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Property Continues to Perform

17th November 2021

Mortgage rates have remained exceedingly low and talk of a base rate rise went unfounded at the last review by the Bank of England.  Despite clear expectations that this cannot continue meaning interest rates will go up, perhaps to as much as 1% by the end of next year, the outlook for the UK property market looks solid according to three of the biggest names in the sector – Savills, Rightmove and Halifax.

We take a look at what their latest reports (November 2021) say and their assessment of the market forces at play which will shape the next few months.

Property hunters want more space

Savills released its latest review of the property market on 9th November 2021 citing three key drivers behind the current property market conditions: low mortgage rates, high demand for more space and continued buyer activity despite the end of the recent Stamp Duty holidays. 

Perhaps its most interesting prediction is that house prices will grow by 13.1% by 2026, which whilst this is a slower growth rate than the market has experienced over the last two years, it is still an indicator that the property market will continue to do well even in the face of potential interest rate rises.

The estate agency does point out that this average growth rate may be more marked in some areas than in others, pointing to the headroom still left for prices in the North and the Midlands compared to London and the South East where prices have already been growing steadily for a number of years.

Buyer habits that it considers worthy of note are the continued increase in demand for more space – something that the COVID 19 pandemic certainly catalysed, and the now popular work-from-home flexibility has facilitated, with wider search areas (and consequently areas where you get more for your money) becoming easier to factor in to buyers’ criteria. 

On the flip side it predicts that another property market effect from COVID 19 might be less long lived.  The demand for rented accommodation in central urban areas dropped off as a result of the pandemic, but Savills considers this to have been a temporary blip predicting this market will pick up again as some workers are drawn back to the amenities and conveniences of living in central city locations.  Similarly it looks to the likely return of international buyers and workforce who will similarly drive demand in urban residential areas.

Overall it cites cautious expectation that the market will remain resilient over the next few years.

House prices still hitting record highs

Halifax presents a similarly positive picture recording that the average house price in the UK has now hit an all-time high of £270,000.  This is an average 8% rise in the last year. 

Like Savills it cautions this average price growth is made up of a variety of figures when broken down by country and region.  Wales for example recorded a 12.9% price growth, Northern Ireland 11.3%, Scotland 8.6% and the North West market is up 10.4% - all outperforming the overall UK average. 

The influences it looks to as the drivers behind this growth are what it calls the ‘race for space’.  It stands to reason that investors should be on the look-out for properties that offer potential buyers or renters more square footage affording more privacy and more flexibility.

Interestingly the figures it has access to reveal that parental contribution to house deposits is also a key factor in helping to keep house prices high. In fact first time buyer house price inflation is above 9%.  Investors should look to interest rate rises and the effects on first time buyer mortgages to form an opinion on how sustainable this might be over the medium term. 

Despite mortgage rates seemingly reaching for the inevitable rise over the coming months – indeed some lenders have already pre-empted a base rate rise which may or may not come at the next review in December – they are currently extremely low so there’s a long way for them to climb. 

Perhaps the most interesting data in the Halifax report is that the number of mortgage approvals is down on the same period last year, and whilst new buyer enquiries are fairly steady, the number of new instructions being taken by agents is down by 36% in September compared to August.  This represents at least a short term condition of supply not meeting demand.  

Rightmove shares different data

By comparison to the largely steady market observations and predictions from Savills and Halifax, the research team over at Rightmove report a market price drop of 0.6% in October, the largest since January 2021.  The reason for the difference is that data analysed by Rightmove is based on asking prices, as opposed to actual sales prices.  The 0.6% drop is therefore indicative that sellers are choosing to price their homes more keenly when bringing them to market, compared to how they might have in previous months this year.  The sale prices they actually achieve may well still represent a growth.

Reasons behind this willingness to price homes at slightly less ambitious prices is put down to the annually expected pre-Christmas lull with both seller and buyers often choosing to park ideas about moving until the new year.  Despite this the home selling and buying site is confident that Boxing Day search numbers may well show a healthy growth as they did in 2020 when they were up 54% compared to 2019.  Their confidence is partly owing to its reports that requests for home valuations was up in October leading them to predict January could see a very early start to the home-buying activity.

Where are UK house prices going?

Taking a view from a nationwide estate agent, a mortgage provider and a property buying/selling website gives a well-rounded view of what has been happening in recent months, as well as informed ideas about what might happen in the coming months.  If you’re planning to invest in property they can be an excellent place to start getting an idea about the market, and most provide raw data and explanatory graphics as well as narrative interpreting and asserting opinions.  Information and understanding patterns and market indicators can stand you in good stead to aide you in making sound investment decisions.