Residential Market Commentary

FEBRUARY UK HOUSING MARKET OVERVIEW

After strong growth in the first half of 2024, UK GDP growth stalled in Q3, with October’s contraction suggesting Q4 was also flat. Despite this, the economy is expected to expand in 2025, driven by expected rate cuts, easing living costs, and higher government spending—though downside risks remain.

Inflation has recently picked up, sparking fears of ‘stagflation,’ even as December’s reading dipped to 2.5%. The Bank of England held rates at 4.75% in December after a 25bps cut in November, signaling gradual reductions in 2025, as service price inflation stabilises and labour demand slows. Markets are expecting three cuts this year, with the first expected at the February meeting this week.

Housing market activity has continued to improve, despite mortgage rates drifting higher and a slight dip in consumer confidence over the economic outlook. In late 2024, we have seen an increase in mortgage approvals and sales, and monthly increase in house prices. According to Zoopla, “the housing market is off to a better start than the previous two years…the outlook for market activity bodes well.”

The residential market is highly sensitive to interest rate changes. Mortgage rates began falling in summer 2024 but climbed again after the Autumn Budget as gilt market movements reflected investor concerns over government borrowing. This may slow future rate cuts (Bank of England External Link).

Mortgage approvals are a leading indicator for housing market demand. In December, there was a slight uptick in demand with 66,526 mortgages approved, 0.7% above last month and 27.7% above the same time last year (Bank of England External Link). The RICS Residential Market Survey External Link eported a positive (5%) net balance of new buyer enquiries in December, albeit a little flatter than previous months.

An estimated 96,330 sales completed in December 2024, 2.9% higher than last month and 18.7% above the same time last year. Sales were slightly down on pre-pandemic levels (December 2017-2019 average) by 2.6% (HMRC External Link). The removal of the stamp duty relief in April is likely to trigger a flurry of first-time buyer sales in the steepest tax increases, boosting sale activity over the next two months.

Nationwide External Link reported a 0.1% rise in house prices in January 2025, with annual growth easing to 4.1% from 4.7% in December. Despite some improvement over the past year, affordability remains stretched by historic standards, capping further price gains.

JANUARY UK HOUSING MARKET OVERVIEW

At its December meeting, the Monetary Policy Committee (MPC) voted 6–3 to keep the Bank Rate steady at 4.75%. Since its meeting, Consumer Price Index (CPI) inflation climbed to 2.6% in November, up from 1.7% in September, slightly exceeding expectations due to stronger than anticipated inflation in core goods and food. Recent evidence has supported the case to cut interest rates gradually, but it is “tricky to gauge the right speed of easing”.

The housing market has shown a sustained recovery throughout 2024, with increased sales volumes and higher mortgage approvals. However, buyers remain cautious and price-sensitive, particularly amid uncertainty over mortgage rates in 2025 and concerns over the wider impacts of the Budget.

The residential market is extremely sensitive to interest rate rises and over the last couple of years mortgage rates have increased. Since the summer, they have been declining as the central bank reduced interest rates. However, following Labour's Autumn Budget, mortgage rates saw a slight increase due to a rise in gilt yields (Bank of England External Link).

Mortgage approvals are a leading indicator for housing market demand. In November there was a slowdown in demand with 65,720 mortgages approved, 3.5% below last month. Approvals did however remain 31.0% above the same time last year. The RICS Residential Market Survey External Link also reported a positive (12%) net balance of new buyer enquiries in November, broadly in line with the previous month’s figure. This marked the fifth consecutive month in which the demand indicator has returned a positive reading.

An estimated 92,640 sales completed in November 2024, 7.9% lower than last month and 13.3% above the same time last year. Sales were down on pre-pandemic levels (July 2017-2019 average) by 7.2%.

However, in December, Zoopla External Link reported the largest end-of-year sales pipeline in four years, and up 30% on a year ago. An increase in new homes available for sale will improve buyer choice, which could lead to an increase in demand, in turn boosting sales activity.

Nationwide External Link reported a 0.7% monthly increase in house prices in December 2024. Average prices rose by 4.7% year on year, from 3.7% in November. House prices are still below the all-time high recorded in the summer of 2022.

DECEMBER UK HOUSING MARKET OVERVIEW

The MPC voted to cut interest rates for the second time this year at their November meeting, setting the rate at 4.75%, their lowest point in more than a year.

More recent inflationary data for October saw an acceleration in CPI to 2.3%, up from 1.7% the previous month, fuelled by energy costs and higher prices across the transport, household goods, recreation and hotel sectors. The BoE has repeatedly signaled it will adopt a cautious approach to further rate cuts as it gauges the impacts of the Autumn Budget.

Growth is expected to continue over the rest of 2024, albeit at a more modest pace than in the first half of 2024. The Office for Budget Responsibility (OBR) forecasts the economy to expand by just over 1% this year and 2% in 2025.

