"We believe the recent momentum is likely to accelerate following the BoE’s rate cut earlier this month, especially if as many analysts predict the rate cut marks the start of an easing cycle"
- Yann Murciano - Blend
Summer started with a sense of optimism in the UK housing market not seen in recent years. The widely watched Nationwide House Price Index signalled that UK house prices had continued to witness momentum throughout spring.
By the end of spring, prices were only around 3% below the all-time high recorded during the summer of 2022. In June, the index rose by 1.5% year-on-year, up from 1.3% in May and 0.6% in April.
And while there was evidence of an improved outlook with a pick-up in consumer confidence and a return to economic growth, there also were some less encouraging signs. Notably, the total number of transactions remained weak and was down by around 15% compared with pre-pandemic levels. Still, as we find ourselves in the middle of the summer, there are now stronger signs of a turning point.
Sentiment is improving
Nationwide data shows that the UK annual house price growth rate picked up to 2.1% in July. This was the fastest pace of growth in over 18 months, specifically since December 2022. Halifax, which measures the same thing as the Nationwide index just with a different sample set, reckons that prices were up by 2.3% last month. As a development finance lender at BLEND, we see a lot of deal flow taking place and the anecdotal evidence confirms the same trend.
We recently had a development in Surrey, where the valuation was completed just a few days after the mini budget in 2022, likely at the peak of the market. Due to the market slowdown in the months following the mini-budget and rising rates, the property took 8.5 months to sell. But the property ultimately sold very recently at 2% above the initial peak-market valuation.
We believe the recent momentum is likely to accelerate following the BoE’s rate cut earlier this month, especially if as many analysts predict the rate cut marks the start of an easing cycle. Analysts at Deutsche Bank anticipate the BoE’s Monetary Policy Committee will reduce rates nine times over the next two years, marking one of the most extended periods of rate cuts in recent history.
Already many high street lenders such as TSB and HSBC have confirmed cuts to variable rate mortgages following the BoE’s long-awaited early-August cut to the base rate. Fixed mortgage rates have also been lowered following the bank's interest rate announcement. According to Zoopla, UK house prices are expected to see 2% growth by the end of the year.
Shortage pressure on prices
Price momentum will also likely accelerate under the rising pressure of supply shortages. Because even if Labour started easing planning restrictions immediately and delivering on its housing targets to boost supply, delivery would likely take 18 to 24 months in the best of cases. The Home Builders Federation’s latest housing pipeline report shows new-build levels continuing to plummet.
The report points out that planning approvals continued to decline during the first quarter of this year. At 2,805, the number of housing projects granted planning permission dropped by 8% over the previous quarter and was 10% lower than a year ago.
Housebuilders have also warned that construction lag threatens the new government’s plan to ‘get Britain building’ and that it will take at least a year to start increasing housing supply. For example, Barratt recently said it will build fewer homes this year as it tries to catch up from a slowdown in land buying and site openings triggered by a market slump post-mini-budget.
Overall, we expect to see the recent momentum in price continue over the coming months.
