UK Property News Week 27

Welcome to NestInsights, your guide to the evolving UK property market. In this blog series, we explore the latest property news and developments that shape the sector, offering you the insights needed to navigate and thrive. Our goal is to provide a comprehensive overview that empowers you to make well-informed decisions in this dynamic market.

Table of Contents

• Mortgage Rate Reductions Pre-Labour Victory Anticipation

• Kier Starmer Highlights Soaring Prices: Analysis and Evidence

• Revealing the UK's Prime Property Hotspots

• Call for Landlord Tax Reform to Boost Rental Supply

• Halifax and Santander Cut Rates Amidst Mortgage Price War

• General Election's Impact on the UK Property Market

UK Property News Week 27

Mortgage Rate Reductions Pre-Labour Victory Anticipation

In the run-up to an anticipated Labour victory, major mortgage lenders have significantly cut their rates, marking a crucial shift in the UK housing market landscape. Halifax, NatWest, and Clydesdale Bank are among the notable lenders that have slashed their mortgage rates in response to the political climate and economic forecasts.

Halifax and NatWest have reduced their rates by up to 0.23%, while Clydesdale Bank's rates have seen a larger drop of 0.38%​​.

This strategic move is partly driven by the expectation that the Bank of England may cut interest rates in the near future, a prediction bolstered by the central bank holding the Bank Rate steady at 5.25% since August 2023​​.

The reductions are aimed at stimulating buyer activity, which has been somewhat stifled by high mortgage rates.

Currently, the average two-year fixed residential mortgage rate stands at 5.95%, and the average five-year rate is 5.53%​​.

This reduction is expected to make mortgages more affordable for new buyers and those looking to remortgage, thereby increasing market activity.

The mortgage rate cuts come amidst a backdrop of declining mortgage approvals. Bank of England data indicates that mortgage approvals for house purchases fell from 60,800 in April to 60,000 in May.

Similarly, approvals for remortgaging decreased from 29,900 to 29,600 in the same period​​. These statistics highlight the market's sensitivity to interest rate changes and the potential positive impact of the recent reductions.

As the general election draws near, the anticipation of a Labour victory and subsequent policy changes are likely to further influence the housing market.

The expected interest rate cuts, coupled with the recent mortgage rate reductions, could lead to a more favorable environment for buyers and investors alike, fostering increased activity and stability in the housing market.

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Kier Starmer Highlights Soaring Prices: Analysis and Evidence

In a recent interview, Sir Kier Starmer highlighted the alarming rise in housing prices and rents, asserting that a Labour government would prioritize making housing more affordable. Starmer's remarks, grounded in recent market analyses, shed light on the critical challenges facing both renters and prospective homeowners in the UK.

Starmer pointed out that the current rental market is heavily skewed, with private landlords often engaging in bidding wars, pushing rents higher. This phenomenon disproportionately affects young people and first-time buyers, who are increasingly spending substantial portions of their income on rent. Starmer emphasized the need to curb these practices to prevent further financial strain on renters​​.

According to an in-depth analysis by Goodlord, rents in June 2024 experienced a year-on-year increase of 6.7%, with the average cost of rent for confirmed tenancies reaching £1,225 per calendar month (pcm).

Regionally, the South West saw the most significant year-on-year rise, with prices escalating from £1,191 pcm in 2023 to £1,347 pcm in 2024, marking a 13% increase​​.

In London, rents surpassed the £2,000 pcm mark for the first time, averaging £2,010 pcm in June, a 2% increase from the previous year​​.

Starmer's comments underscore the necessity for legislative measures to address the housing crisis. By making bidding wars illegal and increasing the supply of new build housing, the Labour party aims to stabilize the rental market and make homeownership more attainable for a broader segment of the population. Starmer's vision includes tackling the rental sector's issues head-on to create a more equitable housing market​​.

The Goodlord rental index provides compelling evidence supporting Starmer's concerns. June traditionally marks the beginning of the high season for rental prices, driven by demand from students. Historically, rents peak between June and September. Last year, rents peaked in July at an average of £1,367 pcm per property​​. The rental index has consistently recorded rises in rental prices during this period every year since 2019, indicating a persistent upward trend in rental costs.

Between May and June 2024, average rents rose by 4% month-on-month, from £1,183 pcm to £1,225 pcm, with all regions except one recording an increase in rents.

