Property market update

This summer, the press has been full of stories about base rate rises and the ever-increasing cost of living. We, At Phillip Arnold Auctions, thought you might therefore appreciate a bit of an update on how this has affected the housing market. And, you may be pleasantly surprised to discover, it is in far better shape than you might imagine…

Despite yet another rise in the base rate, house prices were up again in July (+0.4%), which was 0.1% above June’s rise (+0.3%). According to the majority of commentators, prices are being supported by record levels of employment, which are at a 50-year high, and a serious imbalance between supply and demand.

It’s the supply shortages that are having the greatest impact - compared to pre-pandemic 2019, the number of properties for sale is down by as much as 40%. The shortfall is so serious that, despite the challenging economic conditions, Rightmove has now increased its house price growth prediction for 2022 from 5% to 7%. Supply levels are improving, though, but only very slowly.

Tim Bannister, Rightmove’s Director of Property Science says:

”While more choice is welcome news, the number of homes available remains well below the more normal levels of 2019 and is unable to satisfy the continued high demand that we’re seeing. Though a softening in demand is moving the market from a boil to a simmer.”

Recent research carried out by Zoopla suggests these are not the only factors behind the housing market’s surprising resilience. According to their findings, the pandemic, and working from home, in particular, continue to exert a heavy influence on both demand and our housing choices. There are now 9.7m people working from home in the UK, which is double the number pre-Covid and around a third of the UK’s total workforce. This is significant because homeworkers are roughly 5x more likely to move home than those who don’t. For first-time buyers, in particular, working from home offers the opportunity to move to cheaper areas that are not necessarily commutable, and it is therefore no surprise to find that activity levels in the sector are currently 5% above the long-term average. In addition, the pandemic has led to over half a million older workers (50 to 70-year-olds) retiring early. Retirement is one of the key drivers of house moves, with many retirees busy downsizing and or moving to new areas.

As ever, those rises are not universal. The biggest rises are tending to occur in the more affordable areas. However, in London, although it has seen slower annual house price inflation than the other UK regions, its +7.9% annual increase is the highest for almost five years. And, according to Rightmove’s latest figures, it had the second highest monthly growth in July at 1.6%. In a reverse of pandemic trends, it is the inner city areas that are faring best – in Westminster, prices were up 2.2%, in Camden they were up 3.3% and in Southwark they were up 1.7% last month.

There is no doubt that the changes to the base rate and the increasing cost of living are having a dampening effect on the housing market. However, most people are still on rates that were fixed before the rises began and those mortgages can normally be ported to a new home. In addition, thanks to tighter borrowing criteria introduced after the 2008 financial crash, borrowers are far less exposed to rises in mortgage rates than they once were.

HOUSE PRICES AND STATISTICS

Surprisingly, only Halifax’s index shows any real signs of a slowdown and only by the smallest of margins (-0.1%). All the other indices continue to register relatively strong growth, and many saw higher rises in July than in June.

Nationwide: July: Avge. price £271,209. Monthly change +0.1%. Annual change +11%
Halifax: July. Avge. price £293,221. Monthly change -0.1%. Annual change +11.8%
Land Registry: May: Avge. price £283,496. Monthly change +1.2%. Annual change +12.8%
Zoopla: June: Avge. price £256,600. Annual change +8.3%
Rightmove: July: Avge. price £369,968. Monthly change +0.4%. Annual change +9.3% (asking prices on Rightmove)

BUY-TO-LET

With demand up 6% compared to last year and available properties down by 26%, rental prices continue to soar. The UK’s average rent is now 11.8% higher than July 2021, 15.8% higher in London and a massive 21% higher in inner London. The average monthly rental payments are now 40% above the level they were at ten years ago.

As a result, despite a raft of upcoming legislation, more landlords are planning on expanding their portfolios in the next 12 months (34%) than reducing them (11%) – source: Rightmove. Although according to another survey, this one carried out by Homelet, another 18% of all landlords said they were expecting to reduce their portfolios or leave the sector altogether in the near future. The figure was even higher in London at 22%. The same survey also discovered that, with such rapid rises, four out of five renters (78%) were worried about how they would pay their rent.

When soaring energy costs are added to the current rent rises, the number of people in arrears is likely to increase substantially. The only way to avoid this is if the government elects a new leader soon and gets on with announcing their strategy for assisting those in most need before winter, and those higher bills, set in.

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