MONTHLY MARKET REPORT – JUNE 2018

By Steven Goovaerts

Hello and welcome to our June Monthly Market Insight, probing between the World Cup headlines to bring you the latest residential market data and industry news in one place.

In a month which has seen the Bank of England hold interest rates at 0.5% and confirmation that all London boroughs have signed up to a “name and shame” rogue landlord scheme, we take a look at how the market has performed and whether the national picture reflects local performance.

A quick look at this month’s UK-wide HPI releases...

Nationwide May 18 Apr 2018 Mar 2018
Annual +2.4% +2.6% +2.1%
Month* -0.2% 0.2% -0.2%
Avg Price £213,618 £213,000 £211,625

The Nationwide is the world's largest building society, and one of UK's largest mortgage providers. *Seasonally adjusted.

Robert Gardner, Chief Economist, Nationwide

“Annual price growth has been confined to a fairly narrow range of circa 2-3% over the past 12 months, suggesting little change in the demand and supply balance. There are few signs of an imminent change. Looking ahead, much will depend on broader economic conditions, especially in the labour market, but also with respect to interest rates. Overall, we continue to expect prices to rise around 1% over 2018.” 

Housing Stock

Ministry of Housing, Communities and Local Government (MHCLG): Over the last 20 years, total housing stock in England has increased 16% from 20.6 million to 24 million. Significant shifts in ownership of the stock have, in turn, influenced trends in property type over time.

The most striking shift has been in private landlords. While 2017 saw a small decline in privately rented dwellings, they still account for 20% of the total (double that in 1997). The counterpart has been a decline in homeowners (68% to 63%) and also social landlords (22% to 17%).

Property Mix

The English Housing Survey: The most eye-catching development is the increase in the proportion of flats, which are popular with investors (circa 60% are privately rented versus 18% of other types of private stock). Since 1996, flats have increased from 12.2% to 15.6% of total and the proportion of rented flats has increased from 4.9% to 9.2% (equivalent to +1 million units).

Flats account for a relatively high share of new-builds. During 2005 to 2008, circa 50% of new completions in England were flats. While construction has shifted back towards houses, flats still accounted for circa 20% new units in 2017 (above their share of stock). Since 1996,

The property type which has become much less prevalent is bungalows, which now make up 8.6% of stock, down from 10.7% in 1996. This may be unexpected, given demographic trends and the popularity of this type of property amongst older people. A 2014 report found that households where the eldest person was aged 65 or over were 6x more likely to live in bungalows than other households, while households with older people were less likely to live in flats.

Halifax Apr 2018 Mar 2018 Feb 2018
Annual +1.9% +2.7% +1.8%
Quarter +0.2% -0.1% -0.7%
Month +1.5% +1.5% +0.4%
Avg Price £224,439 £227,871 £224,353

The Halifax House Price Index is the UK's longest running monthly house price series.

Russell Galley, Managing Director, Halifax Community Bank

 “Latest price changes reflect a relatively subdued market. After a sharp rise in January, mortgage approvals softened in the past 3 months, whilst agreed sales and new buyer enquiries show signs of stabilisation. The continuing strength of the labour market alongside pay growth and consumer price inflation falling has seen the squeeze on real earnings start to ease. With interest rates still very low, mortgage affordability is at very manageable levels providing further underpinning to prices.”

HMRC: Home sales grew a healthy 4% from 96,800 in March to 100,190 in April. In the 3 months to April sales were 1.6% lower than the preceding three months. This weakness reflects the sharp slowdown seen in mortgage approvals at the end of 2017.

Bank of England: Mortgage approvals were 62,455 in April, down -0.6% month on month. This marks the 3rd consecutive month approvals have fallen. In the 3 months to April, approvals were 1.9% lower than the preceding three months.

RICS: After 4 straight months of sharp decline, new buyer enquiries stabilised in April, however, demand fell for the 13th month. Supply remains tight with new instructions falling for the 26th consecutive month, however, the pace has slowed markedly. Agreed sales held relatively steady.

Halifax Research: The average price of a flat in the UK has risen £75,074 over the last 5 years (£1,250 a month), from £157,061 in 2013 to £232,135 in 2018. Flats now account for 15% of all sales. Although 6 in 10 sales in 2017 were terraced or semi-detached, flats have increased in value by 48% compared to 39% for all types over the same period. Although flats achieved greater price gains over the past 5 years, semis and terraced homes remain the most popular.

Rightmove House Price Index

National

  • New record asking price for 3rd consecutive month as steady increases continue.
  • Spring market sees stronger May sales (-2% on May 2017 but +5.4% on May 2016).
  • Market conditions vary significantly between the north and south:
    • Strong buyer activity in the north has shrunk stock by circa 4.3% compared to a year ago, restricting buyer choice and giving sellers upwards pricing power.
    • Less active southern regions have more available stock, up circa 17.5% compared to a year ago, a driver for a buyers’ market and some downwards price pressure.

