Viewpoint: State of the Market, August 2024

An overview of the latest key property market updates and insights for small and medium-sized property developers.

Key takeaways at a glance:

Key takeaway 1: House price growth hits new 2024 high

There have been several notable announcements and developments since our last report that have collectively contributed towards a positive sector-wide ripple effect, starting with UK house prices.

While prices remained relatively flat during April to June, they increased by +0.8% (£2,200 compared to the previous month) in August, putting the average cost at £291,268. Meanwhile, the annual rate of growth rose to +2.3%, the highest rate since the start of the year.

A raft of mortgage rate reductions, followed by a Base Rate cut (see Key Takeaway 3), has generated a renewed air of encouragement for those looking to remortgage, get their foot on the property ladder and make their next move. (Interestingly, Savills reports that Fridays are the new Saturdays when it comes to viewing properties).

But for all of the long-awaited positive sentiment, which is to be very much welcomed, two ongoing challenges still exist – affordability constraints (despite ongoing real salary growth, i.e. greater than inflation) and the lack of available properties.

However, with further Base Rate cuts anticipated and house prices reportedly set to continue to increase, the overall outlook is projected to remain modestly positive for the rest of the year, reinforced by the strongest short-term (3-month) price growth expectations since April 2022 and levels of 12-month price expectations also not seen since 2022 in the July RICS UK Residential Market Survey.

Key takeaway 2: Construction activity accelerates at fastest pace

July was also a positive month for the UK construction sector, with industry-wide activity soaring at its fastest pace in 26 months. According to the S&P Global UK Construction PMI report for the month, there was a rise in new orders and employment figures. In fact, the overall picture was so positive, the sector has been referred to as ‘roaring ahead in a post-election bounce back.’

More specifically, total industry activity rose sharply to 55.3 in July from 52.2 in June – the fastest rate of expansion since May 2022. All three categories of construction reported increased activity, with civil engineering activity seeing the fastest rate of growth. Success in securing new orders has been highlighted as being the main contributing factor. New business also expanded for the sixth month in-a-row. Consumer confidence improved too, which is predicted to help spearhead new order growth over the coming weeks and months.

Key takeaway 3: MPC makes long-awaited Base Rate cut

At its August 1^st meeting, the Monetary Policy Committee (MPC), reduced the Base Rate from 5.25 to 5%, putting an end to months of speculation. It’s a move that has been widely reported on since our last report, and one we are sure you are fully up to speed with, but for reference, here are the latest MPC meeting summary notes, highlighting that 5 MPC members voted for the cut (previously 2).

The long-awaited cut (0.25%) invariably generated widespread media coverage and discussion:

BBC - Mortgage rates: How do UK interest rates affect me?
Financial Times - Bank of England lowers rates to 5% in first cut since 2020
The Guardian - How will Bank of England interest rate cut affect my finances?
Bloomberg - The Bank of England finally delivers that rate cut
This is Money - Bank of England FINALLY cuts interest rates to 5% - what it means for mortgages and savings

As for inflation, the annual inflation rate reached 2.2% in July, slightly up from 2% in June, but remained below the 2.3% forecast. This came as no surprise given the dropping out of July 2023’s -0.4% monthly inflation fall from the annual measure, despite July 2024’s -0.2% monthly fall vs +0.1% expectation.

Now that the dust has settled on the base rate cut announcement, a new wave of speculation and headlines are emerging in relation to when rates will rise again and, indeed, when they will fall further, and how low they could potentially drop to. Stronger unemployment and GDP levels than expected in recent prints add uncertainty to this debate, but latest market expectations are evenly split on the next rate cut being in September and on-balance market sentiment expecting the Base Rate to be at 4.5% at the end of the year.

Key takeaway 4: How will Labour’s proposed planning reforms work?

Labour’s pledge to get ‘Britain building again’ has dominated the news since we published our last update, with Chancellor, Rachel Reeves, announcing a raft of major changes, which include reinstating compulsory housebuilding targets and reforming the National Planning Policy Framework (For all the details, read: https://blog.crowdproperty.com/blog/state-of-the-market-special)

In recent days, attention has increasingly turned to the practicalities surrounding implementing Labour’s proposed planning reforms, which will involve modernising local planning committees. The Local Government Chronicle writes that London councils will find it a challenge to find enough appropriate sites to meet the housebuilding targets. To add to this, a shortage of local authority planning officers has been cited by the British Chambers of Commerce as being a considerable obstacle to preventing planning system reform and subsequent delivery.

As for what the UK public thinks of Labour’s proposed planning reforms, a recent YouGov poll revealed that members of the public have mixed views. While they see the targets as being acceptable, people are sceptical when it comes to how they are enforced – in particular, 48% are against ministers overruling councils and reinstating previously rejected planning applications.

Key takeaway 5: EY's Summer Forecast shares bright outlook.

We started on a positive note, and we’re rounding off this update on a positive note, with the news that the UK economy is expected to grow to 1.1% this year, faster than previous projections (EY ITEM Club Summer Forecast).

Other key headlines from the July Summer Forecast include: annual GDP growth being predicted to reach 2% in 2025 and 2026; inflation averaging to 2.5% this year and slowing to 2.2% in 2025 and the Bank Rate being further cut to 4.75% by the end of 2024 (slightly different to latest market expectations), with the next cut predicted to be made in September.

Hywel Ball, EY UK Chair, explains: “Brighter conditions are expected to be matched by a rise in business investment in 2024, followed by an even more significant uptick next year. This would continue the UK’s strong post-pandemic performance in private sector investment and, alongside consumer spending, should be a key driver of national growth going forward.”

Mike Bristow, CEO of CrowdProperty, comments:

“As we navigate a property market that's showing signs of resilience and optimism, there's a unique opportunity for small and medium-sized property developers to capitalise on this momentum. The recent rise in house prices, combined with accelerated construction activity, creates a favorable environment for those looking to bring new projects to market. The long-awaited Base Rate cut by the MPC and a newly emerging mortgage market price war add further layers of potential that should further stimulate demand.

“For SME developers, this is a moment to act decisively. The anticipated continuation of house price growth and increased consumer confidence means that well-positioned projects can achieve strong returns. Moreover, Labour’s proposed planning reforms, while challenging, could open new avenues for development in areas that have been historically constrained.

“In this evolving landscape, our role as a leading specialist property development finance company is to support developers in seizing these opportunities. Whether through reliable but flexible financing solutions or sharing our property expertise, we are here to help you navigate these changes and drive your projects to success. Now is the time to leverage these market conditions and propel your development ambitions forward.”

Here at CrowdProperty, we work closely and productively with the developers we back – tackling market, site and situational challenges together in partnership.

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