The South West saw the highest monthly rise at 14%, followed by the North East and North West at 4% each. The smallest monthly rises were recorded in the South East and Greater London at 1%, while the West Midlands experienced a slight reduction in average rental prices by 0.42%​​.

Revealing the UK's Prime Property Hotspots

The UK's property market is a dynamic landscape, with certain areas consistently outperforming others in terms of demand and price growth. The latest Hotspots Index from OnTheMarket has revealed the top property hotspots in the country, highlighting regions where buyer interest is high and property stock is low. These hotspots offer significant opportunities for investors and homebuyers alike.

Top Property Hotspots

1. Bradford

Bradford has been named the leading property hotspot for the second consecutive quarter. This city's strong performance is driven by high demand relative to the available property stock. Its affordability and potential for growth make it an attractive option for buyers​​.

2. Blackpool

Moving up from fifth place in the previous quarter, Blackpool has now edged into the second spot. Known for its vibrant housing market, Blackpool offers a mix of affordability and investment potential, attracting a significant number of buyers​​.

3. Rochdale

Rochdale has seen a remarkable rise, climbing from 23rd place to third. This surge is attributed to the increasing interest from buyers looking for value outside of more expensive urban areas​​.

4. Plymouth

The only southern location in the top five, Plymouth has jumped from 22nd to fourth place. Its inclusion highlights the city's growing appeal, driven by its coastal charm and relative affordability compared to other southern cities​​.

5. Leicester

New to the top five, Leicester has climbed from ninth place, showcasing its increasing attractiveness to buyers. The city's robust market activity and competitive pricing make it a notable hotspot​​.

The latest data underscores a pronounced north/south divide in the UK's property market. Northern locations dominate the top spots, reflecting a trend where some of the most vibrant and affordable areas are situated. This trend is influenced by higher borrowing costs and the post-pandemic shift towards remote working, which has enabled buyers to consider locations further from city centers.

Significant Movers

• Wakefield: Jumped from 30th to 9th place, indicating a surge in buyer interest.

• Birmingham: Rose from 23rd to 43rd, showing a significant increase in market activity​​.

Cooling Markets

• Wigan: Dropped from second to 15th place, suggesting a cooling in demand.

• Liverpool: Fell from 11th to 30th place, indicating a similar trend.

• Worthing: One of the few southern hotspots, dropped from 20th to 53rd place​​.

Call for Landlord Tax Reform to Boost Rental Supply

As the UK faces a growing housing crisis, Propertymark has urged the next government to reform tax policies affecting landlords to enhance the supply of rental properties. This call comes amid an increasing imbalance between supply and demand in the private rental sector (PRS), which has led to skyrocketing rents and a decrease in available rental properties.

The UK’s rental market is experiencing significant strain. Demand for privately rented accommodation continues to rise, yet recent data from Rightmove indicates a worrying decline in the number of properties available to rent. This shortage is exacerbated by many tenants choosing to renew their existing tenancies rather than moving, thereby deepening the supply-demand gap​​.

Nathan Emerson, CEO of Propertymark, highlighted the need for a more attractive market for both investors and tenants. He stated:

Propertymark has long argued that the private rental sector needs more houses to stabilize rental prices, but there are myriad factors that can contribute towards making the market more attractive for both investors and tenants.

Recent changes in tax relief for buy-to-let landlords have dissuaded many from investing in the PRS. These tax changes, intended to generate more revenue for the government, have inadvertently led to a reduction in net rental returns for landlords. As a result, many landlords have had no choice but to increase rents to recoup their losses, placing a significant financial burden on tenants​​.

The reduction in landlord profits due to higher taxes has led to fewer investments in the rental market. This lack of investment has contributed to the shortage of rental properties, driving up competition among tenants and pushing rents even higher.

Propertymark suggests that the next government reconsider the tax system to encourage more investment in the PRS. By doing so, it aims to increase the supply of rental properties and ultimately lower rents for tenants. Key areas for reform include:

• Restoration of Tax Reliefs: Reinstating previous tax reliefs could incentivize landlords to invest in the rental market once again.

• Incentives for New Builds: Providing tax incentives for the construction of new rental properties could help increase supply and stabilize rents.

• Simplifying Tax Codes: Making the tax code more accessible and understandable for landlords could reduce the administrative burden and encourage more investments​​.

Halifax and Santander Cut Rates Amidst Mortgage Price War

Halifax and Santander have announced cuts to their mortgage rates. This latest development follows similar actions by other major lenders, marking a competitive phase in the mortgage market aimed at attracting more borrowers amid economic uncertainties.

