Picking through the array of economic indicators and deciphering what this might mean for the UK economy, let alone the cost of your mortgage, remains a challenge. Better news on inflation, with CPI rates dropping back to 6.8%, quickly countered by stubbornly high core inflation. Wage growth excluding bonuses hit 7.8% in the three months to June, welcome news for stretched household budgets, but not necessarily for the overall health of the economy.
The impact of higher borrowing costs, both directly on businesses and on purchasers buying power were evident in the latest S&P Global/ CIPS purchasing managers’ index (PMI). The index, a leading indicator on the level of economic activity fell to 47.9 in August, down from 50.8 in July (any figure below 50 suggesting a contraction in activity) with falls across both the manufacturing and services sectors.
On one hand this could simply reflect the impact of the Bank of England’s successive rate rises, now numbering 14 since December 2021, part of the aim of which was to curb demand through limiting spending. But for others it is renewing concerns over the likelihood of the UK economy falling into recession later this year. It is still too early to tell, but will mean the next set of inflation figures, due before the MPC next meet, will be pored over even more intently when they are released on 18th September.
Housing market
The number of homes sold in July rose 1% compared to June volumes, but remain -16% lower than July 2022, according to the latest government figures. This means transactions in the last three months fell -21% annually. Nationwide figures show this is driven (unsurprisingly) by a fall in mortgaged purchasers, with the number of mortgaged home movers in H1 2023 falling -33% annually compared with a 2% increase in cash purchasers.
The Nationwide index shows UK house prices peaked a year ago in August 2022. A year on, prices have fallen -5.3%, the equivalent of a £14,600 fall in the value of a typical UK home. Although it is worth noting that price growth in the year to August 2022 was 10%.
There were just shy of 50,000 mortgages approved in July, -22% fewer than July 2022 according to the Bank of England. Best buy rates improved slightly in August, with figures from Lifetime Capital showing five-year fixed rate mortgages for house purchase 20 basis points lower in August than July at 5.2%. But modest improvements in the outlook for longer term fixed rates still represent a significant increase in costs for households. The bank suggesting typical monthly payments for those coming off fixed rates have risen by a fifth. Mortgage costs now account for an average of 35% of income, up from 30% a year ago.
Tenants are paying more too, with Homelet data showing renters are paying an average of 32% of income on rent, up from 30% last year. Yet despite rising rents, the rise in mortgage rates means renting could now be cheaper than buying. Zoopla data comparing average cost of renting and buying for first time buyers suggesting it is now cheaper to rent a home than buy for the first time since 2010.
More challenging market conditions mean sellers are having to think carefully about how they price their homes. Figures from Rightmove suggest properties which are more competitively priced from the outset find a buyer in just 27 days compared with those needing a reduction taking an average of 66 days.
August saw buyers listing properties become more realistic on asking prices, not unusual for this time of the year as sellers coming to market post-summer break try to put themselves in a stronger position in September. But the monthly fall was the highest recorded in August since 2008 and one percentage point higher than the -0.9% August average.
Student housing
With the nervous wait for A Level results now over for another year, many students now know where they will be studying. UCAS figures suggesting 415,000 applicants gained a place at college or university this year.
The lucky ones will have already secured their students digs, but the lack of purpose-built student accommodation continues to put pressure on student house hunters and the local rental market.
Analysis by Karl Tomusk in the JLL Living Research Team shows that purpose-built student accommodation (PBSA) nationally has the capacity to house 31% of full-time students, down from 33% in 2019/20. With growth in new students outpacing growth in new student beds by a factor of seven since 2019/20. This means the private rented sector (PRS) continues to take the strain.
HESA data shows there are nine universities nationally where more than a fifth of students are renting homes in the private rented sector. London’s Imperial College tops the list, with almost 26% of students in the private rented sector.
High demand from students for PRS homes means in certain locations students make up 40% of households renting privately. JLL analysis of council tax data shows that student households exempt from paying council tax make up 40% of PRS households in Exeter and Nottingham. With nine local authorities where more than a fifth of privately rented households are students.
Student tenants in the private rented homes
Top 25 Local authorities by proportion of PRS households occupied by students
Top 10 universities by proportion of total students living in PRS accommodation
Source: JLL, Census, HMRC, ONS, HESA
For the purpose of this analysis, we have assumend all students exempt from council tax in Brand 'N', are living in rented accomodation. Students in PRS is assumed by the number of students defined by HESA as living in 'other rented
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Demand for city living
Rising demand for privately rented homes is also a key theme in our latest JLL Big Six Report. Which compares activity, prices, and rents across six UK cities outside London.
Demand for city living was clear to see across all six. Over the past decade growth in the number of new residents outpaced the UK average, led by Bristol and Edinburgh which saw the number of residents rise by more than 10%.
The JLL Big Six Cities Index recorded growth in prices across all cities in the year to June. But the rate of growth is slowing, with prices 2.0% higher than they were six months earlier in December 2022.
A lack of new rental stock is supporting growth in rents. Rents for new properties across our Big Six rising by an average of 14.3% in the 12 months to June 2023. Manchester recorded both the highest growth in rents at 19.6% and the most significant falls in available stock versus pre-pandemic. Read more on the findings of our Big Six report here.
