Chestertons Monthly RESIDENTIAL PROPERTY MARKET REVIEW February 2020 chestertons.com
1 CONTENTS
Economic Overview 01
Sales Market 03 National sales 03 London sales 06 New homes 08
Lettings Market 10 National lettings 10 London lettings 11
Investment market 13
Contact 15
Nicholas Barnes – Head of Research “Welcome to our latest monthly review of national and London residential property markets.”
2 ECONOMIC OVERVIEW
GDP Growth Although economic output is expected to have been however the signals from the new Government are flat in Q4 last year, recent surveys point to an increase positive and we can expect an expansion of fiscal policy inꢀbusiness sentiment following the General Election. inꢀthe Budget, albeit with some likely clawback in the Theꢀflash IHS Markit/Cips Composite Purchasing formꢀof additional taxation. Meanwhile, the corona virus Managers’ Index rose to 52.4 in January, from 49.3 in has already affected global supply chains and could have December. Business activity also expanded for the first a significant impact on economic output if it continues to time in five months, driven by the sharpest increase in spread at its current rate. newꢀwork since September 2018. The Treasury’s forecasting panel has held its February There remains considerable uncertainty while the UK forecast GDP growth rate for this year at 1.1% but lowered negotiates its new relationships with its trading partners, its 2021 forecast to 1.4%.
Figure 1: UK GDP growth outlook
3.0%
2.5%
2.0%
1.5% 1.7% 1.8% 1.7% 1.4% 1.0% 1.3% 1.1% 0.5%
0.0% 2019 2020 2021 2022 2023 2024
Source: HM Treasury Forecast Panel
1 Inflation & interest rates Annual inflation rates rose in January: to 1.8% for CPI The next MPC meeting in March may take a different andꢀ2.7% for RPI. Bank Rate was held 0.75% at the Bank viewꢀifꢀinflation rises above its 2.0% CPI target rate. of England’s Monetary Policy Committee (MPC) meeting UK 3 month Libor rates have risen this month to reach in January, although only the December inflation data 0.75% as at 24th February. 5 year swap rates continued was available at that time which showed a fall in inflation. toꢀfall, standing at 0.56% at the same date.
Figure 2: Inflation & Bank Rate forecasts
4.0%
3.5% 3.0% 3.0% 3.0% 3.0%
2.5% 2.5% 2.8% 2.2% 2.0% 2.0% 2.0% 1.7% 1.9% 1.9% 1.5% 1.6% 1.55% 1.0% 1.34% 0.77% 0.70% 0.99% 0.5% 0.78%
0.0% 2019 2020 2021 2022 2023 2024
Bank Rate (Q4) CPI RPI Source: HM Treasury Forecast Panel & ONS
Employment and earnings growth The latest UK employment rate has reached a new realꢀterms) and to 3.2% (1.8% in real terms) excluding recordꢀhighꢀof 76.5%, while the unemployment rate bonuses. Average real pay without bonuses is now the standsꢀat 3.8%, the lowest since 1974. highest it has been since August 2007, although for much of the interim real wages growth was in negative territory. Annual growth in average weekly earnings including bonuses in Great Britain has slowed to 2.9% (1.4% in
2 SALES MARKET
National sales The post-Election bounce is gathering momentum. rates and a combination of Help-to-Buy and the Bank December’s Election result has given buyers and sellers ofꢀMum and Dad for first time buyers. the confidence that the market has lacked for so long Although the number of national residential property and has brought to an end the lengthy period of political sales fell by 13% in January according to provisional uncertainty which has plagued the country since the dataꢀfrom HMRC (although on a seasonally adjusted referendum on EU membership. The pent-up demand basisꢀthey rose), January is typically a low sales month which has built up over the past three and a half years is and sales were 13% up on January 2019. now being released, supported by low mortgage interest
Figure 3: Monthly residential property transactions (non-seasonally adjusted)
120,000
100,000
80,000
60,000
40,000
20,000
0 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20
UK England Source: HMRC
New listings on the Rightmove portal between 12th Visits to Rightmove in January were up by 7.2% on the January and 8th February rose by 2.1% compared to the prior year, reaching a new record of over 152 million, same period in 2019. This is the first time that Rightmove indicating strong pent-up housing demand. Momentum has reported a year-on-year rise in new supply for 13 isꢀstill growing, with traffic in the first week of February up months and suggests that sales are likely to continue by 9.2% on the same week in 2019. to rise in the shorter term at least and are likely to be boosted by the usual spring upsurge.
