Prime Central London experienced a buoyant lettings market in 2013, with a 50 per cent increase in tenancies agreed and an estimated 2.8 per cent rise in rents compared to 2012.
Lucy Morton, senior partner and head of lettings at London estate agency W.A.Ellis, commented: “Although rents did increase last year overall, in the lead up to Christmas we did see prices reduce by as much as 20 per cent in order for landlords to secure a tenant and prevent void periods. Void periods did creep up last year but the figures are slightly distorted as the lettings market has become more seasonal.”
According to W.A.Ellis, for the last two years in particular, the key lettings months have been between April and October – in these periods, a property can let within a week, whereas void periods can be substantially increased if a property becomes available between November and March.”
The changeover season in the lettings calendar continues to be during July when there is a marked increase in tenancy terminations. This is driven by not only the end of the school year for families, but also the end of the academic year for universities. Year on year, there has been a substantial increase in high net worth overseas students flocking to study in London which adds to this.
Added Lucy Morton: “Presentation was key in 2013 and will continue to be paramount in 2014. A badly presented property will sit on the market and warrant a rent reduction, therefore distorting rental statistics even further. A property well presented and priced correctly should let within a month of commencement of marketing, particularly in the key calendar months. Once a property is let, our average tenancy hovers around the three year mark.
“It is always difficult to predict market conditions 100 per cent accurately, but I believe that it will be more of the same for 2014, although with the economy picking up, indications are that the City will be hiring thus creating more tenants. I therefore predict that Prime Central London rents will increase by marginally over three per cent in 2014.”
Activity in the UK property market continued full steam ahead in December, with the Royal Institution of Chartered Surveyors (RICS) recording the highest activity in sales in that month since March 2008.
According to December’s RICS Residential Market Survey, over the festive period, the average number of transactions per surveyor reached 21.3, more than double the lowest point of the downturn back in January 2009 when respondents were selling a mere 9.8.
With more sales now going through, growth in demand for rented accommodation has begun to slow significantly as a growing number of renters opt to test the sales market. Respondents to the Survey note that increased confidence is a key driver behind growing activity.
Meanwhile, with the amount of homes coming onto the market still nowhere near enough to meet the higher level of demand, prices continue to rise across the country. During December, a net balance of 56 per cent more chartered surveyors reported growing prices. Significantly, every area of the UK saw prices increase with London and the South East experiencing the biggest jumps.
Perhaps unsurprisingly, given the more positive tone to the market, expectations for 2014 are decidedly upbeat. Respondents predict that both sales and price numbers will continue to increase through the course of this year. This is largely being driven by easing in credit conditions, resulting in higher loan to value mortgages, and the on-going imbalance between supply and demand.
Peter Bolton King, RICS Global Residential Director, commented: “The housing market is starting to thrive once more. Sales are at their highest level in almost six years and this is being reflected right across the UK. Growing availability of affordable mortgages has released some pent-up demand from a market that, in recent years, has seen many viable buyers unable to enter the market. On the face of it, this seems like good news but unless we see a marked increase in the number of homes coming up for sale we could well be looking at a price rises becoming unsustainable in some areas.”
The average price of a UK home reached £175,826 in December 2013, according to the Nationwide House Price Index, with London prices seeing a 15 per cent year-on-year increase for the month.
UK housing market followed the trajectory of the wider economy through 2013, gaining momentum as the year progressed, said the Nationwide, adding that the average monthly increase in house prices rose from 0.4 per cent in the first half of 2013 to one per cent in the second half. Overall, prices increased by 8.4 per cent in 2013, though they remain around five per cent below the all-time highs recorded in late 2007.
“The upturn also became increasingly broad based over the course of 2013,” said Robert Gardner, Nationwide’s Chief Economist. “For the second successive quarter, all 13 UK regions saw positive annual house price growth in Q4, though London and the South East continued to record the strongest pace of growth. A large part of the pick-up in the housing market can be attributed to further improvements in the labour market and the brighter economic outlook, which helped to bolster sentiment amongst potential buyers. Policy measures also played an important supporting role by helping to keep mortgage rates close to all-time lows and improving the
availability of credit, especially for those with smaller deposits.”
It is thought that part of the reason for the acceleration in house price growth is due to the supply side of the market failing to keep pace with the upturn in demand, even though buyer numbers remain subdued by historic standards. For example, in Q3 2013 the below pre-crisis levels, while the number of new homes built was around 45 per cent lower. Moreover, even in the pre-crisis period, the pace of construction was below that required to keep pace with the increase in the number of households, adding further weight to the notion that the supply side of the market remains constrained.
Affordability is being supported by the ultra-low level of interest rates. A typical mortgage payment for a first time buyer is currently equal to around 29 per cent of take home pay, close to the long term average. However, the risk is that if demand continues to run ahead of supply in the quarters ahead, affordability may become stretched. House price growth has been outstripping average earnings growth since the middle of the year.
House prices in the UK will see an increase of eight per cent over the course of next year while the cost of renting a home should rise by a further two per cent, according to the Royal Institution of Chartered Surveyors (RICS).
This hike in values is being driven by the acute imbalance between growing buyer demand and sluggish supply with new instructions to estate agents close to stagnating, added RICS. As well as rising prices, the number of property transactions should also see a further jump, moving up to 1.2 million in 2014 from 1.05 million last year. Although this represents a year-on-year improvement, this is still way short of previous years before the property crash – in 2006 there were well 1.67 million transactions.
With the shortage of homes coming onto the market a key factor behind the price rises, some comfort may be drawn from a likely 20 per cent jump in new housing starts in England over the next year. That would push the total towards the 155,000 mark, compared to 125,000 in 2013 and only around 100,000 in 2012. While this is an encouraging trend, it is still insufficient to address the more rapid growth in population and will leave significant shortfalls in all tenures.
Across the UK, all parts of the country should see prices rise next year. Predictably, the biggest increases are to be seen in the capital, where the cost of a home will jump by around eleven per cent, revealed RICS. It remains to be seen what impact the recently announced increase in capital gains tax for overseas vendors will have on the prime central London market.
Meanwhile, the North East and Northern Ireland are expected to experience the lowest rises with prices increasing by five per cent and four per cent respectively.