Quarterly housing tracker Q2 2024

In 2023 house sales hit an all-time low. Over the past year, housebuilders have grappled with predicting when volumes will return, how to position themselves to meet returning demand levels and what new Government targets will look like.

Secretary of State for Levelling Up, Housing and Communities, Angela Raynor has announced that, as expected, new housing targets would increase, but that there would be a redefining of local strategies. These strategies would ensure the right houses are built in the right locations and that home ownership being made easier would be addressed. 

At the top of the Government’s agenda is making use out of Greyfield sites, repurposing of existing buildings, and a fresh look at Greenfield developments.

Increase in mortgage applications

Our Q2 data analysis reveals that mortgage applications in the first 6 months of 2024 increased 23% on the prior year period and house price growth has exceeded expectations in 2024. The August rate cut from the Bank of England (BoE) is anticipated to further enhance market sentiment and activity, coupled with pent-up demand from families outgrowing their current residences and first-time buyers.

Despite the stability in house prices and the forecasted economic improvement, we enter the second half of the year with even more unanswered questions around balancing ambitious national targets, a lack of clarity on urban and suburban local housing plans, and infrastructure projects, all underpinned by a broken planning system.

2024 and early 2025 is undoubtedly a period of re-focus and growth but the housing industry remains cautious.

House price resilience continues

House prices across the UK have slowly climbed, despite ongoing challenges. Some regions have fared better than others, on average there has been a 1.5% price increase during Q2, marking the third consecutive quarter of price increases. Northern Ireland saw the highest increase at 5% with Wales, Yorkshire and Humberside, and the West Midlands all seeing above average increases of 3%.

The average UK house price now sits at just under £280k, with the average house price for home movers and first-time buyers, reported as £90k. To boost sales, housebuilders have continued to offer multiple incentives, ranging from deposit contributions, mortgage subsidies and increased specification and furnishings.

Following a dip in Q1, housing transactions bounced back in Q2, with over 260,000 completed in the quarter – a 10% increase on the same quarter in 2023. New buyer enquiries slowed during the quarter, the Royal Institution of Chartered Surveyors (RICS) Residential Market Survey pointed to a modest weakening. This may have been due to the general elections taking place and uncertainty about the interest rate decision.

Is land the key driver behind consolidation in the housing industry?

The amount of land available for development presents a challenge for developers. The median amount of land unavailable for development in the UK is 56%. In regions like London and the Northwest, less than 30% of the land is available for development, and Scotland, faces ongoing constraints around the Central Belt.

Desirable living areas with good connectivity, infrastructure and amenities further reduces available land and drives up costs.

Landbanks have therefore been a major factor in consolidation, spurring high-profile mergers and acquisition activity among housebuilders. Vertical integration will become increasingly important in the coming years to target security in the supply chain, which has been volatile through the high number of insolvencies in the industry and to secure labour for the increased volume.

Large sites can often take a long time to develop out, tying up cash and any growth in the industry would need to be funded to allow the housebuilders to meet targets. This is an opportunity for cash strong businesses to make acquisitions.

The one million home planning shortfall

Over the past five years, an average of 336,000 housing units have been approved annually, with each unit taking about four years to build from approval. To meet the Government's new targets, the planning pipeline must expand to 1.5 million units, accounting for approximately 15% of applications that are never built. 

The industry has long advocated for reforms to accelerate the current planning framework. While quick fixes are unlikely, there have been firm commitments to hire new planners and for changes to local plan intervention. It is however, felt on the ground that the number of new planners spread thinly over the regions will not be enough to accelerate the process to the levels needed.

The Government released a consultation report on the National Planning Policy Framework (NPPF) on 30 July. It looks at a new standard to assess the homes needed, building infrastructure for growth, development of brown, grey and green belt and how the planning system is wrapped around the population and housing needs. Only time will tell as whether these reforms can have the desired effect on the delivery of housing needs and address the economic challenges for housing. 

One thing that has been evident though is the need for clarity over infrastructure spend and an understanding on what towns and cities need from housing, healthcare and education based on up-to-date data and a clear strategy to deliver the community needs. Local authority strategic plans seek to address some of these matters.

Mortgage lending rates – what will the BoE do next? 

In Q2, the average rate for a 75% Loan To Value (LTV) two-year mortgage deal was 5.16%. For those with a 95% LTV, often first-time buyers, the rate was nearly a percentage point higher. The average standard variable rate charged by lenders was 8.18%. Mortgage rates have generally increased since the beginning of 2024; however, fixed rates are lower than they were six months ago.

The chart shows the beginnings of the ‘higher for longer’ trend in rates. After an extended period of time without a change to the BoE’s base rate, August marked a cut to 5%. This alongside one or two more predicted cuts before the year is out will help trigger rates to be brought back below 5% across the board by the lenders. 

Mortgage approvals are down over the period of the chart, as a result of buyers waiting for rates to come down and more products to hit the market. Many buyers are sitting tight waiting for rate cut announcements and first time and right to buy incentives to be announce by the new Government. 

The market has seen an increase in cash buyers, with a tick up to 35% of all transactions in the last 18-months, the highest in a decade. 

The awaited detail behind the promised planning reforms, along with critical infrastructure and energy projects to support housing, will be crucial. Tax policy and incentives at the Autumn Statement offer a possibility for incentive. This Government policy alongside the economic performance and innovation amongst the housebuilders must all come together. 

In our view, by Spring 2025, we anticipate an uplift in the market as housebuilder volumes increase and affordability constraints improve.

RSM’s revised 2024 housing market predictions

With a stronger than expected start, we have adjusted our predictions for the year, however we expect activity to largely remain flat to the end of 2024. 

• New housing stock will increase in the first quarter of 2025.
• House prices will continue to stabilise across the UK, ending the year with a 2% increase. House prices will begin to see a larger rise in Q3 as demand increases and family home moves take place.
• Wage growth will settle at around 3.5% or 4% by the end of 2024 . We expect rates to shoot up for trades such as bricklayers, carpenters etc. due to a shortage of skilled labour.
• We expect one more cut from the BoE rate to end the year at 4.75%, but there is a growing likelihood of two cuts.
• Cash buyers remain poised and will remain active at the prime end of the market.

For more information, please contact Kelly Boorman.