Matthew Henderson
Associate Director, Residential Research
Regained optimism signals a spring rally in the UK housing markets, Strutt & Parker retains 2023 forecasts as renewed confidence sees market momentum return.
As signs of recovery and stability emerge in South East, East of England and Prime Central London (PCL) markets Strutt & Parker retains its 2023 forecasts for National and PCL sales markets. The return of seasonality signals increased clarity and confidence in the market, coupled with the stabilisation of rising mortgage rates following the turbulence at the end of 2022. Mortgage rates have come down from their peak in Q4 2022 at an average five-year fixed rate of 5.6% (at 75% loan-to-value) to 4.3% in April 2023.
As such, the property consultancy retains sales forecasts for 2023 of-5% to 0% growth for UK sales, and -3% to 3% for Prime Central London sales.The PCL lettings forecast is also retained at a growth of 5% to 10% for 2023, with further growth unlikely as transaction levels decline.
Matt Henderson, Associate Director Strutt & Parker Research comments,“The first quarter of 2023 has seen a stand-off between buyers and sellers, each waiting for the other to move on price first. This stand-off has affected transaction volumes more than it has house prices, however, in real terms house prices have fallen over 11% since August 2022. Recently released data shows that nominal house prices rose in April and with annual inflation set to fall considerably next month, this is likely to indicate a turning point in the market. Assisted by the seasonality of the market, we expect transactions to pick up over the next two quarters which will inevitably prompt house prices to start climbing again.”
PCL transaction levels for the first three months are -13% on the previous quarter and -16% on levels seen in the first quarter of 2022. Transactions over £5 million are,however, up 14% year-on-year for the same time period. Despite low numbers of transactions at the beginning of the year, activity has increased significantly in the last few weeks as prime markets show more resilience to economic headwinds.
Louis Harding, head of London Residential at Strutt & Parker comments,“We are beginning to see clear signs of a rebound in Prime Central London. Demand for property over £5 million has significantly increased which demonstrates the strength of the market. Buyer sin this bracket are less dependent on debt and favour property as an asset class in high inflationary markets. If the momentum continues, which we are confident it will, the PCL market should begin to see sustained value growth over the medium term. “Mortgage rates have stabilised and new products are enticing buyers back in to the market. Likewise, motivated sellers who need to move are coming to the market with realistic expectations and this presents an opportunity for buyers in the coming 12-months.”
Falling inflation is expected to improve confidence and result in a growth in transaction levels across the UK housing market, and begin to put positive pressure on prices. Provisional data for Q1 2023 indicates that 18% of transactions in the East and South East of England in the first three months were over £1 million. This portion of the market has increased from just 11% in 2020, signalling the ongoing impact of the pandemic in applying upwards pressure on prices. In recent weeks, agents report an uplift of both applicant numbers and instructions as buyers and sellers regain confidence in the market.
Kate Eales, head of Regional Agency for Strutt & Parker comments,“The market is seeing the return of buyers who want to be in the South East and East of England, demonstrated by the recovery in transaction volumes in these regions. It’s clear that for many, urban locations with excellent commuting links are once again a priority. While hybrid working is still having a transformational effect on overall buyer criteria, there are some signs that people want to have a closer connection to their workplaces.
“From a seller perspective, we are also seeing a steady rise in vendors this year looking to downsize. With significant equity built up, often over decades, many are motivated to sell now to release money so they can help children or grandchildren make a first or second step on the housing ladder, in light of increased mortgage rates. This trend should see more coveted family homes coming to the market and is encouraging for young families who are making a big ‘forever’ move.”