Matthew Henderson
Associate Director, Residential Research
On analysis of the market, Strutt & Parker maintains its previous house price forecasts of between 0 and 5% growth for the UK and with the same growth for Prime Central London for 2024.
The property consultancy anticipates that the housing market will see a continuation of the boost in transactions as pent-up demand returns to the market. This will put an upward pressure on values in the second half of 2024.
Matt Henderson, Associate Director in Research at Strutt & Parker comments “The market had been expecting a cut in the base rate by the end of the summer and therefore the cut has already been priced into many mortgage offers with the average 5-year fixed at around 4.5% (well below the pre-cut base rate of 5.25%). Nonetheless the certainty of the cut taking place should help bring rates down further in the latter half of the year and more importantly avoid the downside of mortgage rates going back up, which would likely have been the case had this cut not happened.
“Falling and stable mortgage rates are a huge positive for our price sensitive housing market. As mortgage costs have come down in the first half of this year house prices have risen by around a percent. We expect further rate falls will help release the pent-up demand that had been building in the housing market over the past two years – created by households who were keen to purchase, but unable to do so due to increasing and unstable mortgage rate.”
Prime Central London values fell -0.4% in Q2, continuing the broadly stagnant trend. Agents report that the market has been flat, and there is uncertainty and concern around the change in tax rules for non-domicile residents raising concerns at the top-end where the market is more discretionary. The number of over £1m sales transactions in Prime Central London (PCL) grew 18% on Q1 The price bracket that saw the greatest growth was the £2m to £5m range and at the top end of the market sales of over £5m continued their resilience, making up 10% of the over £1m market in PCL.
James Gow, Head of London Agency at Strutt & Parker says “Sales across the second quarter have seen an uptick in activity as the wider UK housing and economic outlook improved. Best in class property continues to sell well, as is regularly the case in our market, with buyers showing more confidence as mortgage rates have come down due to the prospect of the Bank of England cutting the base rate comes closer.”
There is always a relative scarcity of properties for sale in Kensington and this tends to underpin values in the market but can limit the overall number of transactions that we see. It does mean properties often move quickly when they do come up for sale.
Letting volumes in Prime London have continued their positive trajectory, growing 15% on Q1 of last year with both the number of flats and houses being let in PCL increasing. This increased number of lets has been boosted by a pickup in supply in the market. This has led to a slowdown in increasing rents. PCL rents, in the year to Q1 2024 grew 2.6%, 11th consecutive quarter of growth. But in Q1 rents only grew 0.6% Our agents expect that rents will continue to grow, but at reduced levels, leading to our 2024 forecast of between 2% to 5%. With 10% to 15% expected in the five years to 2028.
Deputy Head of Strutt & Parker Agency, Kate Eales concludes “This bank rate reduction, the first in over four years, will provide a real boost to the housing market because certainty and sentiment are the biggest drivers of activity.”
“The 14 consecutive increases to the base rate since 2021 was a shock to the market after a prolonged period of historically low interest rates. The most recent cut to 5% marks a departure from this period of uncertainty and buyers and sellers alike can look forward to a steadier, more robust housing market where fluctuating mortgage costs are no longer holding up sales. The UK has a resilient property market and it has remained active despite the sudden change to a high interest rate environment.
However, there have certainly been those who have been waiting for interest rates to drop before taking steps to buy or sell. We expect there to be an increase in activity from September with more people entering the market with renewed confidence.”
Read the full report here.