Liz Truss has been announced as the UK’s next Prime Minister and will need to hit the ground running as the cost-of-living crisis deepens. This is according to Nicky Stevenson, MD of Fine & Country UK, who adds that while price growth in the housing market continues to defy the wider economic rhetoric, pressure will intensify on household incomes through the autumn and a moderation in sales activity is expected.
“The UK has a new Prime Minister and over the coming weeks details of additional support for households and businesses to help them navigate the cost-of-living crisis are expected. Consumer confidence in the economy is at a historic low and the economic outlook is sobering. The UK is predicted to be in recession during the final quarter of 2022 and throughout 2023. With households and businesses facing rising costs and eye-wateringly high energy bills, the Government’s response is eagerly awaited,” Stevenson comments.
The Bank of England now expects inflation to peak at close to 18%, far higher than initial estimates. “However,” says Stevenson, “unlike the late 1970s and early 1980s, a consensus of independent forecasts anticipate inflation will fall back over the course of 2023 and return below the Government’s 2% target during 2024. Over the same period, bank rates, while set to rise, are not anticipated to rise anywhere close to the double-digit rates last seen some 30 years ago.”
According to Stevenson, property price growth is somewhat at odds with the current economic backdrop. “While Halifax indicates that month-on-month property prices marginally fell in July, and Rightmove reports the asking price of a newly listed property dropped by 1.3% in August, the 10% growth in the year to August noted by Nationwide has exceeded economists’ expectations. Residential property is proving resilient, as it has repeatedly. The demand for property has continued to exceed available supply and market dynamics are underpinning prices,” she adds.
“The additional pressure on household incomes has undoubtedly hit the UK’s poorer households first, but middle-income households, many of whom are owner-occupiers with a mortgage, are starting to feel the squeeze. While demand in the market remains higher than a year ago, it is starting to moderate. Mortgage approvals in both June and July were 5% lower than their pre-pandemic monthly averages, while mortgage rates are on the rise. Although still low by historic standards, the Bank Rate of interest is now 1.75%. A further announcement on the Bank Rate is expected at the next Monetary Policy Committee meeting on 15th September,” says Stevenson.
Over £5.5 billion was collected in residential Stamp Duty Tax receipts in the first six months of 2022, the highest ever total according to new data released by HMRC. “Over half a million sales took place, making 2022 to date the busiest since 2017, apart from 2021. As price growth has pushed more sales into higher price brackets, the proportion of properties sold for £1 million or more , which was over 2.7% of sales, was at its highest ever level. More than one in ten £1 million plus sales paid the Higher Rate of Additional Dwellings Tax, the additional surcharge paid on a second home,” Stevenson adds.
She notes that following the stellar levels of annual price growth recorded over the past year, it is perhaps no surprise that prices in some regional prime markets have started to moderate, but only in the North East is the average price of a prime market property now below £450,000. “The London market, which lagged other regional markets in the aftermath of Covid-19, is now seeing double-digit price growth. Sterling registered its largest fall against the US$ since 2016 on 1st September, making the London market tempting for those purchasing from overseas,” Stevenson concludes.