The rate of growth in UK real estate prices has moderated slightly on an annual basis whilst property transactions fell marginally. This trend can be attributed to the lack of supportive measures, such as the stamp duty holiday, fuelling purchases. It also represents a slowing down of the market on account of concerns such as affordability.
The stamp duty holiday was estimated to have driven in excess of 200,000 more property transactions than typically expected. As such, the figures for April 2022 were down 13.9 per cent annually, according to HMRC data. Whilst the stamp duty holiday, and other measures, are an explanatory factor for this drop, there was also a 10.5 per cent reduction in the number of property transactions from 109,520 in March to the 97,970 in April, indicative of other factors.
One such factor being keenly felt in the housing market is affordability. House price rises have surpassed wage growth for decades with values currently sitting at 8.5 times average earnings, according to a report in the Financial Times, as opposed to 4.3 times average earnings in 1952. Add to this the impact of high inflation, and interest rate rises, then the cost of living crisis looks set to hamper sales growth over the medium term.
This slowdown will be moderated by the ongoing housing inventory shortage as well as rising investor allocations to UK real estate. Property stock availability in London for instance is at 50 per cent of its pre-pandemic levels for instance, as reported by the Independent. Moreover, real estate funds closing at the end of Q1 were 10 per cent oversubscribed on average with residential investment volumes up to £380m in April 2022 from £190m in March.
This impact is likely to be felt with an uptick in rental uptake, as well as homeowners opting to reconsider space needs and expand their premises as opposed to relocating. Private investors accounted for over 43 per cent of volumes in the last quarter according to JLL, a record level indicative of the present flight to quality and investor appetite in the UK housing market.
Investment volumes slowed from a very strong £7.2bn in March to £2.8bn in April. At least part of the slowdown may be due to the timing of Easter. Mixed use sites accounted for the largest share by sector (£1bn). Residential, hotels and care homes all recorded improved deal flows while activity was limited across industrial, offices, and retail.