Housing market indicators signal an improving outlook. Activity has shown notable resilience in recent months, with mortgage approvals nearing pre-pandemic levels despite elevated interest rates. Assuming the economy maintains its steady recovery, the housing market is set to gather momentum as affordability constraints ease through a combination of modestly lower interest rates and wage growth outpacing house price increases.

The residential market is extremely sensitive to interest rate rises and over the last couple of years mortgage rates have increased as a result. However, mortgage rates have fallen for the fourth consecutive month, following the second rate cut this year and we should expect this trend to continue, albeit at a gradual pace (Bank of England External Link).

Mortgage approvals are a leading indicator for housing market demand. In October, mortgage approvals continued to increase, reaching their highest level since March 2022, with 68,303 mortgages approved – 3.3% above last month and 41.5% above the same time last year. The RICS Residential Market Survey External Link also reported a positive (12%) net balance of new buyer enquiries in October, broadly in line with the previous month’s figure. This marked the fourth consecutive month in which the demand indicator has returned a positive reading.

An estimated 100,410 sales completed in October 2024, 9.5% higher than last month and 21.0% above the same time last year. Sales have also exceeded pre-pandemic levels (July 2017-2019 average) by a margin (0.6%).

Nationwide External Link reported a 1.2% monthly increase in house prices in November 2024. Average prices rose by 3.7% year on year, from 2.4% in October – the fastest since November 2022. House prices are just 1% below the all-time high recorded in the summer of 2022.

In November, ZooplaExternal Link reported that agreed sales are 19% higher than this time last year, with buyer demand 25% higher. According to Zoopla, the sales market is on track for 1.1 million completions over 2024 – 10% higher than 2023 with the pipeline of sales also 30% larger than this time last year.

NOVEMBER UK HOUSING MARKET OVERVIEW

On October 30, Rachel Reeves made history as the UK’s first female Chancellor, delivering Labour’s first budget in 14 years, with a focus on economic growth and fiscal responsibility. Her Autumn Budget, presented amid challenging economic conditions, introduced substantial tax reforms and a revised borrowing plan. Bond markets reacted promptly, pushing up UK borrowing costs and 10-year gilt yields as investors factored in the inflationary effects of the spending proposals.

A major priority in the Budget was addressing the UK’s housing shortage. Central to the residential development strategy was an emphasis on affordable housing, featuring £500mn in funding for the Affordable Homes Programme, a new five-year rent settlement, and reforms to the Right to Buy scheme. Additionally, £3bn was allocated to support small housebuilders and the build to rent sector in the form of housing guarantee schemes. While these initiatives aim to boost housing supply, there was no demand-side support for first-time buyers.

Other key changes included adjustments to inheritance tax and an increase in Capital Gains Tax for private equity, though not for residential property—offering landlords only temporary relief as the stamp duty on second homes was raised from 3% to 5%, likely to impact rental supply and rents. FTBs will continue to benefit from a raised stamp duty threshold until April 2025, with 20% of FTBs set to pay stamp duty thereafter. For home movers, the stamp duty threshold will also return to its previous level next year. 

In the housing market, there were higher levels of activity compared to the slower autumnal conditions of 2023. New buyer enquiries remain positive, and agreed sales show stronger momentum than in recent months. House price growth this month has been modest relative to seasonal averages, a reminder that the market remains price-sensitive. Looking ahead, with the SLDT threshold rate set to change next year, a surge of buyers – particularly cost-sensitive FTBs – may bring their plans forward.

MORTGAGE INTEREST RATES

The residential market is extremely sensitive to interest rate rises and over the last couple of years mortgage rates have increased as a result. However, mortgage rates have fallen for the third consecutive month, and with another interest rate cut expected in this month’s meeting, we should expect this trend to continue (Bank of England External Link).

MORTGAGE APPROVALS

Mortgage approvals are a leading indicator for housing market demand. In September, mortgage approvals were at their highest since August 2022, with 65,647 mortgages approved – 1.2% above last month and 49.3% above the same time last year (Bank of England External Link). The RICS Residential Market Survey External Link also reported a positive (14%) net balance of new buyer enquiries in September, broadly in line with the previous month’s figure – marking the third consecutive month in which the demand indicator has returned a positive reading.

SALES

An estimated 91,820 sales completed in September 2024, higher (0.9%) than last month and 8.9% above the same time last year. However, sales remain 8.0% below pre-pandemic levels (July 2017-2019 average).

HOUSE PRICES

Nationwide External Link reported a 0.1% monthly increase in house prices in October 2024. Average prices rose by 2.4% year on year, though this presented a modest slowdown from the 3.2% seen in September.