Halifax has reduced rates across various mortgage products by up to 0.19 percentage points.

The bank now offers the lowest two-year fixed rate on the market for those purchasing with at least a 40% deposit, standing at 4.63% with a £1,099 fee.

Additionally, Halifax is offering competitive five-year fixed rates, with the lowest remortgage deal at 4.4% with a £999 fee and the best rate for homebuyers fixing for five years at 4.26%, which is among the lowest available in the market​​.

Santander has also introduced rate cuts, reducing fixed-rate deals by up to 0.16 percentage points. These cuts are part of a broader strategy by lenders to offer more attractive terms to potential borrowers and remortgagers, aiming to boost market activity and borrower confidence during a period of economic adjustment​​.

The average two-year fixed mortgage rate has now fallen to 5.37%, down from 6.17% a year ago, while the average five-year fixed rate is currently at 4.99%, down from 5.68% in the previous year​​.

This reduction in rates comes as the Bank of England maintains the Bank Rate at 5.25%, a 16-year high aimed at controlling inflation, which peaked at 11.1% in October 2022​​.

These rate cuts are expected to stimulate buyer activity, which has seen a decline due to high mortgage rates.

According to Bank of England data, mortgage approvals for house purchases fell from 60,800 in April to 60,000 in May, while approvals for remortgaging decreased from 29,900 to 29,600 in the same period​​.

The mortgage price war has seen several other major lenders, including Barclays, HSBC, and NatWest, reducing their rates recently. Barclays announced rate cuts of up to 0.31%, and HSBC followed suit with reductions across its residential and buy-to-let loans​​​​.

General Election's Impact on the UK Property Market

In the immediate aftermath of the general election, the UK property market showed resilience. According to the latest data, house prices on homes sold subject to contract (STC) in June 2024 remained strong, averaging £348 per square foot, which is a 5.1% increase from December 2023​​. This indicates that the election did not deter property transactions, and confidence in the market remained robust.

The number of new property listings and sales also reflected a positive trend.

In the week ending June 30, 2024, there were 35,593 new listings, marking a year-to-date increase of 7.5% compared to the average of the previous four years.

Total gross sales for the same period reached 26,198, which is 6.9% higher than the 2017-2019 averages​​. This surge in listings and sales highlights the market's adaptability and sustained buyer interest despite the political changes.

An important metric to consider is the sales fall-through rate. The data shows that sale fall-throughs have slightly increased, but they remain within acceptable long-term averages. Specifically, the fall-through rate was just under 24%, which is close to the 7-year average of 24.8%. This stability indicates that, while there is some election-induced caution, it is not significantly disrupting transactions​​.

Despite the overall stability, some properties have seen price reductions. The average asking price for reduced properties is £401,075.

This trend of price reductions can be attributed to sellers adjusting their expectations to align more closely with market conditions and buyer affordability. These adjustments are crucial for maintaining transaction volumes and ensuring that properties remain attractive to potential buyers​​.

Net sales, a critical indicator of market activity, have shown positive trends despite the uncertainties surrounding the general election.

The data reveals that net sales for the week ending June 30, 2024, were 20,028, which is 4.1% higher than the 2024 weekly average of 19,235​​.

This increase highlights the market's resilience and the continued willingness of buyers to engage in transactions.

The accumulative net sales year-to-date (YTD) stand at 500,127, which is 4.7% higher than the average of the years 2017, 2018, and 2019. Moreover, this figure is 12% higher than the YTD net sales figure for 2023​​. These numbers underscore a healthy market with robust sales activity, driven by both continued demand and the strategic pricing adjustments by sellers.

While the short-term effects of the general election have been minimal, the long-term implications could be more substantial depending on the new government's policies. Historically, political stability has a significant impact on property market confidence. Clear and supportive housing policies could bolster investor and buyer confidence, leading to increased market activity.

Conclusion

The UK property market has shown remarkable resilience amidst the political and economic uncertainties brought about by the recent general election. Key indicators such as house prices, property listings, and net sales have remained robust, reflecting sustained confidence and activity in the market. The strategic mortgage rate cuts by major lenders like Halifax and Santander are expected to further stimulate buyer interest and market activity.

Moreover, addressing the challenges in the rental sector through potential tax reforms for landlords and increasing the supply of affordable housing remains crucial. The identification of prime property hotspots provides valuable insights for investors and homebuyers looking to capitalize on growth areas. 

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