UK residential property market could do better than expected next year: analysts
[LONDON] The United Kingdom’s residential property market may well defy naysayers and perform better than expected in 2024.
The UK Office for Budget Responsibility (OBR), which forecasts on behalf of the Treasury, predicts house and apartment prices sliding by 4.7 per cent next year, and mortgage lenders such as Nationwide are expecting a fall of 4 per cent. Leading London and UK estate agents predict declines of 1 to 5 per cent.
A total of 175 homes in London were sold for more than £10 million (S$16.8 million) in the 12 months to November 2023, according to estate agent Knight Frank, marking the highest number in the last eight years.
Despite the surge in mortgage rates from around 2 per cent to peaks of 6 per cent, the actual decline in UK and London property prices was much less than the 10 per cent fall predicted by both the OBR and estate agent Savills.
The UK’s Office for National Statistics estimated that, on average, UK residential prices fell by only 1.2 per cent in the 12 months to October 2023 to £288,000; the prices in London declined by 3.6 per cent to £516,000 in the same period.
Zoopla, an online property sales platform, estimated that prime London areas were relatively stable because wealthy locals and foreign buyers were not dependent on mortgages.
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Average prices in the City of London rose by 0.3 per cent to £765,000, while prices of properties in higher-end areas like Kensington and Chelsea saw a fall of below 1 per cent to £1.2 million. Outer London areas such as Barnet, Croydon and Bromley fell by around 3 to 4 per cent.
“The housing market has been more resilient than many expected,” said Zoopla executive director Richard Donnell.
From a net-yield point of view, the property market, albeit lower than the 2022 peak, cannot be regarded as cheap. Average net yields on prime London student accommodation is 4.25 per cent, and in cities such as Oxford, Birmingham and Manchester, over 5 per cent, according to Knight Frank.
The net yields for new rentals are around 3.9 per cent in prime London and about 4.5 per cent in other major cities.
Analysts remain optimistic that the residential property market will appreciate in 2024.
For a start, rents have risen by such an extent that there have been reports of disenchanted tenants wanting to break contracts and buy apartments and houses, whether in London or other regions.
There has also been a change in purchase trends among property investors in London, said Philip Harvey, a senior partner at Property Vision, an adviser for purchasers.
“Younger buyers are inhabiting parts of town that their parents would never have considered,” he said. “Those working in tech hubs based around Shoreditch are buying properties around Hackney and Dalston in the East End. Others are seeking houses with gardens in south-west and north London.”
Skilled employees in tech and other businesses and the public sector, who are confident of holding on to their jobs despite a sharp slowdown in the economy, are expecting mortgage rates to fall.
For the first time in months, five-year fixed-term mortgage rates fell below 4 per cent. Mortgage lender Generation Home offered a 3.94 per cent deal just days before Christmas. Brokers such as Coreco are expecting larger lenders to follow swiftly.
Bank of England (BOE) governor Andrew Bailey has insisted that the central bank will keep interest rates high, to slash inflation from 3.9 per cent to target levels of 2 per cent. There is a question mark, however, of whether they might become fearful of a recession and give in to pressure, as the UK prepares for an election in the later part of 2024.
Several economists are now predicting that interest rates may fall from 5.25 per cent to 4 per cent by the end of 2024. Martin Beck, the chief economic adviser of EY Item Club – a leading UK economic forecasting group – said that the BOE’s monetary policy committee may consider cuts as soon as the first quarter of 2024.
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