London

  • Asking prices drop -0.9% (-£6,009) as the spring market comes to an end.
  • The annual rate remains negative for the 10th consecutive month at -1.0%.
  • 16.4% more available stock compared to May 2017. Sellers need to compete on price.
  • Sales volumes in May were -5% on May 2017.

Rightmove Asking Price Data for London

Category Average Asking Price (June 2018) Monthly Change Annual Change
By Travel Zone
Zone 1 £1,345,031 -0.4% -2.4%
Zone 2 £760,327 -0.9% -1.2%
Zone 3 £600,126 -1.9% -1.8%
Zone 4 £488,710 -0.8% 0.0%
Zone 5 £489,669 0.8% 0.5%
Zone 6 £494,168 -0.2% -0.9%
By Area
Greater London £631,737 -0.9% -1.0%
Inner London £784,298 -1.0% -1.1%
Outer London £523,781 -0.7% -0.7%
By Market Sector
First-Time Buyers £486,054 -0.8% -2.5%
Second - Steppers £701,337 -0.6% -0.1%
Top of the Ladder £1,485,770 2.4% 2.3%
National Average for Comparison
National Average £309,439 0.4% 1.7%
By London Borough (3 month rolling average)
Redbridge £473,394 0.8% 4.2%
Kensington & Chelsea £1,726,570 3.6% 3.0%
Barnet £662,109 -0.3% 2.7%
Merton £658,345 -0.2% 2.2%
Sutton £480,858 1.0% 2.2%
Greenwich £452,631 -0.4% 1.8%
Richmond Upon Thames £865,124 -0.2% 1.5%
Havering £411,372 -0.1% 1.3%
Croydon £446,625 0.5% 1.0%
Enfield £460,348 0.1% 0.2%
Hillingdon £496,368 0.4% 0.1%
Barking & Dagenham £313,439 -0.5% 0.1%
Bexley £403,329 -0.6% -0.3%
Lewisham £483,645 0.8% -0.6%
Tower Hamlets £607,446 0.8% -0.8%
Lambeth £671,357 1.9% -0.9%
Southwark £643,846 1.2% -1.0%
Waltham Forest £482,408 -0.5% -1.3%
Newham £419,475 0.4% -1.3%
Westminster £1,508,200 -0.3% -1.4%
Haringey £627,373 0.1% -1.9%
Hounslow £541,949 -0.7% -1.9%
Wandsworth £823,115 0.4% -2.0%
Harrow £568,509 0.3% -2.2%
Bromley £530,274 -1.2% -2.3%
Brent £584,355 0.3% -2.6%
Islington £752,962 -1.5% -2.9%
Camden £995,367 -0.6% -3.3%
Kingston Upon Thames £610,388 -1.5% -3.3%
Hackney £649,176 -0.7% -3.7%
Hammersmith & Fulham £928,028 -0.5% -3.9%
Ealing £558,569 -0.3% -4.5%

Miles Shipside, Director and Housing Market Analyst, Rightmove

National

“A pleasingly strong flourish at the end the spring selling season given the political uncertainty and stretched buyer affordability. At an initial glance all of this fits with a theme of ‘steady as she goes’, however, if you dig a bit deeper, you’ll find the main driver is good buyer demand in the comparatively stock-starved northern market. This demand, fuelled by prices that are still relatively affordable, have meant the stock has dwindled in the north and increased in the south.”

London

“This month sees the largest fall in the price of property coming to market since January, as sellers recognise that the traditionally busier spring selling season is drawing to a close. With the normally more active spring buyer market over and some potential buyers likely to be distracted by summer holidays and World Cup-itis, the goal posts have moved. Sellers in slower locations will have to price lower than competitors, as there are few better tactics than a bargain price to tempt buyers.”

RICS - UK Residential Market Survey

New Instructions

New instructions in May turned positive for the first time in over 2 years (27 months).

Although new stock has increased marginally, average levels on agents books across the UK was steady at 42.5, still close to an all time low.

18% contributors said appraisals in May were lower on a like for like basis compared with the same period last year. This does not appear to bode well for the pipeline going forward.

Buyer Demand

New enquiries fell overall, however, the decline was modest compared to the start of 2018.

The regional picture is still mixed with 6 in 12 regions seeing an increase this month.

Sales

Although sales held steady for the 2nd successive month (with the least negative reading for 14 months), the regional breakdown suggests activity is rising firmly in just 4 regions.

Looking ahead, respondents expect little change over the coming months nationally.

Prices

No change was seen in May, following a marginal decline in April. However, there are large regional dimensions. London continues to show the most negative trends, with downwards movement also seen across the wider South East.