3 Figure 4: Average annual house price growth: UK & England
4%
3%
2%
1%
0% Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
UK England Source: Land Registry/ONS
National house price growth accelerated again in compared to £251,711 in England. For the first time in December according to the Land Registry. Average two years, every English region saw house prices increase pricesꢀrose by 2.2% in both the UK and England. The on an annual measure, with Yorkshire & Humberside average house price in the UK now stands at £234,742 recording the strongest uplift (3.9%).
Figure 5: Average regional house price & annual price growth (Dec 2019)
£500,000 5%
£450,000 3.9% 4% £400,000
£350,000 2.8% 3% £300,000 2.4% 2.3% 2.2% £200,000 2.0% 2% 1.8% 1.4% £250,000 1.2% 1% £150,000
£100,000 0% £50,000
£0 -1% Yorks & East East of London South North North West South Humber Midlands England West West East Midlands East
Avg prices 12 months growth Source: Land Registry
Average asking prices of property coming to market rose new buyer enquiries and the fact that supply is lagging by 0.8% in February according to Rightmove, and were demand, this suggests that a further rise in achieved 2.9% up on February last year. Given the sharp rise in prices is likely.
4 Figure 6: Monthly change in average asking prices
3% 2.3% 2%
1.1% 1% 0.9% 0.6% 0.3% 0.8% 0.7% 0% 0.4% -0.2% -0.2% -1% -1.0% -0.9% -1.3% -2% Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20
Source: Rightmove
New mortgage lending fell again last December: loans to higher (+0.3%) while loans to movers were 3.2% higher. first time buyers (FTBs) were 4.4% down on the previous Re-mortgaging was also lower in December – by 13% - month, while loans to home movers fell by 4.4%. Compared although it was 2.7% higher than in December 2018. to December 2018, loans to FTBs were marginally
Figure 7: Mortgage approvals for house purchase
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
First time buyers Home movers Source: UK Finance
The average loan-to-value has risen over the past while the average loan size has risen by 4.3% for FTBs year, from 76.4 to 77.0 for FTBs and from 66.8 to 67.6 (£174,275) and by 6.4% for movers (£230,847).
5 London sales market There are further signs that the London market may have ago. Buyer demand is outpacing supply, with the number turned the corner in terms of activity and price growth. of newly marketed properties up by 1.6% compared to Rightmove reported that the number of sales agreed rose February last year, the first time that Rightmove has seen by 26.4% in February compared to the same month a year a year-on-year rise since October 2018.
Figure 8: Annual price growth in Greater London
2.5%
1.5%
0.5%
-0.5%
-1.5%
-2.5%
-3.5% Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Source: Land Registry
The rate of annual house price growth across Greater coming to market in February increased by 2.7% and London accelerated in December according to the Land theꢀannual growth rate stood at 2.4%, rising to 3.1% Registry, reaching 2.3% - the highest it has been since forꢀInner London. October 2017. This takes the average house price in the 20 boroughs recorded price growth in the 12 months to capital to £483,922, which is 2.1 times the UK average. December, one more than in the previous month. Brent More recent data reveals that asking prices are also rising: (5.9%) recorded the strongest growth while Camden Rightmove reported that the average price of property sawꢀprices fall by 9.8% over the period.