In October, ZooplaExternal Link reported the highest sales activity since 2020, with the sales pipeline up 30% on the same time last year. FTBs have been the largest buyer cohort this year accounting for 36% of all sales, supported by rising incomes and falling mortgage rates.

OCTOBER UK HOUSING MARKET OVERVIEW

The UK economy expanded by 1.3% in the first half of the year, supported by consumer spending and an increase in business investment. More recently, annualised growth has been closer to ~2%, though there was no monthly growth during June 2024 and Q2 growth was recently revised down to 0.5% rather than the initial 0.6%. 

Growth has been enabled by a significant easing in global inflationary pressures, though domestic pressures remain. As a result, on the 1st of August, the MPC voted narrowly to cut the base rate from 5.25% to 5% after two months of CPI at 2%. Since then, the MPC voted 8-1 to keep rates on hold in September, with consensus suggesting a further 25bps cut in November.  

Inflation is running slightly above target. CPI annual growth remained at 2.2% in August, slightly up from the 2% captured in May and June. Upside pressures to inflation remain in the short term and are likely to drive up CPI away from the 2% target into late 2024 and early 2025.  

The housing market is gradually gaining momentum, even if the short-term outlook for monetary policy remains relatively tight by historic standards. Buyer demand and enquiries increased in August, the number of sales agreed has also improved, with near term expectations suggesting further growth. House price growth is on an upward trajectory, though it remains modest given affordability pressures.

MORTGAGE INTEREST RATES

The residential market is extremely sensitive to interest rate rises and over the last couple of years mortgage rates have increased as a result. However, mortgage rates have started to decline, and following the first rate cut in August, we should expect this trend to continue, albeit at a slow pace.  (Bank of England External Link).

MORTGAGE APPROVALS

Mortgage approvals are a leading indicator for housing market demand. In August, mortgage approvals were at their highest since September 2022, with 64,858 mortgages approved – 3.8% above last month and 43.4% above the same time last year (Bank of England External Link). The RICS Residential Market Survey External Link also reported a positive (15%) net balance of new buyer enquiries in August, up from 4% beforehand.

SALES

An estimated 90,210 sales completed in August 2024, marginally lower (-0.4%) than last month and 5.4% above the same time last year. However, sales remain 9.8% below pre-pandemic levels (July 2017-2019 average). 

HOUSE PRICES

Nationwide External Link reported a 0.7% monthly increase in house prices in September 2024. Average prices rose by 3.2% year on year, up from 2.4% seen in August, marking the fastest growth since November 2022.   

SEPTEMBER UK HOUSING MARKET OVERVIEW

The UK economy has had a strong first half of year. 

Growth has been enabled by a significant easing in global inflationary pressures, though domestic pressures remain. As a result, on the 1st  of August, the MPC voted narrowly to cut the base rate from 5.25% to 5% after two months of CPI at 2%. At the time of the meeting, the tightness of the call, and messaging from the MPC seemed to suggest that there was still a lack of clarity, which may well hint at rates being held at the next meeting on the 19th of September.

Since the last meeting, inflationary data for June saw CPI annual growth increase to 2.2% in June from 2% in May. Upside pressures to inflation remain in the short term and are likely to drive up CPI away from the 2% target into late 2024 and early 2025.  

As for the housing market, buyer demand and enquiries increased in July, though house price growth remained subdued. House price growth is expected to remain modest given affordability pressures and the increased levels of stock on the market. 

MORTGAGE INTEREST RATES

The residential market is extremely sensitive to interest rate rises and over the last couple of years mortgage rates have increased as a result. However, mortgage rates have started to decline, and following the first rate cut in August, we should expect this trend to continue, albeit at a slow pace (Bank of England External Link).

MORTGAGE APPROVALS

Mortgage approvals are a leading indicator for housing market demand. In July, mortgage approvals were at their highest since September 2022, with 61,985 mortgages approved – 2.3% above last month and 26.5% above the same time last year (Bank of England External Link). The RICS Residential Market Survey External Link also reported a positive (2%) net balance of new buyer enquiries in July, the first reading in four months that has been outside negative territory.

SALES

An estimated 90,630 sales completed in July 2024, marginally lower (-0.6%) than last month and 6.7% above the same time last year. However, sales remain 9.5% below pre-pandemic levels (July 2017-2019 average).

In August Zoopla External Link also reported higher sales activity than a year ago, with stock of homes for sale up 14% from the same time last year. The increase will improve buyer choice, which could lead to an increase in demand, in turn boosting sales activity.

HOUSE PRICES

Nationwide External Link reported a 0.2% seasonally adjusted monthly fall in house prices in August 2024, though the annual rate of house price growth increased slightly. Average prices rose by 2.4% year on year, up from the 2.1% seen in July, marking the fastest growth since December 2022.

