UK housing market update – September 2023

It’s a case of diverging results this month: rents are rising and expected to rise a lot further, while house prices and transaction numbers are still in the doldrums as high interest rates hold down demand.

• Analysts agree that rents are on the way up – the only disagreement is by how much. The HomeLet Rental Index reported a 1.4% month-on-month rise from July to August and a 10.3% hike year on year, taking the average UK rent to £1,261 per month (£1,051 excluding London). Last month, the Office for National Statistics reported a 5.3% year-on-year rise in rents, the highest level since it began tracking rental growth in 2016.
• That strong growth will continue, according to a forecast from Hamptons. The estate agency group expects rents to rise by 25% by the end of 2026 thanks to shrinking rental supply and increasing pressure on landlords from mortgage costs.
• Rental supply may not actually be shrinking as much as reported. Bank of England research has found that the sector has been getting smaller since 2020, but sales in 2022 are unlikely to have been over 100,000.
• It’s a very different story on the sales side of the office. 86,510 home sales were completed in July, according to Savills – a 16% seasonally adjusted fall compared to the same period last year. Zoopla estimates that we are on course for just 1 million sales in 2023, down from 1.26 million last year.
• Those homes that are selling are also going for less than they were in 2022. Zoopla reports that prices have fallen 2% from their peak last September, while Nationwide’s August house price index reported a 5.3% drop year on year. Interest rate hikes have put off mortgaged buyers: for context, 31% of properties sold in the last 12 months were bought in cash, according to property purchasing specialists House Buyer Bureau.
• Asking price reductions have risen to the highest level since January 2011, according to Rightmove. Of the properties on their platform, 36.3% have had their advertised price cut at least once.
• The pressure from high mortgage rates is starting to ease, however. Large lenders including Nationwide and Santander are beginning to reduce costs, following on from a statement by Bank of England governor Andrew Bailey – that further central bank interest rate increases may not be needed. And this week, the Bank of England held interest rates steady at 5.25% after a split decision from the Monetary Policy Committee.
• In the longer term, falling housebuilding this year is likely to put upward pressure on both sale prices and rents. Octopus Real Estate predicts that housing associations will build 22% fewer affordable homes as rising costs make it tougher to profit from developments.
• In the wider sector, Barratt Developments has said it will build 20% fewer homes this year, while smaller housebuilders are simply going bust. Between April and June, 1,122 construction firms fell into insolvency. The Home Builders Federation reports that planning permission was granted for fewer homes in Q2 2023 than at any time since their records began in 2006.