Residential Property Market: Summer Update

The brief resurgence witnessed in the housing market during the first quarter of this year has dissipated as the impact of higher interest rates gradually permeates household budgets, affecting those with expiring fixed-rate mortgage agreements, in particular.

Whilst house prices remained relatively steady in June, the continued spike in mortgage rates is putting more strain on housing affordability and the full effects of this on the market are yet to be seen, as our residential property expert, Gary Jeffries, discusses.

House prices trends

In June, the Halifax House Price Index reported average house prices at £285,932, down 0.1% on May. This fell further still in July to £285,044, the fourth consecutive monthly decline in a row.

According to Halifax, the annual drop of around £7,500 is the largest year-on-year decrease in house prices since June 2011 and reflects the impact of the historically high house prices last summer, together with the temporary Stamp Duty cut.

Over the past twelve months, property prices have experienced a decline of approximately £3,000 – down by approximately £7,500 from the peak observed in August 2022.

Nevertheless, prices still remain £5,000 higher compared to the end of the previous year, and £25,000 above the level recorded two years ago.

Home movers have experienced the most significant pressure on house prices, with an annual decline of -1.1% observed in May. In contrast, first-time buyers have encountered marginal inflation, with a modest growth rate of +0.3%.

The decline in prices has been particularly pronounced for existing houses, with an annual growth rate of -1.9%. Meanwhile, prices for newly built properties continue to rise, albeit at a slower rate of +2.8%, representing the most sluggish growth rate witnessed in nearly three years.

When it comes to types of property, all categories, with the exception of detached houses (+0.4%), have exhibited year-on-year declines in value.

Flats have experienced the most significant decrease, with a decline of -1.9%, followed by terraced houses (-1.0%) and semi-detached houses (-0.5%).

Reservations and sales

The latest RICS Residential Market Survey shows that metrics on new buyer enquiries and agreed sales have been their ‘least negative in twelve months’.

HMRC monthly property transaction data reflects this with the number of UK home sales moving from 95,150 in March 2023 to 67,730 in April, then rising back up again to an expected value of 94,690 for June.

Despite this improving trend, the continued rise in inflation rates together with high CPI data, is likely to put renewed pressure on the market in the months ahead, as the effects of this trickle through.

Bellway is already adjusting its land buying with this in mind, amid a significant drop in demand for housing, purchasing just 4,342 plots compared with 13,496 last year.

The housebuilder reported that new house reservations for the period February to June 2023 were some 25% down on the same period last year, with a cancellation rate up from 12% to 15%. And, whilst overall mortgage availability had improved, fluctuations to prices caused changing interest rates has affected shorter-term availability.

Meanwhile, Nationwide has admitted that it has been hard for the market to regain momentum owing to the economic headwinds from the start of the year, and is expecting the market to end the year modestly below pre-pandemic levels.

Nationwide’s statistics showed the annual rate of house price growth remaining negative at -3.8%, down from -3.5% in June – the weakest rate since 2009.

This creates a challenging affordability picture for homebuyers, however, June’s data demonstrated a slight increase in mortgage activity by 5%, albeit most of these applications will pre-date the more recent rise in interest rates.

According to Barratt Homes’ July market update, weekly private sales per site were down slightly, as were total home completions at 17,206 compared with 17,908 in 2022.

Despite this, the housebuilder has a solid order book for 2024, with total forward sales at 8,995 as of June 2023. However, this remains some 34% down on 2022.

Taylor Wimpey has just released their half-year statement, with house completions at 5,120 – down 26% on 2022. Despite this, the average selling price increased by 6.7% to £320,000 reflecting house price growth and wage increases.

House building

According to the latest statistics from the Home Builders Federation, the number of housing projects granted planning permission in the first quarter fell by 11% compared with the last  quarter of 2022 at just 3,037 – a further 2% decline on approval in 2022.

Larger private and social housing projects and smaller-sized sites were all amongst the mix and this will likely impact housing delivery into 2024.

Taylor Wimpey’s short-term land bank is steady at 83,000 plots – the same as in 2022, and their strategic land pipeline is slightly down on 2022, at 140,000 potential plots compared with 144,000 last year.

Land market hiatus

Economic uncertainty, increased costs and slower sales rates have paused many land sales both regionally and in London markets.

Although there are fewer land transactions, evidence indicates that development land values have started to fall as developer purchasers build a greater degree of risk into their land builds.

Planning hurdles

Planning remains one of the most significant hurdles for residential developers to overcome, with everything from water neutrality issues and biodiversity net gain targets to navigate, to the latest announcements from Gove with further changes to national planning policy.

It makes for a complicated and challenging picture for developers, and this will remain a problem until such a time as the planning system is comprehensively and systematically reformed.

Until then, our planning team is on hand to provide the technical expertise necessary to support the delivery of new housing.

Market resilience to be tested

The residential property market is displaying some resilience with industry data showing increased activity.

However, the number of mortgage approvals and completed transactions has dropped, putting further downward pressure on house prices.

Oxford Economics predicts that the base rate will reach 5.75%, and indeed has just risen to 5.25%, dampening buying activity in the coming months.

This will continue to have a negative impact on land values. However, speaking to housebuilders on the ground, many are still acquiring residential development sites.

The difference is that this is now on a ‘subject-to-planning’ basis for delivery post-2025. There are very few buyers who are acquiring land now for immediate delivery, and if they are, they are likely to be small-scale developers.

Indeed, according to the latest research from Knight Frank, planning delays are reported to be of the utmost concern to housebuilders, over and above issues such as mortgage availability and cost, availability of land or the short-term economic outlook.

Coupled with the continuing upward pressure on build costs, tightening profit margins and the delayed impact of mortgage rate and interest rate rises on the market, we are expecting the resilience we’ve seen in the market in 2023 to be tested further.

In the context of such pressure on the market and land values, landowners must ensure they take well-researched advice on land value when selling – with developer selection and a deliverable planning strategy becoming ever more important.

If you would like to discuss any of the issues discussed in this article, don’t hesitate to get in touch with our residential property experts.