Sharpest August Drop In Asking Prices For UK Homes Since 2018. What Does This Mean For Buy-To-Let?
By Alastair Murray |
Created on 24th August 2023
The landscape of UK property is undergoing a noticeable shift, with asking prices for homes revealing their most substantial August decline since 2018. This trend arrives as the housing market experiences a deceleration, following a sequence of four consecutive months marked by diminishing house prices. In the span of five weeks leading up to August 12, fresh entrants into the market placed their properties up for grabs at an average of £364,895. This figure signifies a £7,012 reduction in comparison to the preceding month, constituting the most significant August slump since the onset of the Covid-19 pandemic. Insights derived from data provided by property platform Rightmove illuminate this trend.
The recent 1.9 per cent descent in asking prices coincides with a backdrop of remarkable wage growth and a relaxation in mortgage rates. These elements combine to present initial indicators of an enhanced affordability scenario for potential UK homebuyers who’ve been navigating the challenges of elevated borrowing expenses. The landscape of borrowing costs has been shaped by successive interest rate hikes implemented by the Bank of England. This confluence of market dynamics prompts a thoughtful assessment for landlords exploring the buy-to-let landscape, particularly in terms of strategic timing and prudent investment choices.
Shifting Property Landscape: Decline in August Asking Prices Signals Market Adjustment
The consensus among experts leans towards an ongoing downward trajectory for house prices throughout the remaining span of the year. As indicated by Halifax, a prominent lender in the housing sector, the mean house price experienced a marginal dip of 0.3 per cent in July when juxtaposed with June figures. This marks the fourth consecutive month characterized by a decrease in house prices, as noted by Halifax’s analysis.
In spite of the dip in initial asking prices, it’s noteworthy that the average house values continue to stand nearly 20 per cent higher than their levels four years prior to the pandemic, according to insights provided by the same source, Rightmove. The persistent upward movement in house values over this span underscores the resilience of the market amidst various fluctuations.
However, it’s essential to acknowledge the prevailing challenges associated with accumulating a sufficient deposit and managing the financial demands of elevated mortgage payments. As Tim Bannister, the Director at Rightmove, aptly observes, these aspects warrant attention due to their potential impact on potential homebuyers. For landlords pursuing buy-to-let endeavours, these observations underline the importance of staying attuned to market shifts and being cognizant of the ongoing hurdles faced by aspiring homeowners, which could influence tenant demand and rental yields.
Resilience Amidst Economic Headwinds: Crest Nicholson’s Profits Take a Hit
The reverberations of heightened inflation and upticks in interest rates have cast a shadow over the anticipated full-year profits of UK-based housebuilder Crest Nicholson. The company’s outlook signals a significant deviation from initial projections, with estimations of earnings falling considerably short due to these economic factors. Amidst a backdrop of limited housing supply and a scarcity of distressed sellers, the resilience of pricing has been a noteworthy aspect. However, the prevailing economic uncertainty has cast a deterrent effect on potential homebuyers considering a move in the property market.
In this context, Crest Nicholson foresees an adjusted profit before tax of £50 million for the duration leading up to October 31, a substantial decline from the £73 million envisioned by analysts. Nevertheless, there’s an optimistic anticipation that the momentum of inflation will gradually recede, and a decline in mortgage rates will come into play. For landlords contemplating buy-to-let investments, this situation underscores the influence of macroeconomic trends on the property landscape, and the importance of adapting investment strategies in response to evolving economic indicators. The dynamic interaction between market conditions, economic sentiment, and housing demand warrants prudent consideration for landlords seeking stable returns.
Mortgage Rates Soften, Yet Affordability Remains a Hurdle
A noticeable trend in the property financing landscape is the decline of the average five-year fixed mortgage rate, which now stands at 5.81 per cent—a decrease from the previous 6.08 per cent recorded at the close of July, as reported by Rightmove. This development carries the potential to alleviate some of the financial burden faced by homeowners. However, mortgage industry experts offer a note of caution, asserting that a return to sub-5 per cent rates is an unlikely prospect for the current year.
Nicholas Mendes, who holds the role of Mortgage Manager at John Charcol, has emphasized that the moderation in mortgage expenses has provided a degree of relief to households navigating a period of financial strain over the past year. Yet, he underscores the enduring challenge of affordability that continues to loom for those considering property ownership. Mendes highlights the realistic need for higher income multiples when evaluating the correlation between average earnings and property costs. The role of a substantial deposit in shaping affordability is also underscored. As a result, potential homebuyers are increasingly leaning towards more budget-friendly locales, even if they may be considered less desirable.
For landlords evaluating the buy-to-let landscape, this situation emphasizes the importance of comprehending the broader financial context in which property transactions take place. Evolving mortgage rates, affordability constraints, and shifting buyer preferences collectively shape the demand for rental properties and the potential yield they can offer. Understanding these dynamics can guide informed investment decisions that align with prevailing market conditions.
During the observed period, the count of confirmed property transactions experienced a 15 per cent reduction in comparison to the equivalent timeframe in 2019, as revealed by Rightmove. This decline is attributed to the impact of elevated borrowing costs, which have cast a shadow over sales activity. Nonetheless, a more detailed examination of the data highlights a relatively resilient trend in the realm of properties typically favoured by first-time buyers. In this segment, the decline in agreed sales was less pronounced, registering a 10 per cent decrease during the same period.
Interestingly, the asking prices for homes that traditionally attract first-time buyers underwent a moderate 1 per cent annual dip. In contrast, the landscape of average advertised rents for similar properties exhibited a substantial 12 per cent surge. This shift, as unveiled by Rightmove, is indicative of an evolving dynamic that holds implications for both aspiring homeowners and prospective tenants.
Tim Bannister, Director at Rightmove, aptly points out that the aspiration of property ownership continues to exert a magnetic pull among those who possess the financial means. This sentiment is heightened by the backdrop of a bustling rental market where record-high rents prevail. This observation has a pertinent implication for landlords navigating the buy-to-let domain. It underscores the vital role of market conditions, particularly the delicate interplay between rent and property prices, in shaping the preferences of potential homebuyers and tenants alike. Understanding these preferences can inform strategic decisions regarding property acquisition, pricing, and rental management.
At Intra Capital Estates, we understand the complexities of being a landlord and are committed to supporting landlords in navigating these changes. Our team of experienced professionals is here to assist you with expert advice, tailored solutions, and comprehensive property management services.
If you have any questions or would like to learn more about the current housing market, or our range of services, we invite you to get in touch. Our dedicated team is ready to address your inquiries and provide the assistance you need to thrive in the evolving rental landscape.
Stay informed, stay proactive, and let Intra Capital Estates be your trusted partner in the ever-changing world of property management.
Please note that the information provided in this blog post is intended for general guidance purposes only and should not be considered as legal advice. Visit gov.uk for more information.
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Alastair Murray
Thank you for checking out my Bio! A little bit about myself and my experience… I have been involved in property since 2010, gaining experience from working within different types of estate agencies from well-established corporates with multiple offices, to new office start-ups, one of those being one of the largest franchises in the UK as well as a bespoke agency operating in the borough of Westminster.
I specialise in sales, lettings and property management and am Propertymark qualified. In my spare time I enjoy spending time with my family and keeping fit by playing football and going to the gym.
