SUMMARY

The housing market has continued to experience remarkably high levels of activity. In the first week of August, sales subject to contract (SSTCs) were at almost double their number the same time last year, indicating a significant release of pent up demand. The number of SSTCs in the first week of August was no higher than the previous week, after 5 weeks of strong growth, suggesting the market may have hit a high peak. 

The RICS survey for July also showed high activity levels. A record 87% of surveyors reported rising levels of new enquiries, and 80% reported rising levels of new instructions.

Data on sales completions is lagged and doesn’t yet reflect the surge in SSTC figures. But numbers have increased sharply and completed transaction levels in June stood at 64% of their level the same time last year. Transactions numbers are likely to be high for the rest of the year as the many of the sales agreed move to completion. A similar level of recovery is also evident in the number of new mortgage approvals, with the number in June back up to 60% of last year’s figure.

Although mortgage volumes are recovering, lenders are limiting the speed at which transactions can progress. Many lenders are struggling to find enough capacity to process new applications, as well as dealing with high numbers of mortgage holiday requests. To help limit the number of new applications, many lenders have imposed stricter loan-to-income or deposit requirements on their products. 

The ONS has now recorded two quarters of GDP falls, putting the UK officially in a recession. House prices typically fall during a recession, usually after a period of strong growth.  This time around, house price growth has been modest over recent years. House prices did fall in May and June, but have since bounced back, rising 1.7% in July, according to Nationwide. This puts annual growth at a modest, but still positive, 1.5%.

This relative strength may not last. Pent-up demand, the stamp duty holiday and extension of the furlough scheme have all supported the market in the short term, but these factors will not last indefinitely. Towards the end of the year we expect unemployment to rise along with a renewal of Brexit uncertainty as we near the end of the transition period. This may hold back activity and value growth towards the end of the year.

Rents in the UK increased by an average of 1.5% in the year to June, according to the ONS. The highest growth was in the South West (2.5%), followed by the East Midlands (2.3%). More localised rental data from Zoopla showed that Derbyshire Dales saw the strongest growth of 7.5% in the year to May, followed by Gwynedd and Blaenau Gwent, at 6.5% and 6.0% respectively.