Price Expectations

Near term expectations point to a marginal decline on a national basis. That said, this is mainly driven by a negative outlook for prices across the south of England.

Lettings

Demand for rented properties remained unchanged (on a non-seasonally adjusted basis) extending a run of 5 consecutive reports of flat tenant demand.

Landlord instructions remain in decline, however, the fall in May was not as significant.

Given the lack of supply, rents are envisaged to increase over 2018 nationally.

Simon Rubinsohn, RICS Chief Economist, RICS

“Although agents are suggesting a little more supply may have come onto the market in May, some from the BTL sector, inventory levels remain near historic lows. With the run rate on appraisals continuing to track below the numbers of a year ago it is premature to conclude a sustained upturn in stock. Against this backdrop, it is likely activity will remain subdued for some months. This is reflected in the feedback to the latest survey which shows sales expectations only marginally positive on a 1-year view.”

NAEA - Housing Report - April 2018

Demand

Demand grew by 9% in April. On average, estate agents had 337 buyers registered per branch, compared to 308 in March. This is much lower than April 2017 at 381 (+13%).

Supply

Supply fell from 40 in March to 33 on average per branch in April.

Activity

Month on month, sales agreed remained the same, with 8 per branch in April.

The percentage made to FTBs dipped to 24% from 26% in March. In April 2017, 25% sales were to FTBs; 26% in 2016 and 2015, and 28% in 2014.

Mark Hayward, Chief Executive, NAEA:

“Last month, findings indicated we were entering a buyer’s market, but this month the dial swung back in favour of sellers. With demand on the up and supply falling again, buyers will find themselves facing stiff competition. This is particularly difficult for FTBs who traditionally have less bargaining power. The Government is working to improve the house buying and selling process, which is music to our ears, but until more homes are built and supply catches up with demand, the process will remain difficult.”

Savills - UK Housing Market Update

Early HMLR data indicates a dip in transactions in Q1 2018 compared to Q1 2017. This is supported by a -9% fall in mortgage approvals and forecasted low activity over 2018.

In February the Term Funding Scheme (TFS) closed, cutting off a source of cheap financing for banks. It was designed to encourage banks to pass on the base rate cut to lenders and its withdrawal coincides with an expectation of base rate rises in 2018. These are reflected in mortgage interest rates, with the 2 year fixed rate (at 75% LTV) now at its highest level since July 2016. Increases in mortgage payments will put pressure on many households, but recent falls in inflation have led to real wage rises for the first time in a year.

The most widespread annual house price falls are now in London, with Kensington & Chelsea and Hammersmith & Fulham seeing the biggest annual drops of circa 5% each.

Annual rental growth in the UK slowed marginally to 1.0% in May from 1.1% in April. In London, annual growth slowed to 0.0%

Knight Frank - UK Residential Market Update

Average prices ticked up 0.2% in April, taking the annual rate of growth to 2.6%.

Average rents rose at 1.1% annually in April nationally.

Attention is already turning to the August meeting of the Bank of England’s base rate setters. There are expectations they will raise rates to 0.75%. While a 0.25% rise would lift the base rate to a 9 year high, they will still be at a record low on a long-term basis.

As such, mortgage rates will remain modest in the short to medium-term.

The nature of mortgages on offer is also changing, with an increasing range that are designed to bridge the “deposit gap” for younger buyers by offering up to 95% and even 100%. However, in a change from those on offer before the Global Financial Crisis of 2008/2009, many need to be guaranteed by another party with certain levels of capital.

UK Finance: FTBs are now paying an average 16% deposit on a new home (circa £26,000).

In the new-build market, circa 80% homes purchased through the HTB Equity Loan scheme have been to FTBs. This is due to end in 2021 and there are calls for more clarity on this.

Increasing affordability pressures in some areas are highlighted by the average house price to earnings ratio, which has risen from 5.1 in 2002 to 7.7 in 2017 nationally. However, this masks the regional divide, with ratios ranging from 13.2 in London to 5.2 in the North East.

Knight Frank - Prime London Residential Market Update

Sales

Price Change Annual Quarterly Monthly
Prime Central -1.4% -0.7% -0.2%
Prime Outer -3.4% -0.6% -0.2%

The number of new buyers has risen 13% since January 2016. However, buyers are scrutinizing the market more closely amid wider political uncertainty. As a result, viewing levels rose 35% over the same period and the average time to sell rose 25%.

The ratio of new buyers to new listings, an indicator of demand versus supply, has strengthened in the last 2 months, following a dip in early 2018.

The volume of higher-value sales stock is rising. This is an indication that higher rates of stamp duty have been more fully absorbed in higher price brackets.

In a further indication of confidence returning, the number of £1m+ and £2m+ sales across the capital are strengthening after a period of more marked declines over 2017.

