels seen in December 2023.

The MPC has now voted to keep rates stable at 5.25% at four consecutive meetings, with market expectations now solidified that this marks the peak with the comment that current rates would be kept “under review” and that “more evidence was needed”. The next MPC meeting is on Thursday 21st March.

The UK economy shrank by 0.3% in the final quarter of 2023, with the economy entering a technical recession after two quarters of contraction. In all, GDP is estimated to have increased by 0.1% for the year. The outlook for growth is muted, with the HM Treasury comparison of independent forecasters suggesting growth of 0.4% for 2024.

In truth, the inflationary pressures, energy pricing shocks and tightening of monetary policy are still having an impact and will weigh on the economy, certainly during the first half of 2024. There is likely to be continued pressure on businesses and subsequently employment, and the impact of increased mortgage rates may take a while to filter through, with only half of interest rate rises estimated to have filtered through to the market.

As for the housing market, there are early signs of optimism, with mortgage rates reducing, an uptick in mortgage approvals and completed sales, and annual house price growth moving into positive territory for the first time in over a year.

MORTGAGE INTEREST RATES

The residential market is extremely sensitive to interest rate rises and over the last two years mortgage rates have increased. As we enter 2024, and interest rates are thought to have peaked, mortgage rates have started to decline in anticipation of base rate cuts. For example, if you take a 2-year fixed mortgage with a 90% LTV, average mortgage rates peaked in August 2023 at 6.6% and are now down to 5.5% as of January 2024 (Bank of England External Link).

MORTGAGE APPROVALS

Mortgage approvals are a leading indicator for housing market demand. 55,227 mortgages were approved in January 2024, 7.2% above last month and 40.2% above the same time last year, showing a continued increase in housing market demand. However, mortgage approvals remain 16.6% below the pre-pandemic average (January 2017-2019 average) (Bank of England External Link).

SALES

An estimated 82,000 sales completed in January 2024, 1.9% above last month, the first monthly increase since August 2023. Sales however still remain 11.9% below the same time last year, and 15.9% below pre-pandemic levels (January 2017-2019 average) (HMRC External Link).

HOUSE PRICES

Nationwide External Link reported 0.7% seasonally adjusted monthly increase in house prices in February 2024. This resulted in annual house price growth increasing to 1.2%, the first time in positive territory since January 2023. Halifax External Link reported annual house price growth at -4.6% in August 2023.

FEBRUARY UK HOUSING MARKET OVERVIEW

“We are not out of the woods yet” is the general message on inflation after CPI rose to 4.0% y-o-y in December 2023, after registering 3.9% in the November 2023 release. The MPC has now voted to keep rates stable at 5.25% in four consecutive meetings, with market expectations now solidified that this marks the peak with the comment that current rates would be kept “under review” and that “more evidence was needed”. The next MPC meeting is on Thursday 21st March. High interest rates, strong inflation, and a weaker economy have impacted buyers’ confidence, leading to a slowdown in housing market activity. However, there are early signs of optimism with mortgage rates reducing, an uptick in mortgage approvals, and modest increases in house prices.

MORTGAGE INTEREST RATES

The residential market is extremely sensitive to interest rate rises and over the last two years mortgage rates have increased. As we enter 2024, and interest rates are thought to have peaked, mortgage rates have started to decline in anticipation of base rate cuts. For example, if you take a 2-year fixed mortgage with a 90% LTV, average mortgage rates in December 2023 were 5.7%, down from a peak of 6.6% in August 2023. (Bank of England).

MORTGAGE APPROVALS

Mortgage approvals are a leading indicator for housing market demand. 50,459 mortgages were approved in December 2023, 2.3% above last month and 25.6% above the same time last year, showing a continued increase in housing market demand. However, mortgage approvals remain 21.6% below the pre-pandemic average (December 2017-2019 average). (Bank of England).

SALES

Completed transactions remain down on previous benchmarks, however, the level of decline is slowing. An estimated 80,420 sales completed in December 2023, 0.8% below last month, 17.8% below the same time last year, and 18.4% below pre-pandemic levels (December 2017-2019 average). (HMRC).

HOUSE PRICES

Nationwide reported annual house price growth at -5.3% in September 2023, unchanged from the previous month. Halifax reported 0.7% seasonally adjusted monthly increase in house prices in January 2024. This resulted in annual house price growth increasing to -0.2%, the strongest level since January 2023.

JANUARY UK HOUSING MARKET OVERVIEW

Following a series of successive interest rate hikes, the UK economy is currently in a ‘wait and see’ period, to assess the effects on the substantial inflationary pressures that have impacted the economy over the last two years. 

There is positive news on inflation, with data released just before Christmas seeing CPI increasing to 3.9% in the 12 months to November, down from 4.6% in the previous month, as a result of falling energy prices as well as markedly lower core and food inflation.

The MPC has consecutively voted to keep rates stable at 5.25% and market expectations are that this marks the peak of interest rate hikes, much lower than previous market expectations of around 6%. The next MPC meeting is on February 1st.

High interest rates, strong inflation, and a weaker economy have impacted buyers’ confidence, leading to slowdown in housing market activity. However, over the last couple of months mortgage rates have improved, there has been a slight pickup in mortgage approvals, and modest increases in house prices.

MORTGAGE INTEREST RATES

The residential market is extremely sensitive to interest rate rises and over the last two years mortgage rates have increased. As we enter 2024, and interest rates are thought to have peaked, mortgage rates have started to decline in anticipation of base rate cuts. For example, if you take a 2-year fixed mortgage with a 90% LTV, average mortgage rates in December 2023 were 5.7%, down from a peak of 6.6% in August 2023. (Bank of England).

MORTGAGE APPROVALS

Mortgage approvals are a leading indicator for housing market demand. 50,067 mortgages were approved in November 2023, 4.6% above last month and 9.9% above the same time last year, showing a pickup in housing market demand. However, mortgage approvals remain 23.6% below the pre-pandemic average (November 2017-2019 average).  (Bank of England).

SALES

Sales data lags mortgage approvals with the conveyancing process taking several months and therefore the number of completed sales remain down. An estimated 80,780 sales completed in November 2023, 1.2% below last month, 21.1% below the same time last year, and 18.8% below pre-pandemic levels (November 2017-2019 average) (HMRC).

HOUSE PRICES

Nationwide reported no seasonally adjusted monthly increase in house prices in December 2023, following three successive monthly increases. Annual house price growth is now at -1.8%, a slight improvement on last month (-2.0%).