As we head into the final half of 2023, interest rates remain high, although we are starting to see inflation stabilise. Across the living sectors we currently value, we are seeing values remain relatively stable for new build family homes in the regions, although we have started to see some downward pressure felt across London and for flatted units.

Market overview

• The Bank of England increased the Base Rate to 5.25% on 3 August 2023 in response to increased inflation.
• The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 7.3% in the 12 months to June 2023, down from 7.9% in May.
• Prices for motor fuel fell, leading to a decrease in the monthly change in CPIH and CPI annual rates, while food prices rose but by less than in June 2022.
• Monthly real GDP fell by 0.1% in May 2023 with no growth in the three months to May 2023, and the construction sector fell by 0.6% in April 2023.
• House prices have remained largely unchanged in June 2023, with a 3.5% decrease compared to June 2022, and an annual decline in all regions except Northern Ireland.
• Longer-term interest rates have increased sharply, prompting the Bank of England to increase its policy rate further, resulting in a significant drag on housing market activity.
• Mortgage payments as a share of take-home pay for a representative first-time buyer are now well above the long-run average.

Our Steer

• On the ground, we’re starting to see some downward movement in the market; with clients reporting some down-valuations around greater London and the flat market
• Some clients are seeing pick up in interest of Shared ownership stock in response to difficulties entering the mortgage market and no more Help to Buy
• In terms of development, things are slowing due to policy updates such as second stair core policy
• BTR rents going up but cost of borrowing is pushing out yields and therefore viability
• Student looking positive at the moment but that is Local Authority dependent
• Although transactions slowing down there are still a number of active players in the market for land.
• Developers are still in the market, however 35% affordable and strict policy mixes, along with continued increases in build costs, dropping values and sales rates (mortgage rates and no help to buy), along with reduced efficiency due to the second stair core is meaning that there is a huge gap between existing uses, landowners values, and aspirations.

For further information or to discuss your next project, contact Lizzie Sears, Director, Development Consultancy & Affordable Housing Lead