Chestertons Monthly RESIDENTIAL PROPERTY MARKET REVIEW September 2019 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 12 Investment market 13 Contact 16 Nicholas Barnes – Head of Research “Welcome to our latest monthly review of national and London residential property markets.” 2 ECONOMIC OVERVIEW GDP Growth At the time of writing, it is uncertain whether the UK September projections, the Treasury’s forecasting panel economy fell into recession during the third quarter. lowered its GDP growth outlook for both 2019 and 2020 TheꢀUK’s economy grew faster than expected in July, to,ꢀrespectively, 1.2% and 1.1%. easingꢀfears of a recession but the country is also on Meanwhile, the Eurozone is looking increasingly fragile courseꢀfor its longest fall in investment for 17 years, with Germany again teetering on the brink of recession according to the British Chamber of Commerce. Brexit and the European central bank cutting its key interest isꢀaꢀmajor contributing factor while the US/China trade rateꢀand announcing a new round of quantitative easing warꢀcontinues to affect the global economy. In its inꢀresponse. Figure 1: UK GDP growth outlook 3.0% 2.5% 2.0% 1.5% 1.6% 1.7% 1.7% 1.0% 1.4% 1.2% 1.1% 0.5% 0.0% 2018 2019 2020 2021 2022 2023 Source: ONS; HM Treasury Forecast Panel 1 Inflation & interest rates The annual rate of inflation (CPI) fell sharply in August The Bank of England’s Monetary Policy Committee to 1.7%, its lowest level since December 2016. The RPI (MPC)ꢀMeeting held on 18th September voted annual inflation measure also came down, to 2.6%. The unanimously to keep the Bank Rate at 0.75%. However, impact of the drone strike in Saudi Arabia remains to be the MPC signalled its preparedness to raise interest rates seen. Following the attack, the oil futures markets suffered in the event of an exit deal being agreed and ratified a sharp jump in prices: Brent crude rose by 14.6% – the before the UK’s scheduled withdrawal date. The policy biggest percentage gain in record – while US crude oil response to a ‘no-deal’ exit on the same date “could be also soared, ending the day 14.7% higher, although prices in either direction” as there would likely be both higher have subsequently dropped slightly in both markets. inflation and weaker growth. The 2019 forecast for CPI from the Treasury’s September UK 3 month Libor rates have risen slightly this month forecast panel is unchanged at 1.8% as is the RPI forecast andꢀstood at 0.78% as at 24th August. 5 year swap rates rate at 2.6%. The forecasts for 2020 for both inflation have fallen again to reach 0.65% at the same date and measures have also been held at, respectively, 2.1% are now 47% lower than at the same point last year. andꢀ2.9%. Figure 2: Inflation & Bank Rate forecasts 4.0% 3.5% 3.2% 3.2% 3.0% 2.9% 3.0% 2.7% 2.6% 2.5% 2.1% 2.1% 2.0% 2.1% 2.1% 2.0% 1.8% 1.5% 1.78% 1.18% 1.0% 1.53% 1.0% 0.75% 0.75% 0.5% 0.0% 2018 2019 2020 2021 2022 2023 Bank Rate (Q4) CPI RPI Source: HM Treasury Forecast Panel & ONS Employment and earnings growth The UK employment rate remains at 76.1%, the joint-highest impacted upon annual pay growth which has reached an on record since comparable records began in 1971 and higher 11 year high, increasing by 4% in nominal terms in the three than a year earlier (75.5%). The unemployment rate has been months to July, and by 2.1% in real terms. Excluding bonuses, falling since late 2013 and currently stands at 3.8%. This has nominal earnings rose by 3.8% and by 1.9% in real terms. 2 SALES MARKET National sales August was a very strong month for residential sales Rightmove reports that fewer property owners seem to which nationally rose by nearly one third compared to have the need or desire to put their property on the market, theꢀprevious month, although they were marginally in part against the backdrop of increased uncertainty but down on the same month last year. The approaching also the result of a lack of properties available to buy. The Brexit deadline may partly explain the jump, although number of newly-marketed properties was down by 7.8% transactions completing in August could have been atꢀmid-September compared to the same period a year exchanged anything up to three months earlier. ago, with all regions down on last year. Figure 3: Monthly residential property transactions (non-seasonally adjusted) 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 UK England Source: HMRC National house price growth continues to slow. The Land with an average price of £248,837. Price growth has been Registry reports that in the 12 months to July, UK prices slowing since September last year and there is a strong rose by just 0.7% compared to 1.4% in the year to June, possibility that prices could start to fall even without a hard/ taking the average price to £232,710. Annual price growth no-deal Brexit – and they are already falling in four regions. in England also slowed – from 1.1% in June to 0.4% in July, 3 Figure 4: Average annual house price growth: UK & England 4% 3% 2% 1% 0% Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 UK England Source: Land Registry/ONS At regional level, annual price growth is strongest in - from three last month to four - with the North east (-2.9%) Yorkshire & Humberside (3.2%). The number of regions experiencing the steepest decline. recording a fall in prices rose for the second month in a row Figure 5: Average regional house price & annual price growth (June 2019) £500,000 5.0% £450,000 3.75% 3.2% £400,000 2.3% 2.5% £350,000 1.9% 1.8% £300,000 1.25% 0.7% £200,000 0.0% £250,000 -0.5% -1.25% £150,000 -1.4% -2.0% -2.5% £100,000 -2.9% £50,000 -3.75% £0 -5.0% Yorks & North East West South East of London South North Humber West Midlands Midlands West England East East Avg prices 12 months growth Source: Land Registry Rightmove reports that average asking prices across the UK than in the corresponding period in August and only 0.2% in the first half of September were marginally lower (-0.2%) higher than in the same period last year. 4 Figure 6: Monthly change in average asking prices 3% 2% 1.0% 1.1% 1% 0.9% 0.3% 0.7% 0.4% 0% 0.7% 0.4% -0.2% -0.2% -1% -1.0% -1.7% -1.5% -2% -3% Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Source: Rightmove Mortgage approvals for first time buyers fell by 0.8% in 1.4% compared to the same month a year ago. July although they were 5.8% higher than in July 2018. Re-mortgaging activity also jumped in July (+25%) Approvals for home movers rose by 5.2% in July and by butꢀwas 10% lower than July last year. Figure 7: Mortgage approvals 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 First time buyers Home movers Source: UK Finance The Government has announced some proposed measures The Government has also introduced changes to the aimed at facilitating homeownership, in particular for those Help-to-Buy scheme, making it easier to take out longer on low incomes. The shared ownership scheme allows mortgages – up to 35 years – with the aim of reducing people to increase the share of the property in increments monthly repayments. However, this will increase the overall of 10% – a process known as ‘staircasing’. However, this amount they pay back as the interest paid will be higher. could cost as much as £45,000 over time and a new model Whatever the mortgage term, it seems that an increasing is under consideration to enable those using the scheme to number of households will still be paying a mortgage at buy their home in 1% instalments instead. aꢀlater age - data from the Financial Conduct Authority (FCA) shows that 40% of first-time buyers in 2017 will stillꢀbe repaying at 65. 5 In the meantime, a study from the Post Office suggests a state-backed agency (the British Housing Company) thatꢀaffordability has improved for many first time buyers to compulsorily purchase sites, including green belt, (FTBs). 56% of properties across the UK are now in areas at aꢀdiscount of up to 40% – achieved by not paying that are affordable for FTBs on the basis of accelerating the ‘hopeꢀvalue’ which attaches to those sites currently income growth and slowing house price growth.ꢀ earmarked asꢀhaving development potential.