AUGUST UK HOUSING MARKET OVERVIEW

Political stability following Labour’s election victory, paired with an improving economic environment, brings some optimism to the UK housing market. 
On 1st August, the Bank of England voted to bring down the base rate from 5.25% to 5.00% on a narrow margin of 5-4 committee members. While many expected this to be the case, this was by no means a foregone conclusion – with the minutes from the last meeting seeing plenty of mentions about the situation being ‘finely balanced’.  

With CPI at 2.0% in June for the second month in a row – albeit slightly above consensus expectations – the big barrier to rate cuts was likely to have been stubborn services inflation (more on that here). 

As for the housing market, buyer demand and sales activity declined in June, as affordability pressures, the summer slowdown, and the General Election muted activity levels. However, more homes are available for sale and house prices saw another modest increase in July. 

MORTGAGE INTEREST RATES

The residential market is extremely sensitive to interest rate rises and over the last couple of years mortgage rates have increased as a result. However, there have been some early signs of mortgage rates starting to decline, and following the first rate cut in August, we should expect this trend to continue, albeit at a slow pace. For now, mortgage rates will continue to impact affordability, limiting buyer demand (Bank of England External Link).

MORTGAGE APPROVALS

Mortgage approvals are a leading indicator for housing market demand. In June there was a slowdown in demand with 59,976 mortgages approved, 0.3% below last month, and the third consecutive monthly decrease (although all of these have been modest). Approvals did however remain 11.7% above the same time last year (Bank of England External Link). The RICS Residential Market Survey External Link also reported a negative (-7%) net balance of new buyer enquiries in June, signalling a weakening in demand. 

SALES

Sales data lags mortgage approvals with transactions taking several months to complete. As a result, the sales data is only just showing a slowdown in demand. An estimated 91,370 sales completed in June 2024, 0.6% below last month, the first monthly decline since December 2023. 

However, in July Zoopla External Linkreported more homes for sale than any point in the last 6 years - in fact, the stock of homes for sale is 16% above the same time last year. An increase in new homes available for sale will improve buyer choice, which could lead to an increase in demand, in turn boosting sales activity. (HMRC External Link).

HOUSE PRICES

Nationwide External Link reported a 0.3% seasonally adjusted monthly increase in house prices in July 2024. Three consecutive small monthly increases have resulted in an uptick in annual house price growth, increasing to 2.1%.  Given affordability pressures and the increased levels of stock on the market, house price growth is expected to remain limited in the short term.

JULY UK HOUSING MARKET OVERVIEW

On 22nd May, the Prime Minister Rishi Sunak called a General Election for July 4th. At the end of June, the FT Poll Tracker suggests that Labour will attain 40.6% of the vote, with the Conservatives at 20.3%.

Most recent inflationary data for May saw CPI growth fall to 2.0%, hitting target for the first time in 3 years. Despite meeting the target, there are still concerns around services inflation, which impacted rate cut decisions at the June MPC meeting.

The last MPC meeting was on June 20th, when the Committee voted 7-2 to hold rates at 5.25%. The MPC has now voted to keep rates stable at 5.25% for seven consecutive meetings, with the latest meeting seeing little change in stance.

As for the housing market, buyer demand declined for the second consecutive month in May, as mortgage rates, the summer slowdown, and the pending election muted activity levels. House prices saw modest growth in June, a trend which is expected to continue given affordability pressures and the increased levels of stock on the market.

MORTGAGE INTEREST RATES

The residential market is extremely sensitive to interest rate rises and over the last couple of years mortgage rates have increased. As we entered 2024, and interest rates peaked, mortgage rates had started to decline in anticipation of base rate cuts. However, in March, April and May 2024, mortgage rates experienced a small uptick following some uncertainty in softening timelines. Mortgage rates are still expected to fall later in the year, but for now they are limiting buyer demand (Bank of England).

MORTGAGE APPROVALS

Mortgage approvals are a leading indicator for housing market demand. In May there was a slowdown in demand with 59,991 mortgages approved, 1.4% below last month, and the second consecutive monthly decrease. Mortgage approvals were 19.2% above the same time last year but remain 8.2% below the pre-pandemic average (May 2017-2019 average) (Bank of England).

SALES

Sales data lags mortgage approvals with transactions taking several months to complete. As a result, sales data is still showing the increased demand witnessed earlier in the year as mortgage rates declined and homes available for sale increased. An estimated 91,290 sales completed in May 2024, 2.4% above last month and 17.2% above the same time last year. However, sales remain 7.9% below pre-pandemic levels (May 2017-2019 average) (HMRC).

HOUSE PRICES

Nationwide reported a 0.2% seasonally adjusted monthly increase in house prices in June 2024. Two consecutive monthly increases – albeit modest - have resulted in an uptick in annual house price growth, increasing to 1.5% from 1.3% the previous month.