Residential Property Market Update And Opinion – June 2021

The UK residential property market recorded another significant increase in prices in May. The Nationwide announced a 1.8% month-on-month rise, the third consecutive monthly increase of over 1%. This puts annual house price growth at 10.9% – a figure broadly supported by the latest (March 2021) ONS official figures:

This is the first time that house price inflation has hit double digits since 2007. May residential transactions are up 38% year-on-year and, in the year to date, there have been 600,000 residential property transactions. This is the highest figure recorded since 2004.

Chief amongst factors influencing this performance has been the SDLT holiday, extended in the March Budget and set to be phased down to its pre-Covid level (£125,000) in October. In July the threshold drops from £500,000 to £250,000, meaning the maximum possible saving through the scheme drops from £15,000 to £2,500. 

Short-term market outlook

As the deadlines approach there has been little sign of demand easing. Likewise, there appears little to indicate anything more severe than a market cooling across the second half of the year.

The Bank of England has raised its economic growth forecast for the year to 7.25% as Lockdown eases. It also predicts a gradual rise in inflation from mid 2022 to the targeted 2% by the end of 2024.

Analysts Capital Economics believe the combination of an improved economic outlook and the continued availability of historically cheap mortgages will support house prices in the short to mid-term. House price inflation is generally expected to peak at around 10% in the summer, dropping to around 6% by Q4 and end the year at about 3%.

Is the ‘urban exodus’ over?

With no signs for concern about the residential property market as a whole, recent trends are points of interest. Developers should exercise prudence when deciding what to build and where. The ‘race for space’ has been the undeniable headline of the past 12 months. As the table above clearly shows, house price inflation has out-performed in the regions. Indeed, at a micro-level, prices in certain regional municipalities have rocketed by over 20% in the last year. 

Demand in the regions continues to be extremely strong. But there is now also suggestion that the recent woes of urban areas are about to change. As Lockdown progresses many buyers have expressed a yearning for the social elements they have forfeited since last summer. The appeal of living in a city centre appears to be on the up. This at a time when, given the comparably poor performance of urban prices, there are some tempting deals on offer.

Rightmove has recorded an increase in searches for urban apartments – regardless of the elevated importance amongst buyers of outside space – of 39% to April. This is currently the most searched-for type of property and a complete reversal of fortune compared with 2020.

When comparing all urban areas to all rural areas across the UK, growth in buyer demand from January-April has increased by 35% year-on-year and 32% respectively. Anecdotally, their study also revealed that searches for quieter locations were conducted more by wealthier, older buyers whilst younger, first-time buyers were prevalent within urban areas.

A moment of opportunity

Regardless of property type or location, the simple fact remains – the UK still requires a lot of new housing. If indeed we are seeing the shoots of the urban revival, this coupled with the continued appeal of larger properties, of more space, across the regions represents a genuine opportunity for SME developers.

Reflecting the market, Hilltop are seeing with an exceptionally high number of residential deals that require funding. Whilst we’re seeing more deals where the numbers work than at any other point over the last 3 years, there’s equally the highest volume of schemes that don’t make it through preliminary assessment. Over-valuations and  inappropriate developments for their locations are amongst the key reasons for rejection.

Cautious optimism is key for the coming months in the residential property market. Local market data needs researching thoroughly before deciding what to build and where. Thoroughly stress-test each deal to make sure it stacks up – market depth, absorption, build costs (especially given current supply-side issues), duration, profitability and exit route.

Those stages complete, the right financing for any project is paramount. Work with your lender, not against them. Hilltop remain firmly committed to providing bespoke funding packages on case-by-case basis.

Are you a developer looking for extra stretch? Hilltop are currently able to fund to 95%LTC on projects from £3m-£10m. Email us here.