Rentals

Rental Change Annual Monthly
Prime Central -0.1% 1.2%
Prime Outer -2.7% -0.5%

Rental values approached positive annual growth in May, following a 15% decline in stock in the 12 months to April as landlords explore tax changes affecting issues like mortgage interest relief and wear and tear allowances. Knight Frank forecasts +0.5% in 2018.

In PCL, tenancies agreed at £5,000+ per week rose 24% in the year to April, while below £1,000 rose 12%. A 1% rise in the middle price bracket, where demand is typically stronger among senior executives, shows political and economic uncertainty remain.

In POL, tenancies agreed above £1,000 per week rose 28% in the year to April compared to a 19% at below £1,000. It is the opposite trend to PCL and shows demand among price-sensitive corporate tenants is rising in better value-for-money POL locations.

Rental values are strengthening in POL as levels of new supply have fallen. There were 13% fewer new listings in the year to April than the previous 12 months while annual rental value growth of -2.7% in May was the strongest since July 2016.

In other news…

A Quick Million (BBC)

Rightmove says the top 5 fastest selling £1m+ property locations were all outside London.

Cambridge tops the list at just 45 days to secure a buyer. Others were Edinburgh, Harpenden, Bristol, and St Albans.

16,119 sales at £1m+ were completed over 2017, up 5.4% from the previous high in 2016.

Mum & Dad Feel the Pinch (BBC)

Legal & General: Average parental contribution to home buyers is £18,000 over 2018, compared to £21,600 in 2017. This reflects a gross drop from circa £6.5bn to £5.7bn.

Nonetheless, 1 in 4 buyers expect to receive financial help from friends and family.

L&G say almost 317,000 transactions this year would rely on at least some parental help.

Contributions vary by area with £31,000 average in London versus £11,000 in Scotland.

While under 35s are the most likely to receive help, 20% 45-55-year-olds receive help.

Named & Shamed (BBC)

All London boroughs have signed up to a “name and shame” rogue landlord and agent checker, set up by the Mayor of London.

It allows local authorities to submit records of prosecutions and fines against landlords. Renters can then check if their prospective landlord or agent has any convictions.

The checker currently displays information for the London Boroughs of Brent, Camden, Greenwich, Islington, Kingston, Newham, Redbridge, Southwark, Sutton, Tower Hamlets, Waltham Forest and Westminster. All other councils are to add their records soon.

Monaco No.1 (Savills)

Monaco retains its position as the most expensive residential market in the world, surpassing major cities including Hong Kong, Tokyo, London and New York.

For the 4th year, residential transactions were over €2 billion, for just 456 total sales.

High demand and a stock shortage pushed average prices up 6% to €4.5 million (13% higher than prime Hong Kong, the 2nd most expensive).

Average values of €41,300 per square metre means €1 million gets you just 24.21sqm.

In 2017, 25% transactions were of €5 million+, including 34 sales (8%) at €10 million+.Monaco is extremely land-constrained, so new development sites rarely become available.

We hope you find this market insight informative, however, should you have any queries or recommendations on this or any of our other articles, please contact us

Sources & Further Reading

Article Source Release Date Link
Halifax House Price Index Halifax 07/06/2018 Find out more
Nationwide House Price Index Nationwide June 2018 Find out more
Rightmove - House Price Index Rightmove June 2018 Find out more
HMLR - House Price Index (April 2017) HMLR 14/06/2018 Find out more
RICS UK Residential Market Survey - May 2018 Royal Institution of Chartered Surveyors 14/06/2018 Find out more
Prime Central London Sales Index - May 2018 Knight Frank May 2018 Find out more
Prime Central London Rental Index - May 2018 Knight Frank May 2018 Find out more
UK Residential Market Update - May 2018 Knight Frank May 2018 Find out more
Housing Market update - June 2018 Savills 06/06/2018 Find out more
Housing Report - April 2018 NAEA May 2018 Find out more
Pace of house price growth slows BBC - Business 07/06/2018 Find out more
Fastest-selling £1m homes 'are outside London' BBC - Business 07/06/2018 Find out more
Bank of Mum and Dad 'feels the pinch' BBC - Business 29/05/2018 Find out more
How many £1m-plus homes are sold near you? BBC - Business 25/05/2018 Find out more
Housing market continues to cool BBC - Business 23/05/2018 Find out more
London boroughs sign up to 'name and shame' renting database BBC - London 22/05/2018 Find out more
Still number one Savills 21/05/2018 Find out more
Price of flats climbs £1,250 a month Halifax 19/05/2018 Find out more

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Steven Goovaerts

Steven is a Graduate Surveyor and versatile member of the team, currently undertaking an MSc in Real Estate Management at the University of the West of England and enrolled on the Assessment of Professional Competence.

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