A report by Rightmove has highlighted the ongoing strength of the UK property market. According to data collected by the company, the national average price of property coming to the market hit an all-time high of £338,462 in September. This was an increase of £1091, or 0.3%, on the previous month. Consequently, it is fair to say that the UK property market has performed admirably during the worst of the pandemic and the return to semi-normality. So what does the future hold?
Huge variation in performance
Before we look at the array of factors impacting the UK property market and those on the horizon, it is crucial to realise the considerable variation in performance. Five areas of the UK have experienced annual price growth of over 8%:-
- South West
- East Midlands
- East of England
- South East
Compare that to Greater London, which saw subdued annual price growth of just 0.8% over the same period. This would indicate that regional economies and property markets are on different tracks and have been impacted to a varying extent by the pandemic. However, this is still a lot more encouraging than the raft of downbeat expectations highlighted in the media during recent months.
New listings increase
During Autumn there has been an increase in the number of new listings. Figures for the first two weeks of September show a 14% increase over the first two weeks in August. This increase in liquidity is a double-edged sword, offering more choice and reducing the premium paid by buyers. As autumn is traditionally a busy period for the UK property market, this sudden jump in listings is encouraging.
Even though many experts forecast a more stable property market, time will tell, with likely reduced variation in property price performance. In recent times there have been several attractions and incentives that have prompted frenzied buying. If, as it appears, this degree of frantic buying is starting to calm, this could encourage others to enter the market.
London property market
Time and time again, so-called property experts have tried to call the end of the London property market boom. Brexit, tax rises and more recently, the pandemic have all been used as reasons for often unwarranted scepticism. So what should we expect in the short to medium-term?
Despite headlines suggesting that millions left London for the countryside, open space and homeworking, this has not quite panned out. Instead, London is again reclaiming its position as a lifestyle destination for the UK and overseas buyers. The influx of buyers continues to grow, demand is outstripping supply, and it looks as though London will have a relatively strong end to the year.
In a sign of increasing confidence, the prime central London property market is “roaring back to life”, having lagged behind the performance of other areas of London. The recent reduction in stamp duty encouraged buyers to step forward before a staggered return to previous levels. As you would expect, this prompted an easing of demand after the increase in stamp duty. However, the London market is back!
Affordability will be challenging
As energy costs continue to spiral upwards, prompting an increase in the cost of living, this will create a drag on affordability in the short to medium-term. The Chancellor of the Exchequer yesterday suggested inflation would remain at around 4% for some time. However, the Bank of England is forecasting inflation to hit nearer 5% in the short term. This will impact the number of first-time buyers entering the market, possibly prompting the UK government to step forward with renewed financial assistance.
UK property continues to surprise
Experts and the mass media have tried on numerous occasions to talk down the UK property market. It roared back from the 2008 financial crisis, it roared back from Brexit, and the signs are it will do the same in the aftermath of the pandemic. In all honesty, record low-interest rates in the UK have certainly assisted, with mortgage rates dragged downwards. While there are suggestions that interest rates could rise in the short to medium term, this would likely be gradual. Consequently, we may see a short-term surge from those looking to secure current low mortgage rates.
Taking a step back and looking at the broader picture, UK interest rates will likely remain near historic lows for some time to come. To a varying extent, this will be reflected in the mortgage market, but comparisons to historic average mortgage rates will remain favourable. So, the only real short-term issue is affordability and the seemingly ever-increasing cost of living.