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RESIDENTIAL MARKET
COMMENTARYJanuary 2018
A Cushman & Wakefield Insight Publication
1Cushman & Wakefield | Residential
ECONOMIC OVERVIEW
Economic Overview
ECONOMIC INDICATORS 2018 2019 2020 2021 2022
GDP growth (%) 1.5 1.6 1.9 1.9 1.9
Household Disposable Income (%) 1.7 2.0 2.9 3.4 3.5
CPI Inflation (%) 2.3 1.6 1.7 1.8 1.9
Exchange Rate (US$ per £) 1.38 1.43 1.44 1.45 1.47
Exchange Rate (Euro per £) 1.13 1.14 1.15 1.16 1.17
BoE Interest rate (%) 0.50 0.50 1.00 1.50 2.00
Source: ONS / Oxford Economics / OBR
Better than expected economic data
released during the early part of the
year have prompted the Bank of
England to state that interest rates
will be increased sooner than current
market expectations. This has led
many forecasters to re-adjust and
now factor in two rate rises during
2018, most probably commencing in
May.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Jan 17 Feb 17 Mar 17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18
CPI Inflation & Average Earnings (y-on-y change)
Average Earnings (exc bonuses) CPI Inflation
CPI inflation for January 2018 remains stubbornly at 3%, and providing future data releases do not now show a
spike in wage growth for the end of 2017, will have now spent a year above the level of wage inflation.
However, most forecasts see the CPI inflation descent commencing in early 2018, and possibly falling back in-
line with its 2% target around Q3 2018.
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
NO
V 2
007
JA
N 2
008
MA
R 2
008
MA
Y 2
008
JU
L 2
008
SE
P 2
008
NO
V 2
008
JA
N 2
009
MA
R 2
009
MA
Y 2
009
JU
L 2
009
SE
P 2
009
NO
V 2
009
JA
N 2
010
MA
R 2
010
MA
Y 2
010
JU
L 2
010
SE
P 2
010
NO
V 2
010
JA
N 2
011
MA
R 2
011
MA
Y 2
011
JU
L 2
011
SE
P 2
011
NO
V 2
011
JA
N 2
012
MA
R 2
012
MA
Y 2
012
JU
L 2
012
SE
P 2
012
NO
V 2
012
JA
N 2
013
MA
R 2
013
MA
Y 2
013
JU
L 2
013
SE
P 2
013
NO
V 2
013
JA
N 2
014
MA
R 2
014
MA
Y 2
014
JU
L 2
014
SE
P 2
014
NO
V 2
014
JA
N 2
015
MA
R 2
015
MA
Y 2
015
JU
L 2
015
SE
P 2
015
NO
V 2
015
JA
N 2
016
MA
R 2
016
MA
Y 2
016
JU
L 2
016
SE
P 2
016
NO
V 2
016
JA
N 2
017
MA
R 2
017
MA
Y 2
017
JU
L 2
017
SE
P 2
017
ILO Unemployment
ILO unemployment remains at its lowest level for over 42 years, with October’s figure being the fifth
consecutive month at 4.3%. Despite these low levels of unemployment, as shown above, wage growth
remains stubbornly sluggish.
2Cushman & Wakefield | Residential
National Market
OVERVIEW
Sources: UK HPI
Year-end Land Registry figures recorded the average house price in England finishing the year at £243,582, a
rise of 5% for the year. Average prices in both the North West and Yorkshire & the Humber broke £150,000,
with the average home in the South West now costing more than £250,000, boosted by house price growth of
7.5% during 2017, the strongest growth of all regions. London finished the year as the region experiencing the
slowest rate of growth (2.5%), although this merely represents the earlier stage in the cycle that the capital
perpetually finds itself in. 2018 should herald a re-aligning of other regions towards this c.2-3% annual rate of
house price inflation.
TRANSACTIONS
October 2017 recorded yet another disappointing set of results for transactional activity. Nationally, the
number of sales for the month fell 6.4% from September levels and are down 10.2% from the same month in
2016. Regionally, the greatest monthly falls for the month were in the South West, where sales volumes fell
10.4%. Transaction levels in London look to have bottomed out somewhat, with October 2017 sales largely the
same as October 2016. However, these figures are boosted to large degree by a very active new homes
market in the capital, where at present, one-in-six of all sales are new homes. There are currently only around
five and a half thousand second-hand sales per month in London, an all-time low.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
East Midlands East of England London North East North West South East South West West MidlandsRegion
Yorkshire and TheHumber
Regional Sales Transactions
Oct-16 Sep-17 Oct-17
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17
Annual Rates of House Price Inflation
East Midlands East of England London
North East North West South East
South West West Midlands Region Yorkshire and The Humber
3Cushman & Wakefield | Residential
National Market (cont)
NEW HOMES
Annual regional rates of house price inflation in new homes markets are currently running at between 9-
14%, considerably higher than mainstream markets and highlighting a real split in demand levels between
new and existing housing stock. While government incentives, namely the Help To Buy Equity Loan
scheme, have certainly boosted demand in the new homes market, this alone does not explain the disparity.