6 Figure 9: Annual price growth by London borough (Dec 2019)
Brent Hounslow Tower Hamlets Enꢀeld Greenwich Haringey Lewisham Croydon Southwark Westminster Bromley Redbridge Lambeth Newham Hackney Wandsworth Islington Barking & Dagenham Kingston Richmond Waltham Forest Sutton Bexley Havering Hillingdon Ealing Merton Harrow Barnet Kensington & Chelsea Hammersmith & Fulham City of London Camden -10% -8% -6% -4% -2% 0% 2% 4% 6%
Source: Land Registry
The post-Election bounce has been most pronounced in however, the number of available properties at the end of the theꢀprime locations in London. There is an air of renewed period was 14% lower. optimism which has been lacking since the referendum and With buyer demand currently outpacing available supply, more and more households are now actioning long delayed offers on properties are coming in closer to asking price, and in plans regarding their homes. Buyer demand is currently some cases where there have been multiple offers have even outpacing availability and sales would almost certainly have exceeded the asking price. However, achieved prices are only been higher but for a shortage of available stock – a situation the same or marginally higher than this time last year and for which is most acute in central London. In the first seven weeks the most part, buyers are not prepared to pay excessive prices. of this year Chestertons recorded a 100% increase in portal Even the super-rich remain cautious bidders: Polish billionairess enquiries, a 34% increase in new buyer registrations, a 41% Dominika Kulczyk recently acquired a Knightsbridge property increase in property viewings and a 28% increase in offers for a reported £57.5m which was nearly 12% below the made on properties compared to the same period in 2019; asking price.
7 New homes market National Outturn data from the National Housebuilding Council rental. This is encouraging but still way below the (NHBC) reveal that the number of new homes registered Government’s target of 300,000 per annum by 2025. to be built in the UK in 2019 rose 1% to reach a 13-year Growth was driven by a resurgence in London, where high of 161,022, only 30% of which were affordable or newꢀhome registrations climbed 37% to 21,726.
Figure 10: New home completions by English region
25,000
20,000
15,000
10,000
5,000
0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
North East North West Yorks & Humber West Midlands East Midlands
Eastern South West London South East Source: NHBC
The Government’s drive to reduce the country’s carbon Meanwhile, the Government is consulting on its proposed footprint will have an increasing impact on the housing First Homes scheme to help cut the cost of new homes by market, in particular new homes. Earlier in February, at least 30%. Eligibility will be for local people with priority Barratt Developments, the UK’s biggest housebuilder, given to first time buyers, current and former armed forces announced that it had become the first in the sector to personnel and key workers – investors and second home commit to ‘science-based targets’ for reducing carbon owners will not be eligible. The discount will apply in emissions. The company has pledged to reduce its direct perpetuity, so when the home is sold the new local buyer carbon emissions from its business operations, including will also be able to purchase it at a discount. The discount offices, sites and show homes, by 29% by 2025 and to will be paid for through the contributions that developers cut its indirect carbon emissions, such as those produced provide through the planning system and will not result in by completed Barratt homes over their lifetime and from extra building costs according to the government. across its supply chain, by 11% by 2030. How this will affect the pricing of new homes remains to be seen.
