Surprisingly little change in headline metrics

It is therefore somewhat surprising that a lot of the main metrics that we use to monitor the health of the housing market have hardly changed.

The Nationwide Index suggested that annual house price growth edged up very slightly, to 2.4% in October, while the Bank of England tells us that mortgage approvals also nudged up in September.

But, as ever, these headlines mask a good deal of variation. Data from TwentyCi tells us that in October, overall activity in the UK housing market was just 2.0% below the same month last year. However, in the market over £1 million, activity was down by 7.9%, while above £2 million it was down 16.4%. As Frances McDonald discusses, this follows an 18% fall in activity in London’s £5 million+ market, in the third quarter of the year.

Budget speculation continues

As we discussed at length in our Prime UK Residential Report, this reflects the widespread expectation that the tax burden on high value properties will increase after the next Budget.

What form that takes has become little clearer. If we are to believe what we read in the papers, focus is now turning to the reform of Council Tax, given the practical difficulties of other options, which which I have written about for the FT Adviser.

The reality is that we will only know what this means, for an already relatively heavily taxed part of the market, once the Budget is delivered.

Mainstream market forecasts

From a researcher’s perspective that makes it difficult, if not impossible, to forecast what will happen to prices in the prime market over the short and medium term.

But, we have updated our mainstream forecasts on the basis that they are less likely to be affected by changes in taxation, and more likely to be determined by the scale and pace of further interest rate cuts, the response of the mortgage market to these, and the underlying outlook for economic growth and consumer confidence. Our best estimate is that UK house prices will rise by a modest 2% next year and that, having regard to market cycles, price growth over the next 5 years will vary from 14% in London to 29% across the late-cycle markets of Yorkshire and the Humber and the North East.

Regulatory reform in the rented sector

By contrast, we expect mainstream rental values to rise by an average of 12% over this period in a market where the newly enacted Renters’ Rights Act will shift the regulatory balance of power from Landlords to Tenants for those tenancies affected.

A summary of the changes that this will bring is set out in here (though if you want to bypass the political rhetoric, it is worth scrolling to the bottom of the government press release). And, you can get a better understanding of what this means for the top end of the market, by reading Nick Maud’s assessment.

We encourage you to keep an eye here for our latest updates, and I look forward to sharing an update with you next month with some much-anticipated clarity post the Budget announcement.