The latest Halifax house price index results, which show mixed fortunes for the housing market, should be seen as a spur for landlords to expand their portfolios.
The Halifax says that average UK house prices grew in March on a quarterly basis, by 2.0%, with annual growth slowing to 0.3%, from 1.6% in February.
But compared to a month ago, the price of a UK property fell 1.0% or £2,908 in cash terms, with the average property now costing £288,430.
That presents an opportunity for landlords, claims Yasin Patel, co-founder of investment specialists Autarky Sukuk.
He comments: “House price growth experienced a slight cooling in March, but annual prices are still at healthy levels considering the turbulence of last year.
“Inflation is proving a tricky beast to fight and this is prompting fears that the Bank of England will be much slower to lower interest rates, which keeps the cost of borrowing at more punitive levels.
“Landlords should be assured that now is a good time to buy. Slowing house price growth brings more opportunities to grab a bargain. With rent rates at record highs, the potential yield that investors can get on returns is still attractive.
“The next few months will be crucial for the industry, as the warmer months are typically some of the busiest in the calendar year. If we see this slowdown continue, we may need to be more realistic about how big the great property bounce-back will be.”
UK house prices rose by 0.7 per cent in February, says the Nationwide, after taking account of seasonal effects.
This resulted in an improvement in the annual rate of house price growth to 1.2 per cent in February, from a fall of 0.2 per cent the previous month.
House prices are now around 3.0 per cent below the all-time highs recorded in the summer of 2022.
Nationwide chief economist Robert Gardner says: “The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market. Indeed, industry data sources point to a noticeable increase in mortgage applications at the start of the year, while surveyors also reported a rise in new buyer enquiries.
“Nevertheless, near-term prospects remain highly uncertain, in part due to ongoing uncertainty about the future path of interest rates.
“Borrowing costs remain well below the highs recorded last summer but, if the recent upward trend is sustained, it threatens to restrain the pace of any housing market recovery.
“While the squeeze on household budgets is easing, with wage growth now outstripping inflation by a healthy margin, it will take time to make up for the ground lost over the past few years, especially given consumer confidence remains fragile.”
Jeremy Leaf, a north London estate agent and a former RICS residential chairman, says: “There tends to be an over-concentration on property prices when it comes to assessing how the housing market is performing. Prices impact buyer and seller confidence but transactions and affordability, which is most stretched in higher-value areas such as London, are arguably more relevant.
"However, while Nationwide reports another rise in prices, the market does remain price sensitive. Only competitively-priced properties are attracting attention. Sellers must price realistically or offers won’t be forthcoming and market improvement may not be sustained.”
Hargreaves Lansdown head of personal finance Sarah Coles warns that despite these positive figures, challenges remain.
She says: “The momentum of moderating mortgages fuelled a first-class February, and hiked house prices, pushing them into positive territory for the first time in over a year. For months at the end of 2023, buyers were sitting on their hands, waiting for a break in the clouds. Now they’ve snapped up cheaper deals and are hunting for a new home.
“However, there are flies in the soothing balm of a positive property market and the momentum of lower mortgage rates in January can only carry us so far.”
She says mortgage rates are starting to rise again. “At the start of February, according to Moneyfacts, the average two-year rate was 5.56 per cent, and by the end of the month it was 5.75 per cent. This isn’t a dramatic movement, but the direction of travel is important. If rates keep drifting up, we could see buyers hit pause.”
The latest Rental Index from PropTech supplier Goodlord has recorded a rent rise and a reduction in void lengths over the past month, with the average rent seven per cent higher than at the same time in 2023.
Average rents rose by one per cent during February, taking the average cost per property to £1,162 in England, up from £1,154 in January.
Rents have steadily been increasing following the traditional Christmas dip, despite rent rises between January and February being far from the norm; rents have dipped in February during four out of the last six years, according to Index figures.
The new average figure of £1,162 means tenants are paying seven per cent more rent compared to February 2023.
Looking at the year-on-year data for February 2024 vs. February 2023, the biggest increase in rents has been seen in the South West, where year-on-year prices have risen by 11 per cent. This is followed by the North East, which has seen a 7.5 per cent rise.