8 London
The new homes build-to-rent sector in London has slowed yields are higher and where there is strong tenant demand over the past year. Construction starts fell by 37% in 2019 – and developer reluctance to switch from the more and completions were 14% lower. Sales to BTR investors lucrative mainstream sales market. With sales to SE Asian also fell by 26% over the year, although they picked up in buyers – especially Chinese – affected by the corona virus the final quarter, accounting for 31% of total new homes’ epidemic, sales to BTR investors could increase again in the sales in the capital. The slowdown is a reflection of investors first quarter of this year if developers struggle to meet their seeking better opportunities outside London – typically in sales targets. the large regional centres where entry costs are lower and
Figure 11: London Build-to-Rent starts, completions & sales
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0 2015 2016 2017 2018 2019
Starts Completions Sales Source: Molior
9 LETTINGS MARKET
National lettings Annual rental growth in the UK slowed to 2.3% in January, (8.7%) and fell, albeit slightly, in three regions with the with the average monthly rent reaching £953 (£793 South West (-0.9%) recording the worst performance. excluding London). Rents rose fastest in the North East
Figure 12: National & regional monthly rents & 12 month rental growth at Jan 2020
1,800 10% 8.7% 1,600 8% 1,400
1,200 6% 5.1% 1,000 4.4% 4% 800 2.4% 2.3% 2.3% 600 2% 1.1% 0.9% 400 -0.1% -0.2% 0% 200 -0.9%
0 -2% North East Greater Yorks & UK UK North West South East Of South West Midlands London Humber Averageꢀ (excl. London) East Midlands East England West
Monthly rent Annual growth Source: Homelet
A government report suggests the private rental sector is sector. A recent survey conducted by ARLA (Association attracting an increasing number of older tenants and as of Residential Lettings Agents) and Capital Economic a result needs to change to accommodate this change. suggests that 16% of adults (equating to 8.2 million ‘Living Longer: Changes in Housing Tenure over Time’ is people) have let out all or part of their property at aꢀreport from the Office for National Statistics which says least once in the last two years. There is an increasing that although three-quarters of people aged 65 years and number of buy-to-let (BTL) landlords who are switching over in England own their home outright, an increasing their properties from longer lets to the potentially more proportion is renting. It also says younger people are more lucrative short let sector, where rents are typically much likely to be renting. People in their mid-30s to mid-40s are higher. This is removing mainstream private rental stock three times more likely to rent than 20 years ago, with and exacerbating the already serious supply shortages. aꢀthird of this age group renting from a private landlord The ARLA survey estimates that 46,000 properties have inꢀ2017, compared with fewer than one in 10 in 1997. already been removed from the mainstream rental market and around 10% of landlords surveyed were considering There are growing concerns that the short-term letting switching their portfolios to short lets. industry is having a negative impact on the private rented
10 London lettings market Figure 13: Average London monthly rents (new tenancies)
£1,800
£1,750
£1,700
£1,650
£1,600
£1,550
£1,500 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20
Source: Homelet
Average rental growth for new tenancies accelerated aꢀmonth, 71% higher than the UK average and 105% toꢀ4.4% in the year to January, according to Homelet. higher than the UK average excluding London. Theꢀaverage rent in the capital now stands at £1,627
Figure 14: London borough monthly asking rents for 2-bed flats (as at 24 Feb 2020)
Westminster City of London Kensington & Chelsea Camden Hammersmith & Fulham Wandsworth Southwark Islington Hackney Tower Hamlets Lambeth Waltham Forest Richmond Merton Hounslow Ealing Barnet Greenwich Newham Brent Haringey Lewisham Kingston Harrowꢀ Hillingdon Enfield Redbridge Bromley Croydon Barking & Dagenham Sutton Havering Bexley
0 £1,000 £2,000 £3,000 £4,000 £5,000 £6,000
Source: Zoopla
11 Short lets are having the greatest impact on the short-term lets as measured by Airbnb listings and an mainstream rental market in London, which has the estimated one fifth of Londoners have let out a property largest short let market in the country and is expanding on a short-term basis in the last two years. Moreover, more rapidly – the ARLA survey calculates the number of short than 10,000 Airbnb listings in London are seemingly in lets in the capital quadrupled between 2015 and 2019. breach of the city’s 90-day limit on short-term rentals, Central London boroughs have the highest density of according to City Hall.
