CONFUSION IN THE CAPITAL CREATES A TWO-SPEED MARKET
In the months since the end of Lockdown 1.0, the housing market (sales) in the UK generally has shown signs of being fairly buoyant. There were concerns that Lockdown 2.0 was going to have severe consequences on the sales market but in fact, the complete opposite has been true through September and October; with sellers continuing to come to the market, buyers still looking to buy, and house prices increasing on average.
We have seen buyers who were temporarily uncertain in the run-up to the new lockdown in England jumping back into action; the first six days of the second lockdown saw demand up by 49% on this time last year as the housing market thankfully, this time, remained open.
However, since those initial positive signs, November has seen the first slight dip. The average price of properties coming to the market fell by 0.5% (around £1500) when compared to October’s figures. Some would be concerned that this is a sign of things to come, but when considered with some of the other key points, perhaps there is more to the story.
Statistics from Rightmove show that the number of sellers coming to the market in November was up 35% on the same period last year. Also, national agreed sales are up 50% on October last year and it is estimated that there are still 650,000 sales currently going through the buying and selling process - an impressive 67% more than the equivalent period last year.
One significant upturn has been especially prevalent when looking at the sales of houses in the £400,000 - £500,000 pricing band; with a 106% increase in sales agreed and a drop of 23 days in the average time taken to secure a buyer.
Traditionally this time of the year has always seen a slight reduction in the average house price for sold properties as sellers are motivated to get something agreed before the longer Winter months in the New Year. However, this year in particular is seeing greater activity due to the end of the Stamp Duty holiday on 31st March 2021 for any homes up to a value of £500,000. Sellers are putting their property up for sale now and perhaps are being a little more realistic on asking price to begin with to ensure that they have the best chance of a quick sale.
A recent Rightmove study found that sellers are twice as likely to sell if they agree a sale based on the initial asking price. It goes without saying that if that asking price is too high, then a buyer is far less likely to make an offer even after that price has been reduced to a more realistic level. If homes are being competitively-priced to entice buyers ahead of the stamp duty deadline, it also enables sellers to benefit from those same stamp duty savings on their onward purchase. It could be easily argued that this is what we are seeing with current market trends.
The lettings market has also shown some more positive statistics, with the exception of London. Average rents outside of the capital have slowly risen to an annual growth rate around 1.7%; this growth remains positive across most regions and cities in the UK. London, however, can be viewed in stark contrast to the rest of the country, with an annual decline standing at around 5.2% in rental growth.
There are many factors which could have contributed to this. The most obvious is the impact of additional and more regionally-specific lockdowns across the UK. The rental declines in the capital reflect the changing picture of working and commuting patterns and tourism. At the start of lockdown, there was a shift from short-lets to long-lets, especially in the centre of the city, pushing up supply in the sector which is still being absorbed.
Rental movement continues to be directly affected by supply and demand. The central London rental market is being affected by the changes in working trends, with rental property which was typically used by workers staying in town for part of the week coming back to the market as many continue to work from elsewhere, or from home. Equally, reduced tourism during Summer and Autumn mean that any short-let landlords who had not switched into a long-let option may be choosing to do this now.
Does this mean that we will start to see a mass-exodus from the Capital as tenants start to consider their work-life balance with greater scrutiny? Not necessarily.
There has been an upturn in activity in the suburban rental markets as renters start to make a choice on how and where they live now that having to commute into the office everyday is not as essential as it once was. Renters who are now working from home have a different checklist for must-haves when they are looking for property.
Data from Zoopla has indicated that renters across the UK are increasingly reassessing the property in which they live. In some markets, rented houses are now being snapped up more quickly than flats, indicating the additional space, often with a garden, is increasingly attractive for renters. The average time taken to rent a house is now 16 days, down from 20 days last year. The time between listing a flat and let agreed is 18 days, also down from 20 days last year.
The most popular search terms for rental property also reflect the emphasis on space for renters, with Gardens, Parking, Garage and Balcony, topping the list. The fifth most popular search term is pets, with renters looking for pet-friendly accommodation as the ability to work from home has meant becoming a pet owner, specifically dogs, has become far easier.
However, the same data also shows that most Londoners are still looking for rental property in the Capital - with the proportion of Londoners looking to stay in the City having risen when compared to the same period last year. So, whilst there are shifts in the type of property renters are looking for it does seem that the areas they look to live in are staying the same.
The statistics also seem to say that this trend doesn’t completely apply to the rest of the UK as well though. There is a continued imbalance between tenant demand and the supply of rental properties and rents have been seen to rise in most other cities across the country. Whilst renter demand has dropped from the heady heights seen after the end of the first lockdown, year on year, demand is still some 20% ahead of where it was in 2019.
In addition, the challenges that first time buyers are facing in trying to obtain mortgages, especially those with smaller deposits, has seen that many of those would-be homeowners are choosing to remain in their rental properties for longer. Mortgage lenders are being very cautious in offering favourable rates given the economic uncertainty with Covid and Brexit still looming.
Landlords are continuing to be hesitant in bringing new property to the market, which is impacting on the statistics, as overall supply is muted. Rental levels, whilst growing outside of London, are doing so at a very small rate, as many workers have had their earnings growth subside. If this continues it could see any rental growth continue to slow over the coming months.
Whilst it is expected that this ‘two speed market’, with the Capital continuing to underperform when compared to the rest of the country, will continue over the coming months, it is hoped, in 2021, with the vaccine and hopefully more certainty returning to the economy post-Covid, that rental growth will continue to grow. If more frequent office working becomes the norm, earnings growth again picks up and supply starts to again catch up with demand then the outlook can still be positive.