At the October Property Update event, Lucian Cook, Savills’ Head of Residential Research, presented an in-depth look at trends affecting the UK residential property market. Cook outlined the lasting impact of post-pandemic shifts, rising interest rates, and regulatory changes influencing both buyers and landlords across various housing segments.
He noted that the initial surge in demand for rural and spacious properties seen after Covid, driven largely by the rise in remote work, has now slowed. As interest rates have increased, buyers face mounting affordability challenges. However, with inflation settling at 2.2% and possible rate cuts in sight, Cook suggested that home affordability could soon improve, potentially expanding the pool of buyers and bolstering purchasing power.
The recovery in sales has been gradual, with transactions still below pre-pandemic levels. Cook highlighted how 2022’s economic fluctuations led to sharp rate hikes, impacting sales activity. Since late 2023, however, there have been signs of improvement. While house prices have experienced a modest 3.2% growth as of September 2024, overall values have been moderated by high inflation. With nominal prices only falling by around 5%, the market now largely favours buyers with strong equity or cash reserves, who remain resilient despite the borrowing landscape.
Cook also addressed the rental sector, which has seen considerable turbulence, including double-digit rental growth due to a severe supply-demand imbalance. However, rental increases are beginning to stabilise as tenants reach their financial limits. With the Renters’ Rights Bill set to become law, Cook stressed this legislation marks the most significant regulatory shift in over three decades. This Bill will end assured shorthold tenancy agreements, restricting landlords’ ability to reclaim properties at the end of fixed terms. Cook reassured attendees that rent reviews will still be pegged to market rates, not reverting to the strict controls seen before 1989. These regulatory changes may prompt smaller landlords to exit the market, while larger landlords could view this as a growth opportunity.
Labour’s goal of building 1.5 million homes in five years was another focal point, with Cook acknowledging that while this target may be unrealistic, it reflects a more interventionist housing policy. He discussed policy measures likely to ease planning constraints, increase development approvals, and direct more resources towards planning departments. While favourable to strategic landowners, Cook noted that requirements for affordable housing could impact land sale returns.
At the higher end of the market, activity has been subdued compared to more affordable segments. Cook observed a cautious approach among buyers and sellers, driven by uncertainty over potential tax reforms, including possible capital gains tax increases and higher stamp duties for international buyers. Prime central London properties, still priced 20% below their 2014 levels in nominal terms, may not lead the recovery as they typically would. This segment’s response is likely to be slower, with the risk of further tax and regulatory shifts adding to the hesitancy.
Cook’s analysis painted a complex picture of the UK housing market, where evolving policy, affordability factors, and shifting buyer dynamics are expected to shape the sector’s trajectory. Each segment of the market faces unique challenges, from rental affordability to sales recovery, underscoring the importance of policy stability for sustained growth.
Arbuthnot Banking Group PLC (LON:ARBB), trading as Arbuthnot Latham, provides private and commercial banking products and services in the United Kingdom. Founded in 1833, Arbuthnot Banking is based in London, United Kingdom.
