Chestertons Monthly PROPERTYꢀ MARKETS REVIEW July 2019 chestertons.com 1 CONTENTS Economic Overview 01 Residential property 03 National sales 03 London sales 06 New homes 08 National lettings 09 London lettings 10 Commercial property 11 London office market 11 Retail market 12 Investment market 13 Residential 13 Commercial 15 Contact 16 Nicholas Barnes – Head of Research “Welcome to our latest monthly review of national and London residential and commercial property markets.” 2 ECONOMIC OVERVIEW GDP Growth UK GDP growth stood at 0.3% in the three months to May, pushes CPI inflation below the 2% target and job growth the same rate as that recorded in the previous rolling three remains strong, with services firms reporting in June that month period. UK output has proved surprisingly resilient employment rose at the fastest rate since August 2017. since the vote to leave the EU, with record employment With the new Prime Minister now in post, attention will andꢀwage rises largely outpacing inflation. no doubt once again focus increasingly on Brexit. Boris However, the final IHS Markit/CIPS Purchasing Managers’ Johnson has stated publicly that he is prepared to walk Index (PMI) reading for June suggests that the economy away without a deal which the Bank of England governor will have contracted by 0.1% between April and June. hinted would likely be followed by a cut in Bank Rate. Output in the construction sectorꢀwas found to have fallen A no-deal would also likely trigger falls on the stock at its steepest rate since April 2009 in June whileꢀUK marketꢀand aꢀdrop in the pound. factories suffered their worst monthly decline in six years. In its July projections, the Treasury’s forecasting panel On the positive side, growth in real household incomes lowered its GDP growth outlook for 2019 to 1.3% but looks set to pick up, as the recent fall in energy prices heldꢀits 2020 forecast at 1.4%. Figure 1: UK GDP growth outlook 3% 2.5% 2% 1.5% 1.7% 1.7% 1.8% 1% 1.4% 1.3% 1.4% 0.5% 0% 2018 2019 2020 2021 2022 2023 Source: ONS; HM Treasury Forecast Panel 1 Inflation & interest rates CPI inflation remained at 2.0% in the year to June, while Bank Rate was held at 0.75% at the June meeting of the RPI inflation fell from 3.0% to 2.9%. The 2019 forecasts Bank of England’s Monetary Policy Committee. UK 3 month forꢀboth CPI and RPI from the Treasury’s forecast panel are Libor rates have come down again this month and as at unchanged at, respectively, 1.8% and 2.5%. The forecasts for 23rd July stood at 0.76%. 5 year swap rates have also 2020 have also been held at, respectively, 2.1% and 2.9%. dropped and stood at 0.70% at the same date. Figure 2: Inflation & Bank Rate forecasts 4% 3.5% 3.1% 3% 2.9% 3.0% 3.0% 2.7% 2.5% 2.5% 2.1% 2.1% 2% 1.8% 1.9% 1.9% 2.0% 1.64% 1.86% 1.5% 1.45% 1.0% 1% 0.75% 0.75% 0.5% 0% 2018 2019 2020 2021 2022 2023 Bank Rate (Q4) CPI RPI Source: HM Treasury Forecast Panel & ONS Employment and earnings growth The latest UK employment rate was 76.0%, and includes 3.4% (including bonuses) and 3.6% (excluding bonuses). the first quarterly decrease recorded since the period June In real terms, total pay (including bonuses) is estimated to August 2018. The unemployment rate was unchanged at to have increased by 1.4% compared with a year earlier, 3.8%, the lowest since the three months to December 1974. and regular pay (excluding bonuses) is estimated to have increased by 1.7%. Regular pay is now growing Wages growth rose to 3.6% in the year to May 2019, at its fastestꢀrate for nearly 11 years in cash terms and theꢀhighest growth rate since April-June 2008. Estimated its quickestꢀfor over three years after taking account of annual growth in average weekly earnings increased to inflation, according to the ONS. 2 RESIDENTIAL PROPERTY National sales market The RICS June survey reported that interest from buyers was even more dramatic: -25.1% in the UK and -24.1% in increased for the first time since the EU Referendum three England. However, comparing the first half of 2019 with years ago. However, this has not yet translated into an that of 2018 the fall is a more modest 