Maskells Monthly Report - February

Posted on Wednesday, March 9, 2022

Updated on

The Office of National Statistics (ONS) released new inflation figures on 19th January 2022, causing a flurry of headlines. In February the Bank of England increased interest rates by 0.25%, taking the bank rate to 0.5%.  In this report, we delve a little deeper and seek to understand the effects of inflation on the property market.

Inflation is now at its highest rate for 30 years. The Consumer Prices Index (CPI) rose by 5.4% in the 12 months to December 2021, up from 5.1% in the 12 months to November. Well above the Bank of England’s inflation target of 2%.

The big question for the property market is: what impact will rising inflation have on interest rates? The answer depends on whether rising inflation is short-lived or more prolonged and damaging.

Andrew Bailey, Governor of the Bank of England, suggested to the Treasury Select Committee that he was concerned about inflation not falling as quickly as expected due to energy prices not easing back until the second half of 2023 and concerns over tensions between Russia and Ukraine. However, he also maintained that a return to pre-financial crisis interest rates is unlikely. Further rate rises may be on the cards – possibly two or three 0.25% increases this year.

For homeowners, the latest rate move will add around £300 per year to mortgage repayments of borrowers on the standard variable rate. But most borrowers are on a fixed-rate mortgage; according to UK Finance, 74% of homeowners have fixed-rate contracts.

Future interest rate rises could push up mortgage rates and in turn cool buyer demand and slow house price growth. However, a lack of supply could be far more of an issue with several buyers often competing to secure a property. Also, many buyers in prime central London purchase with cash so what happens to interest rates is less significant.

We note with interest that many agents are calling for an 8% price growth in prime central London and are pitching for properties taking that into account. In our opinion, this is optimistic and could be aimed at business generation.  We would rather not be sensationalist and expect more moderate growth, around 3-4% this year.

Sales operations update

In terms of our day-to-day operations, sales have enjoyed two and half times the number of viewings in November and December 2021 than we did in 2020.  January is looking to be the same.

Across the prime central London market, transaction numbers are down in our area, roughly 7.4% less than last quarter, driven by a lack of available stock.  We note that 79% of properties have been on the market for more than three months.  At the 6-month mark, 56% of flats on the market are still not sold, and 49% of houses remain unsold. This suggests that property prices are too high for the current buyers, and the market has not caught up with some agents’ valuations.

2021 was a record year in terms of both deal numbers and capital value. We want to thank all our clients for their business, trust and kind recommendations.  New vendors and buyers continue to come on board, and we will be launching over ten properties in the next few weeks.

Lettings operations update

The excellent news for Lettings is that they have, for the third year in a row, won the British Property Awards “Gold” award for the best lettings agent in SW3.  Lettings have also been busy despite lower stock volumes. According to Lonres data, the number of applicants now is roughly the same as we saw pre-covid. Less stock is driving up rent, with prices on renewals up around 10%. Rental prices are now at a pre-Covid level.