Figure 15: Airbnb listing as % of total dwelling stock, October 2019
Airbnb listings: Top 10 London boroughs
City of London 7.0% Westminster 6.7% Tower Hamlets 6.3% Kensington and Chelsea 6.2% Hackney 5.4% Camden 5.2% Islington 4.6% Hammersmith and Fulham 4.4% Southwark 3.5% Lambeth 3.3%
Source: Airbnb, MHCLG & Capital Economics
After a very active second half year in 2019, the prime by nearly the same amount over the year. Nonetheless, lettings market has started relatively quietly so far this rents are edging upwards and in some locations an acute year. Lettings volumes in the first two months of 2020 are shortage of available stock means that properties are around 10% down on the same period last year, although being let very quickly at or close to asking rent. this may be partly due to available supply having fallen
12 INVESTMENT MARKET
Supply and affordability remain key issues in the buy- house purchase fell 9.5% in December but was 3.6% up to-let (BTL) end of the rental market. Many smaller, on the December 2018 total. Re-mortgaging also fell – by accidental/part-time landlords continue to retreat from 11.3%. The net effect has been a reduction in the overall the market while many larger full-time landlords are not supply of properties available to rent which, combined adding to their portfolios. New BTL mortgage lending for with sustained tenant demand, is pushing rents up.
Figure 16: BTL Mortgage Lending (number of loans approved)
18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
House purchase Remortgage Source: UK Finance
In contrast, the build-to-rent (BTR) sector continues to residents’ lounges and a communal cinema room, expand. Although BTR’s share of the total private rental asꢀwell as shops. market remains small, new development is growing – The Greater London Authority has been recommended rapidly. The number of newly completed build-to-rent to approve Grosvenor’s revised plans for its £973m homes across the UK increased by 51% in 2019, according build-to-rent scheme in Bermondsey, SE16. to the British Property Federation (BPF). There are now a – Legal & General has purchased “North Tower” in little over 152,000 build-to-rent homes at varying stages Deansgate Square, Manchester, comprising 276 luxury of development in the UK, just over half of which are in apartments, a two-storey gym, 20m swimming pool, London. sauna, steam room, fitness studios and an indoor Recent major deals: sports hall. – Apache Capital is reportedly targeting US investors – Wise Living, part of the SDL Group, has revealed plans forꢀa planned £600m for its second UK BTR fund. to construct over 10,000 BTR units by 2025. – Grainger plans to launch four new BTR developments – Three London pension funds have partnered to create this year which will deliver over 1,000 units for rent. a London-focused fund to invest in build-to-rent assets. – Canadian investors Realstar and QuadReal have Local Pensions Partnership, the London Collective agreedꢀto buy 294 rental flats in Ilford, east London in Investment Vehicle, and the London Pension Fund a £100 million deal. The Pioneer Point scheme includes Authority will seek to allocate several hundred million pounds in investment.
13 Figure 17: Gross initial yields (2-bed flats, zero gearing at 24 Jan 2020)
Waltham Forest Havering Hounslow Merton Bexley Sutton Redbridge Greenwich Newham Camden Croydon Wandsworth Lewisham Hammersmith & Fulham Kingston Ealing Brent Tower Hamlets Hillingdon Richmond Westminster Harrowꢀ Islington Barnet Bromley Enfield City of London Barking & Dagenham Haringey Southwark Lambeth Hackney Kensington & Chelsea
0% 1% 2% 3% 4% 5% 6% 7%
Source: Zoopla & Chestertons Research
14 Contact
Nicholas Barnes John Woolley Anshul Raja Head of Research Head of Valuation Director, Key Clients
T: +44 (0) 20 3040 8406 T: +44 (0) 20 3040 8513 T: +44 (0) 207 201 2063 E: [email protected] E: [email protected] E: [email protected]
The contents of this report are intended for the purpose of general information and should not be relied upon as the basis for decision taking on the part of the reader. Although every effort has been made to ensure the accuracy of the information contained within this report at the time of writing, no liability is accepted by Chesterton Global for any loss or damage resulting from its use. Reproduction of this report in whole or in part is not permitted without the prior written approval of Chesterton Global. February 2020.
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