The smallest year-on-year change was in the West Midlands, where tenants are paying 4.5 per cent more.
The biggest regional rise in rents during February came in the South West and the South East, where rents rose by 2.5 per cent. The average price of rental property in the South East is now £1,293, with the South West not far behind at £1,173.
Two regions saw a drop in prices during February - the West Midlands dipped by 2.0 per cent and Greater London by 1.0 per cent.
Further highlighting the ongoing demand for rental properties across England, void periods - the average length of time a property is vacant between tenancies - also shortened during February. Average voids shortened from 22 days on average across England to 18 days - a reduction of 18 per cent.
The biggest change to voids was recorded in the North East, where voids shortened from 24 days in January to just 17 days in February.
All regions recorded shorter voids, with the exception of the South West, which saw void periods hold steady at 20 days month-on-month.
William Reeve, chief executive at Goodlord, comments: “We don’t normally see a bump in rents during February. It’s typically a slower month where things cool off following the post-Christmas release of demand we see in January. The fact that we’re seeing a rise this month is indicative of the ongoing squeeze on the market and a lack of available stock - something that’s further evidenced by the shortening of voids across England.
“Right now, the market is delivering fairly consistent year-on-year stats when it comes to rent rises and we continue to hover around the seven per cent mark. All eyes will be on whether this starts to reduce as we come into the summer following last year’s record breaking numbers, or if new records will be set.”
Diverse views have emerged from financial services figures in response to last week’s news that the headline rate of inflation remained at 4.0 per cent.
According to the latest figures from the Office for National Statistics, prices for food and non-alcoholic beverages fell on a monthly basis by 0.4 per cent, marking the first decrease since September 2021. Cheaper bread and cereals helped reduce food inflation. The rate of core inflation also remained static, at 5.1 per cent.
This has prompted some industry figures to suggest a rate cut will be sooner rather than later.
Ben Thompson, deputy CEO at Mortgage Advice Bureau, says: “Inflation remaining the same will be music to the ears of rate setters at the Bank of England. January’s headline rate had been expected to rise slightly, so this will be seen as good news. Swap rates have been unsettled over the last week, but this reading will fuel more talk of interest rate cuts.
“Inflation is unlikely to fall in a straight line, and as we’ve already seen, there will be ups and downs. However, 2024 is looking to be a more positive year for mortgages. We’ve seen weekly customer volumes close to those of June and July 2023, and with a drop in interest rates potentially coming into view, the outlook is bright for those looking to refinance or get onto the property ladder.”
And an analysis from independent market broker John Charcol says: Mortgage fixed rates hinge on Swaps, which heavily depend on market outlook and sentiment. This [4.0 per cent] announcement is an improvement on market expectations, given recent days have witnessed an upturn in short-term money. Overall, bank rate is anticipated to decrease sooner than initially projected last year now being priced in for June, with no further increases on the horizon.”
However, some believe the Bank of England will be unmoved by the better-than-expected inflation news.
Sarah Coles, head of personal finance at Hargreaves Lansdow, says: “Inflation is expected to dip significantly lower in the months to come, towards the Bank of England’s target in the Spring, when lower wholesale gas prices feed into the figures. That’s not the end of it though, unfortunately, because after hitting the [2.0 per cent] target it’s expected to bounce back, and take a while to drop back again. As a result, the Bank of England has already said it’s not going to cut in a hurry. A surfeit of caution means they won’t cut until lower inflation has bedded in, and we’re a fair way from that.”
And Nicholas Hyett - investment manager at Wealth Club - adds: "The run of disinflationary data points from before Christmas has continued to falter. However, while the disinflationary disco might have stalled - the UK economy has at least avoided a return to rising inflation that many feared. Unfortunately that leaves rate setters and investors with more questions than answers.
“With inflation still double target a run of steadily falling interest rates, which set stock markets dancing before Christmas, now looks less likely. But a lack of cuts could feed through to higher interest rates in the mortgage market, which had already started to price some cuts in. From the Bank of England's perspective that would have a similar effect to a new series of rate rises (something it's likely to want to avoid given the delicate state of the economy). Increasingly there are no good options for Central Bankers."
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