4.6% across the UK increase in sales. HMRC reports that monthly transaction and 5.0% in England, although this equates to just over numbers across the UK fell by 13.6% in June and by 25,000ꢀfewer properties being sold in the UK. 12.9% in England. Compared to June last year, the fall Figure 3: Monthly residential property transactions (non-seasonally adjusted) 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 UK England Source: HMRC Annual UK house price growth slowed to 1.2% in May, according to Hometrack, whereas Londoners need £84,000 down from 1.5% in the previous month, according to the a year. First-time buyers need to earn more now than Land Registry. The average UK house price now stands at three years ago in most cities, with the exception of the £229,431. A similar pattern was recorded in England, where most expensive areas where buying is now marginally prices in the year to May slowed to 1.0% compared to 1.3% more affordable. The average house price in the 20 cities in the previous month, taking the average price to £245,817. monitored by Hometrack is now £256,200, up 1.8% on a The average first-time buyer needs a household income year ago. of £54,400 to get on the property ladder in British cities 3 Figure 4: Average annual house price growth: UK & England 4% 3% 2% 1% 0% May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 UK England Source: Land Registry/ONS According to the Land Registry, 12 month regional house West Midlands (2.7%). Two regions recorded price falls in the price growth is strongest in the North West (3.4%) and the year to May – London (-4.4%) and the North East (-0.7%). Figure 5: Average regional house price & annual price growth (May 2019) £500,000 5% £450,000 3.4% 3.75% £400,000 2.6% 2.5% £350,000 2.7% 1.9% 1.0% £300,000 1.25% 0.6% 0.4% £200,000 0% £250,000 -0.7% -1.25% £150,000 -2.5% £100,000 -3.75% £50,000 -4.4% 0 -5% North West South Yorks & East of South East North London West Midlands West Humber England East Midlands East Avg prices 12 months growth Source: Land Registry Rightmove reports that the asking price of property coming market, but the time taken to secure a buyer is at its longest to market fell by 0.2% in July, the first monthly fall so far at this time of year for six years. As a result, the average in 2019. At regional level, the strongest growth in annual stock per estate agent branch is at its highest level since asking prices was in the North West (2.5%) while in London July 2015. asking prices fell by 1.7%. Less property is coming onto the 4 Figure 6: Monthly change in average asking prices 3% 2% 1.0% 1.1% 0.9% 1% 0.7% 0.4% 0.3% 0% -0.1% 0.7% 0.4% -0.2% -1% -1.7% -1.5% -2% -2.3% -3% 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 Source: Rightmove Mortgage approvals for house purchase rose in May for both approvals were just 0.5% higher while approvals for movers first time buyers (FTBs) and home movers – by respectively, were lower by 1.2%. 11.3% and 14.3%. Compared to May last year, FTB loan Figure 7: Mortgage approvals 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 First time buyers Home movers Source: UK Finance 5 The Bank of Mum & Dad (Bomad) is set to become the The Government is already consulting on a major reform 11thꢀlargest financial lender in the UK this year, according of the current leasehold system of residential property to Legal & General. 62% of aspiring home owners under the ownership. The former, Secretary of State for Housing, age of 35 are now reliant on parental support to finance Communities & Local Government James Brokenshire their first home move and the research forecasts that one hasꢀconfirmed some of the measures which will be taken: in five house purchases in 2019 will be made with money – all new houses are to be sold on a freehold basis unless from parents or grandparents. thereꢀare exceptional circumstances The average amount parents or grandparents contribute – all ground rents on new leases will be reduced to £0 to home purchases is forecast to rise by one third this year – freeholders and managing agents will have to provide to reach £24,000.