As we moved into the second quarter of 2023, despite ongoing public services disruption and high inflation, the residential property market has shown growing signs of resilience with transactional numbers increasing to levels not seen since September 2022.
Data from TwentyEA showed four successive weeks of growing sales numbers during March and April with the weekly average being 23,934.
Fall through numbers have eased back to close to 20% per week with the average throughout the first quarter at 24.9% whereas the last quarter of 2022, as higher interest rates started to cause concern, saw a figure of 38.7%.
New listings remain strong and have risen to close to 35,000 a week, with the first quarter average being 31,116.
Mortgage interest rates have shown signs of easing back with headline rates (it is always necessary to check the detail of loan to value, product fees, penalty clauses etc) of around 4% common on both variable and fixed rate terms.
Whilst the Bank of England increased the base rate again in March (to 4.25%) following a surprising inflation result, the UK has managed to avoid a technical recession and it is still expected that both inflation and the base rate, whilst possibly rising again in the short term, will fall as the year progresses.
Buying a property is not a short term, impulse decision and remains an integral part of UK culture with around 63% of residential property being owner occupied. Clearly affordability is a factor and prices have eased back by between 5% and 10% from the peak of early 2022 but prophesies of a wholesale collapse and price crash continue to look way off the mark as demand continues at decent levels. The supply side has increased but not to a level that, in itself, will drive down values but sellers are advised to be realistic in order to attract interest from buyers who are naturally aware of the strength of their buying positions.
Lettings remains “on fire” with demand greatly exceeding supply and rental values increasing significantly.
There are growing concerns that supply is reducing as less and less tenants choose to vacate at the end of the tenancy terms, choosing to renew rather than seek an alternate property. Also, there are strong indicators that many landlords are looking to leave the private rental sector with concerns over increasing costs at the centre of their thoughts.
Currently a property has to have an EPC rating of E in order to be legally let and the plan is to tighten this to a C rating which will require many landlords to invest significantly in order to bring their properties up to standard.
It is likely that the Government will move back the proposed date for this change until 2028 and introduce some mitigating exemptions but the “direction of travel” is clear and with many landlords now seeing negative capital growth, albeit mitigated by rental growth, several surveys have indicted that a significant exodus of landlords from the market is likely.
The current Tory government is wedded ideologically to home ownership over renting and seems to favour larger institutional landlords over private individuals on the basis that they believe the quality of stock and management to be better. Investment in build to rent has been increasing with a recent report showing over £1.1bn going into new scheme in the first quarter of 2023.
The Spring market is always a traditionally strong period for sales with improving weather making property presentation better and those looking to make a move to secure places at school September intakes needing to take action now in order to achieve their plans.
Overall, the market is challenging but far from being in a deep malaise. Pricing that attracts interest is key to making sales but those buyers that are motivated to make a move are doing so.
Michael S Day MBA FRICS FNAEA FARLA
Managing Director