As we approach the end of the second quarter of 2023, we can report that UK housing market activity is rising and more sellers are coming into the market, pointing towards a return to normalcy in the near future.
The headline figure for the market is that the month of May saw house prices fall by approximately 1.3% on average according to the latest UK House Price Index from Zoopla. However, while this might seem negative on the surface, it is actually a good sign as it shows the pace of house price decline is falling. When looking ahead to the future, we can anticipate that this trend will be reversed sooner rather than later.
What is fuelling this trend? Improved buyer confidence is giving the market a boost as more people are willing to buy property. This is good for the health of the market and has been inspired by a fall in mortgage rates back to something like 4%, in line with the underlying rate of finance.
Richard Donnell, Executive Director of Research at Zoopla, says: “Falling mortgage rates In H1 2023 have supported increased market activity. Expectations that interest rates need to rise further to control inflation will push up mortgage rates. This is likely to result in weaker demand and levels of market activity in H2 2023.”
However, the growing confidence suggests that mortgage rates of between 4-4.5% are within what new buyers consider to be acceptable, so it is up for debate as to whether another small rise will have any serious negative effects this time around. Zoopla analysis suggests that mortgage rates within this range are consistent with decent house price growth and approximately 1 million sales a year – both good signs.
With that in mind, instead of more falls, it is likely that the UK average price will remain largely static while certain regional markets
The top performing city markets include Manchester (3.6% annual growth, average house price of £219,900) and Birmingham (3.8% annual growth, average house price of £206,800) which both showed noticeable higher growth than the national average of 1.9% year-on-year.
Birmingham in particular looks like a strong option for both investors and homebuyers as the wide West Midlands region (3.5%) is also performing a lot better than the national average, hinting at especially strong economic foundations and a lack of available housing.
But house prices are only one area of interest in the housing market. The latest Private Housing Rental Price Index from the Office for National Statistics shows that the average rent in the UK increased by 4.8% year-on-year over the last month surveyed.
Rents have now been increasing across the country steadily since the second half of 2021 and show no signs of stopping. The forces pushing them higher include a lack of supply and a growing population – situations that are especially the case in the major regional cities.
To return to Manchester as an example, the latest Manchester rental market report from Alliance City Living shows just how strong the rental market is at the moment.
Rental prices in the city centre continue to go up for apartments of all sizes. The report notes that there is a serious lack of supply in this market, but even so the annual increases are remarkable:
- Studios – Average rent £960 pcm, 16.3% increase year-on-year
- One-bed apartments – Average rent £1,061 pcm, 10.3% increase year-on-year
- Two-bed apartments – Average rent £1,417 pcm, 9.6% increase year-on-year
- Three-bed apartments – Average rent £2,403 pcm, 30.6% increase year-on-year
Rents in Manchester are at almost an all time high, and supply of apartments in the city centre has never been lower. That makes new luxury developments like Vision and Berkeley Square exceptionally valuable and a great prospect for investors looking for rental income and homebuyers who are looking to generate capital appreciation too.
The UK housing market is in good shape and the months ahead are likely to see the good news continue. As always, the regional markets are doing better than the national average and there is no reason to suspect they won’t continue doing so.
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