Positive signs of stability and recovery in the UK property market
The recent UK general election, which resulted in a significant Labour parliamentary majority, looks to have injected a new sense of optimism into both the residential and commercial property markets. While uncertainty surrounded the market in the lead-up to the election, the decisive result has begun to pave the way for a more stable economic environment, which, in turn, is expected to benefit property lenders and investors alike.
In the residential property market, there has been a noticeable shift in consumer sentiment, particularly following the Bank of England's base rate reduction at the start of August. This reduction, although modest, is a start, and has bolstered consumer confidence, providing a glimmer of hope for mortgage holders and prospective buyers.
While many mortgage holders recognise that the immediate impact on their repayments may be minimal, the reduction has nonetheless contributed to a broader sense of financial stability. This is particularly significant given the backdrop of rising mortgage costs, which have been a source of concern for many homeowners. The most recent Barclays Property Insights report highlighted that consumer spending on rent and mortgages increased by 5.7% year-on-year in July, but also indicated strong demand for housing despite the challenges posed by higher interest rates.
On a positive note, the reduction in energy costs, as evidenced by Ofgem's recent price cap adjustments, has further alleviated some of the financial pressures on households. This combination of factors has helped to maintain a stable level of confidence among consumers regarding their ability to manage rent and mortgage payments. Although the outlook remains cautious, the current environment suggests that residential mortgage lenders may see an uptick in business as more consumers feel secure enough to explore homeownership or refinance existing mortgages.
Commercial recovery
The commercial property market has also shown signs of resilience, buoyed by the outcome of the election and the associated economic policies signposted by the new government. The construction sector in particular has seen a noticeable recovery, with growth hitting its highest level in over two years. August’s S&P Global Market Intelligence report revealed that all three segments of the UK construction sector - commercial property, housing and infrastructure - experienced strong expansion in July. This resurgence is a clear indication that the market is bouncing back from the election-related slowdown seen in June, and it points to a more positive trajectory for the sector moving forward.
In the retail and office spaces, the post-election landscape has also brought about cautious optimism. While retail sales volumes have remained relatively flat, there are early signs of improvement, with average weekly sales volumes in May showing a 7% increase compared to the previous year. This indicates that consumer spending may be poised for a recovery, which could, in turn, stimulate demand for retail properties.
In its August UK Economic & Real Estate Briefing, BNP Paribas Real Estate argues that the UK commercial real estate market is now entering a new period of recovery, helped by post-election political and economic stability.
Because it believes the UK is at the start of a period of Bank Rate reductions, and that inflation has stabilised, BNP Paribas Real Estate has increased its annual investment volume forecasts for 2024 and 2025.
Housebuilding agenda
Meanwhile, Legal & General’s recent partnership with the Greater Manchester Pension Fund to invest in affordable housing is a sign of increasing confidence in the market. Their commitment to play their part in addressing the UK’s affordable housing crisis, coupled with Labour’s ambitious housebuilding plans, underscores the potential for significant growth in the residential sector. As demand for affordable homes continues to outstrip supply, the involvement of large institutional investors is likely to accelerate the pace of construction, providing much-needed housing while also offering attractive opportunities for lenders and developers.
The new Labour administration sees housebuilding as a key engine of economic growth and the government has made it clear that it intends to make it harder for local residents and councils to block housing schemes willy-nilly; of course, governments of all persuasions over the past 30 years have sought to tackle the housing crisis but all found that wasn’t as simple as they initially thought…
Overall, the UK property market, both residential and commercial, appears to be on a cautiously optimistic path following the general election. While challenges remain, particularly in the form of rising costs and economic uncertainty, the market is showing resilience. The reduction in the Bank of England’s base rate, coupled with government initiatives aimed at boosting housing supply and economic growth, is expected to create a more favourable environment for property lending. As consumer confidence grows and the construction sector continues to expand, investors will be looking to specialist lenders to provide suitable finance solutions for their needs.
At London Credit, we’re focused on helping brokers whose clients need fast, flexible and certain funding for residential and commercial property investments, as well as financing refurbishments (both light and heavy). Now that there are real signs that the market is improving, property professionals need to ensure they partner with lenders who share their appetite for portfolio growth.
Marios Theophanous, Credit Manager at London Credit
