November 27th, 2023

From Housing Starts to Rental Surges: A Comprehensive Look at the UK Property Market- Part 3, The Residential Market and Building Safety

By Jonathan Witter, Development Monitoring Director at Assetz Capital

The economic backdrop has continued to throw challenges which have been well documented. The UK major housebuilders have scaled back their new build programmes and SME developers also facing their own challenges. However, faced with a shortage of an estimated 4.3 million homes (Centre for Cities), the bourgeoning demand for housing in the UK continues to provide opportunities both geographically and by sectors such as emerging build-to-rent. Let’s take a closer look…

Residential Market Rollercoaster: Falling Prices in the South, Growth in the North

The UK residential market weakened in August with prices falling by 0.8% representing an annual fall of 5.3%, which means that prices on average are around December 2021 levels according to Nationwide. However, it’s worth looking in further detail at what belies the headline numbers. The economic uncertainty, increase in base rate and respective impact of mortgage rates and mortgage affordability has undoubtably cooled the market for 2023. This at least, is likely to remain the theme with economic forecasters still predicting a further interest rate rise to 5.5% base rate, albeit at a lower base rate than previously forecast in Q2.

Geographically, the reduction in values is clearly defined regionally with the southern regions showing the largest falls in value. Conversely in the northern regions in the UK are posting single digit growth, with Scotland registering growth of 1.7%. A contributing factor could be that the higher value properties in the south require larger mortgages, bigger deposits and higher incomes to buy. This effectively prices more buyers out of the market, weakening demand and pushing prices down in the south. Conversely, in more affordable markets in the North and Scotland, prices are holding up.

Recovery may appear slow in the face of higher interest rates and will likely be uneven with a divergence of secondary and prime quality assets, as we move into the last quarter of the year.

Building Safety Act 2022: How New Regulations Impact Residential Buildings

Finally, some topical but nevertheless important aspects of building regulations relate, post Grenfell, to certain residential buildings detailed in the Building Safety Act 2022 (BSA 2022) which introduces a rigorous safety regime imposing more onerous requirements on those buildings identified as “Higher-risk buildings”. These relate not just to cladding but fire resistance, sprinkler systems among others. In addition to the changes in the Building Regulations, these will come into force on the 1st of October 2023.  We have already seen aspects of new design changes at Assetz Capital being implemented in current schemes with clients. These changes are real and present and do have financial implications which need to be properly costed at the outset on new schemes.

If you are ready to explore potential funding solutions, do not hesitate to connect with our team of property experts today.