UK house prices return to annual growth
Making sense of the latest trends in property and economics from around the globe
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UK house prices climbed 1.2% during the year through February, Nationwide reported this morning. That's the first annual gain since January 2023.
House prices are now just 3% below the all-time highs recorded in the summer of 2022, which is remarkable given the surge in borrowing costs. Forbearance from lenders has prevented forced selling and equity-rich homeowners have in many cases chosen to sit tight and wait for the volatility to pass. We don't yet know how quickly borrowing costs will fall, but that's very different to not knowing how far rates will rise - the shift from the former to the latter has clearly helped the market turn a corner.
“Buyers feel confident that the only way for the base rate is down, which has seen demand and house prices pick up in recent months," says Tom Bill, Knight Frank's head of UK residential research. "However, the upwards pressure on mortgage rates in recent weeks shows sellers the importance of getting the asking price right. Banks are keen to lend and should eventually lower rates this year as inflation comes under control."
Brokers on hold
Mortgage lending rose in January as two-year fixed rates continued to glide towards the 4% mark. Net mortgage approvals for house purchase, a good indication of future borrowing, surged to 55,200 during the month, up from 51,500 a month earlier, according to Bank of England figures published yesterday.
Rates appeared to plateau in February as swap rates crept up, though it's hard to discern a trend at the moment. Lenders are both cutting and raising rates and are clearly struggling with the level of business coming through the doors. Here's Hina Bhudia of Knight Frank Finance:
"We're now seeing both rate increases and decreases as the lenders try to manage service levels. Large number of borrowers that had put off moving or remortgaging during the uncertainty of 2023 are now choosing to act. The cheapest lender on the high street is often inundated with calls and is forced to notch rates up to cool demand - we've seen phone line queues of as many as 1,500 brokers attempting to secure rates for customers before they are withdrawn overnight."
Affordability
We revised our forecasts for house prices in January. We now expect UK mainstream prices to rise by 3% in 2024, which compares to a decline of 4% we predicted back in October. With low-level single-digit growth in subsequent years, we expect cumulative growth of 20.5% in the five years to 2028.
A Reuters poll of 26 forecasters shows house prices holding steady this year before rising 3.0% in 2025 and 4.0% in 2026. Overall inflation is expected to average 2.5%, 2.1% and 2.0% in the next three years, respectively.
None of this is good news for people trying to get a foot on the property ladder, which will keep the issue at the forefront of election campaigning. Granted wage growth is now outstripping the rate of inflation, but it's going to take time for affordability to improve to any meaningful degree.
It's unclear how the Conservatives will seek to address the issue. The 99% mortgages scheme floated in recent weeks as a flagship spring budget announcement has been binned, according to yesterday's Telegraph.
Shopping centres
Hammerson posted annual results yesterday - 2023 was a record year for leasing. The company signed more than 300 deals. Permanent deals were signed 12% ahead of estimated rental values and 37% ahead of previous passing rent.
"City centres remain the dominant locations for commerce and lifestyle," the company said. "Our destinations are in high demand by occupiers and visitors. The importance of a physical presence in a digitally-integrated strategy for best-in-class operators is undeniable. Over time, we have a unique opportunity to complement our retail core with a broader mix of uses by repurposing existing space and unlocking value on adjacent land."
Indeed, shopping centres attracted £437 million of investment in Q4, second only to foodstores in the retail sector - see. Stephen Springham's report. Experienced investors targeted prime, destination assets, with Churchill Square in Brighton (£143m) by far the largest deal of the year.
In other news...
Oliver Knight reports on the green shoots emerging in new homes and land markets.
Elsewhere - UK landlords hunt for deals in real estate slump (FT).