This year has been a roller coaster of a ride for the property market and we don’t expect it to calm down anytime soon. As we head towards the end of the year, the property landscape continues to evolve in response to a myriad of factors, not least rising interest rates, affordability and sentiment.
"Average asking prices of newly marketed properties dropped by 1.9% in August with house prices dropping 4.6% on an annual basis."
But first let’s talk about how we got here. Many caught it, most are now over it (in every sense of the word) but the Covid-19 pandemic still lingers in the minds of many and is still casting low shadows in parts of the property market. Of course post pandemic the market rebounded with significant oomph as people flocked to buy more space, indoor and outdoor, for the new ‘work from home’ lifestyle.
It was an eye opener for many who had previously spent the majority of their time away from home at work or socialising. Many realised that the place they actually lived in wasn’t really what they wanted. Indeed, historically the property market has shown an impressive ability to rebound. After the financial crisis of 2008 this was the case, as it was with Brexit and also other wobbles, such as the Scottish vote on independence, various elections and more recently the Ukraine war. This common resurgence not only reiterates the market’s tenacity but also underscores its intrinsic value as an investment avenue. Ultimately this is the bedrock, the cake of the market. But let’s have a look closer at the icing and decorations, and of course the variety of cakes on offer!
"In the last 24 months many buyers were drawn back to London or have decided the commuter belt is now too pricey."
The market is a medley of regional and hyper local rhythms that showcase its diversity, in some cases from street to street. While London’s prime property market experiences its own ebb and flow, other regions have flourished while some are plateauing. London has always been an attractive living environment and has magnetised investors and aspirational homeowners alike. In the last 24 months many buyers were drawn back to London or have decided the commuter belt is now too pricey in a somewhat reversal of the pandemic migration, rentals are also pumping - more on that later.
Everyone knows that interest rates are the story of the moment. With the latest summer rate rise and rates standing at 5.25% (at the time of writing) it is proving a big problem for the market. This coupled with inflation and the cost of living crisis is creating a sort of perfect storm in the body of the market. With over 700,000 homeowners still to come off their super low fixed mortgages before the end of the year, according to The Times, this looks likely to get a lot worse too.
With the average Greater London house price two years ago at £520k, the average loan to value at 70%, and the average mortgage interest rate at the time of only 1.57% that means a real monthly increase in finance costs of over £1,000, based off the average 2 year fixed rate (currently 6.58% at time of writing). For many in that part of the middle market, finding another £12,000 a year is just not possible. This leads to more property coming to market and more real stories of those struggling with their finances. It means those looking to buy can afford a lot less and all of this results in negative news stories.
Sentiment is king in the market and especially at the upper end where it’s easy for potential buyers, who often aren’t in a position of having to move, to get spooked. It’s likely rates and the market will continue in the headlines for some months to come, until it eases or the public and media start to bore of the story, whichever the sooner.
"Property going under offer in the prime market exhibits a promising 3.6% increase."
Meanwhile in the Prime Central London (PCL) property market, characterised by sales of £5m+, buyers are mainly international, operate within different, more global circles, and therefore it always follows its own path that often contrasts with the broader prime London market. This summer was no different and showcased a symphony of dynamics in the market. While new instructions for properties priced at £5m or more surged by over 30% compared to the previous year and an astonishing 78% above average 2017-19 levels, sales activity witnessed a downturn of approximately 24% according to the agent data company LonRes that operates predominately in this market.
Transactions in July also tumbled by 23.8% compared to 2022, with year-to-date sales figures down by 18.1% in comparison to the previous year. “Though activity remains notably elevated compared to pre-pandemic levels, exceeding them by over 40%.”
However values across all prime London in July were 2.1% below their peak from November 2014, according to LonRes average achieved sale price data. Nationwide’s index also shows that the average UK house price has grown by 38% over the same period. The majority of which came between 2020 and the peak (at +45%) last August. Within this segment, new instructions have been oscillating, while the increase in both fall-throughs and price reductions highlights the dynamic shifts occurring.
It appears the market, in general, is in an ominous state. With less property going under offer with “an annual under-offer drop of 14.3% in July” according to property website Rightmove, whilst at the same time average asking prices of newly marketed properties “dropped by 1.9% in August” with actual house prices dropping "4.6% on an annual basis" based on figures just out from Halifax the U.K's largest lender. This represents the biggest drop in asking prices at this time of year since 2018, “outpacing the average drop of 0.9%” in August’s traditional summer slowdown, and the biggest drop year on year in actual house prices since 2009.
