MARKET UPDATE: House prices and the economy – it’s complicated!
Kate Faulkner reviews the latest house price indices in the context of the current economic ups and downs.
The moment we saw this most clearly was during the pandemic. The economy obviously tanked, but property transactions and prices rose dramatically. However, this didn’t happen across the board. The prices that really rose were for houses and those trading up and down the ladder.
Price inflation for flats and first time buyers wasn’t anywhere near as high due to the 2014 changes which restricted how much they could borrow and essentially put a ‘cap’ back on property prices that we haven’t seen since 2000.
Rents stagnated or fell due to tenants not being able to move.”
Meanwhile, rents stagnated or fell due to tenants not being able to move much, wages remained low due to the furlough and something rarely mentioned – the kindness of some landlords who didn’t increase rents, or even reduced them, during this incredibly tough time.
Since the pandemic, the base and mortgage rates rose quickly to levels we haven’t seen since 2008, and inflation went into double digits, contributing to the economy stagnating. Although transactions and prices fell slightly, they didn’t crash significantly as some predicted. In contrast, rents, along with inflation and wages, literally went through the roof.
Will the economy affect the property market this year?
The devil, to some extent, is in the detail. Inflation is the most important measure to track. It’s predicted to hover around 2%, which would be great as that’s the government’s target. Currently, though, it’s sitting around 3%.
That’s important because the longer it stays above 2%, the less likely the Bank of England MPC committee will vote to reduce base rates. For a ‘normal’ buying and selling market, we need them to fall from the current 4.5% to 4%, which looks like it will take longer than hoped.
It’s wages that are the main reason rents have risen – not greedy landlords and agents!”
Wages, on the other hand, are still doing pretty well. Long-term growth per annum tends to be around 4%, while the latest data from the ONS shows wages are still rising at 5.6% – crucially higher than inflation. This means that rents will likely continue to rise at 2-4% this year, not as high as the last few years, but rents typically rise in line with wages. Surprisingly to some, it’s wages that are the main reason rents have risen – not greedy landlords and agents!
Overall, the economy will still have a small drag on property prices and transactions, but because of wage growth, the rental market will likely continue to see rents rise just above inflation especially in areas where supply is tight versus demand.
What are the property indices reporting this month?
From a property price perspective across the indices, we are seeing annual house prices rising – although the Halifax index suggests they are up by 4.1%, which seems out of sync with the others, so worth ignoring this month! And, when you look at the last few months, even though prices are reported to be rising by a few percent year on year, they haven’t really changed that much.
Even though prices are reported to be rising by a few percent year on year, they haven’t really changed that much.”
The other point to note is that although some forecast first time buyers, in particular, would race to purchase before the SDLT rise in April, there isn’t much evidence to suggest this is actually happening. Instead, everyone will have to run like the clappers to get property sales over the line within the deadline.
Have buyers got the SDLT ready if the sale doesn’t happen?
Do talk to buyers and sellers who hope to complete by the end of March about what happens if they don’t – now. Don’t wait until March! Have the buyers got the SDLT required? Do they know how much they will need to pay in tax, or will the seller accept a slightly lower offer?
The rule of thumb I am using is if the buyer’s offer wasn’t accepted and being progressed before Christmas, they should plan on having to pay the SDLT as it will be tough for conveyancing lawyers to get many completions over the line.
Overall, though, the economic and property data all point to a pretty normal but good year this year, whether in sales or lettings – albeit the small issue of the Renters Rights Bill becoming an Act to implement!
Property price and market indices headlines
Record number of sellers in promising start to 2025, but uncertainties ahead
The average price of property coming to market rises by 1.7% (+£5,992) this month to £366,189, the largest jump in prices at the start of the year since 2020.”
Market conditions still reasonably solid to end the year but the recent macro environment presents headwinds moving forward
“House prices now seen rising across all parts of the UK.”
Prices Bounce into 2025: London Leads the Charge
“Asking prices begin their seasonal ascent, rising 0.3% since last month across England and Wales. Annualised home price growth is now 1.9% overall.”
House price growth softens at the start of 2025
“Annual rate of house price growth slowed to 4.1% in January, compared with 4.7% in December.”
Housing market kicks off 2025 with price rise to hit new record high
“House prices increased by +0.7% in January following dip of -0.2% in December.”
Signs of life are strengthening
“Modest monthly uplift but annual rate still negative.”
2025 sales market gets off to a stronger start that in 2024 & 2023
“UK house price inflation is running at +2.0% versus -0.9% last year”
Summary of the insights from this month’s indices
– New seller asking prices are still nearly £9,000 below May 2024’s record, reflecting buyer affordability constraints.
– A record number of early-bird new sellers have come to market since Boxing Day, giving buyers the highest level of choice at the start of a year since 2015, which has also contributed to an encouraging start to 2025 buyer activity.
Rightmove’s real-time data also captures the impact of the looming stamp-duty deadline on March 31st 2025:
– The number of buyers contacting agents about properties for sale since Boxing Day is 9% ahead of last year, and the number of sales being agreed over the same period is up by 11%.
– Despite the promising start to 2025 there are uncertainties ahead, including the pace and number of interest rate drops and the impact of the stamp duty deadline on 31st March.
– Rightmove’s weekly mortgager tracker shows that the average five-year fixed mortgage rate is now 4.75% compared with 4.78% at this time last year.
– Annualised home price growth is now 1.9% overall.
– The UK property market continues to indicate significant momentum. Property turnover remains higher than during most of the last ten years.
– The unsold sales stock count for England and Wales fell again during the last month, by around 9,000 properties. However, the current total of 456,216 is the largest such January figure since 2015.
– The total number of new instructions entering the market during December 2024 was 8% more than during December 2023.
– Overall, when taking inflation into account, the sales market has still yet to achieve real growth.
– House prices up 0.1% month on month.
– Little change in overall rate of home ownership in recent years despite affordability pressures.
– Average property price of £299,138 is a new record high.
– Annual growth eased slightly to +3.0% (vs +3.4% previous month).
– Northern Ireland maintains the strongest UK annual house price growth.
– In the short term we can expect growth in prices.
– London and South East are holding back the overall market.
– In January 2025, the average sale price of a home rose by 0.1% to £352,300, ending a four-month decline. Despite this modest increase, average annual prices remain 3% lower than a year ago and nearly £25,000 below the peak of late 2022.
– Buyer demand is 13% higher than a year ago, with 10% more homes for sale and 12% more sales agreed.
– The removal of stamp duty relief from April has boosted first-time buyer demand in price bands with steepest tax increases.
– Price inflation ranges from 7.7% in Northern Ireland and 3.2% in the North West to 1% in the East of England.
– There has been an increase in people looking to buy now or in next 2 years- 22% of renters and 17% of homeowners.