In the top end of the market, fall throughs have also increased by 15% higher than the previous year, and according to Zoopla’s August property index UK house prices have risen 0.1% in the last year, the slowest rate since 2012.
"The biggest drop year on year in actual house prices since 2009."
In a nutshell the market is stalling, less property is being agreed and those that are agreed fall through at a higher rate than normal. Sellers have come around to the idea that they are going to need to reduce prices but turnover is dropping, “down an expected 21% in 2023”. A sure sign that the gap between buyer and seller expectations is not yet fully aligned. It will be interesting to see what happens with property currently on the market and the new stock during this traditionally busy autumn period. Buyers appear to be sitting on the fence, reading the news and waiting to hear where rates are headed next. Some were clearly jumping back over the fence re-negotiating on their pre-agreed deals in the summer, will this continue, or will they just opt for much lower offers this time around... time will tell. =
"Rents are 28.4% above their 2017-19 (pre-pandemic) average."
Meanwhile the rental market has undergone its own renaissance. Fueled by the allure of flexibility and necessity, rental demand has remained, for want of another word… robust. The rise of remote work reshaped rental dynamics, with proximity to traditional workplaces playing a less pivotal role. Rents which have been sky high for some time, and are now 28.4% above their 2017-19 (pre-pandemic) average and with an annual rental growth of 9.1% across prime London, according to LonRes, are clearly still on their upward trajectory.
With many properties being let in a day, tenants are having a hard time, whilst many Landlords are having a ’told you so’ moment with the government whose recent policies of rental income taxation and strict regulation have done nothing to ease the market. Indeed they have seen many Landlords exit looking to get more of a return on their capital in far less controlled or labour intensive ways. That said the inventory of available rental properties, so low for such a long time is now beginning to show an uptick and has increased by 25% compared to the previous year as the news of meaty rents spreads across the sector. However this figure still lingers at approximately 57% below the typical pre-pandemic levels for this time of year, according to LonRes.
"The inventory of available rental properties is beginning to show an uptick and has increased by 25%."
The summer maintained a low profile, marked by a 23.5% annual fall in lets agreed and a 5.3% decline in new instructions. This is quite significant because this time of year is usually strong in the rental market, what it means is yet to be revealed, though it is probably a sign that there is also a gap starting to open up between tenants and landlords expectations on rent. Which is no surprise based on the figures above.
As we look ahead to the next six months, predicting the exact trajectory of the London property market remains as always a complex task. Factors such as the pace of economic recovery, interest rates, inflation, and shifts in buyer preferences will continue to shape the landscape. However, certain trends seem poised to persist.
The appeal of spacious homes in suburban and rural settings is likely to endure as remote work continues to influence housing choices.
It’s not all bad news either as we expect to see prices in prime towns encircling London to hold steady, with prettier towns without necessarily a direct rail link but within reach of one, to become the new hot spots of the market. For example, Marlow in the Thames valley, with no direct rail link, but with the new Elizabeth Line within a short drive. Here prices have risen a whopping 25% in the last three years alone with London high street restaurants and coffee shops migrating with their London customer base. Compare this with a traditional commuter town such as St. Albans where prices have only grown 14% in comparison or with Maidenhead, Marlow’s closest Elizabeth Line station which has grown by a similar 13%.
"We expect pretty towns close to London without direct rail links to become new property hot spots. For example Marlow has seen a 25% price increase in 3 years."
Meanwhile demand for rental properties is expected to remain steady, potentially leading to a gradual recovery in rental inventory, while rental growth may moderate slightly as the market adjusts to the already top heavy rents as supply eases.
As always the prime property market’s dynamics will remain captivating to watch. While signs of a slowdown have certainly emerged, the overall trajectory of this segment will be influenced by the interplay of economic indicators, global events, and shifts in investor sentiment, which can turnaround quickly. London is still by no means the most expensive of global cities, however we expect the market to become more difficult if regulations curbing international investment into the market come in with a new government. Watch this space.
For expert advice on your local market dynamics please contact one of our Moveli brokers who on average have over 16 years experience.
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