This is evident by analysing the spread between new home and second hand inflation rates (see below),
where the difference between areas experiencing huge take-up in the scheme (the North East), differs little
from areas where the scheme is less popular, such as London.
Sources: UK HPI / Department for Communities and Local Government
RENTAL MARKETS
Generally speaking, English rental markets experienced a buoyant 2017, with above average rental growth
experienced in five of the nine English regions. The East Midlands led the way with average annual growth
recorded at 2.6%, followed by the East and South West at 2.2% and 2.1% respectively. As with rates of
house price growth, the two lowest ranked regions were London and the North East, although the drivers (or
lack of) for the two regions under-performance differ. While the North East is the perennial under-achiever
in rental growth terms, London is currently suffering from both the uncertainty surrounding the UK exit from
the EU, and also a minor market correction, following recent historically high rates of rental growth resulting
in affordability ceilings being met.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
East Midlands East South West West Midlands North West South East Yorkshire and TheHumber
London North East
Annual Rates of Rental Growth
2017 10 year ave
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
East Midlands South West West MidlandsRegion
South East East of England North West Yorkshire and TheHumber
London North East
Annual Rates of House Price Inflation(12 months to Sep 2016)
New Homes Re-sale Homes
Above long-run average Below long-run average
4Cushman & Wakefield | Residential
PRIME CENTRAL LONDON (PCL)
The early data for 2018 followed the general trend of
2017, with price falls of -0.4% recorded. However, the
average sold-to-asking price gap held steady, albeit at
the historically high figure of 6.2%. Transactional activity
in January was very low, falling 42% from the preceding
month, with sales levels less than half of those recorded
in January 2017.
Rather surprisingly, the rental market bucked the trend
for the second consecutive month, with rises of 0.6% for
January, and the average achieved-to-asking ‘discount’
largely remaining untouched from previous months.
Prime London Markets
Source: Cushman & Wakefield Research / LonRes
Area definitions for report: PCL = W1H, W1U, W1G, W1B, W1S, W1C, W1K, W1J, SW1A, SW1Y, SW1P, SW1H, SW1E, SW1W, SW1X, SW7, SW3, W8. OPL = NW3, NW8, W2, W9, W11, W14, SW6, SW10.
OUTER PRIME LONDON (OPL)
Mirroring the Prime Central London market, secondary
prime markets also experienced price falls in the first
month of the year. Values fell -0.4% in January and now
lie -1.8% down on 12 months previous. The sold-to-
asking spread also widened out to just under 5%
indicating that further falls in the early part of the year are
probable. Although not as severe as those in Prime
Central London, transaction levels during the month fell
significantly, down 34% on January 2017 levels.
In the rental market prices held steady for the month, and
have now remained flat for over six months. Average
discounts contracted slightly making any price falls look
increasingly unlikely for the remainder of Q1.
IndicatorM-on-M
(Dec-Jan)
Y-on-Y
(Jan-Jan)
Sales
Transactions-42% -58%
Capital Values -0.41% -2.33%
Average sale
discount %-2bps (6.18%) +77bps
Rental Prices +0.55% -0.10%
Average rent
discount %+14bps (4.13%) +20bps
IndicatorM-on-M
(Dec-Jan)
Y-on-Y
(Jan-Jan)
Sales
Transactions-42% -34%
Capital Values -0.35% -1.78%
Average sale
discount %+13bps (4.94%) +21bps
Rental Prices -0.07% -2.04%
Average rent
discount %-11bps (3.16%) +12bps
96.00
96.50
97.00
97.50
98.00
98.50
99.00
99.50
100.00
100.50
101.00
Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18
Cushman & Wakefield Prime London Markets Index(Jan 2017 = 100.00)
PCL Cap Values PCL Rents OPL Cap Values OPL Rents
5Cushman & Wakefield | Residential
Mortgage Market
Sources: UK HPI / UK Finance / CML / ONS
OVERVIEW
UK Finance’s lending figures for November 2017 show a 7.6% monthly increase in new loans issued for house
purchase, up 16.0% on the same month in 2016. The same data release also showed Buy-To-Let lending
volumes showing no real change from their subdued post-3% stamp duty surcharge levels. However, these
increases may be short-lived as initial estimates for gross mortgage lending in December expect a c.13% fall
from November levels.
January heralded the release of the annual English Housing Survey, providing valuable data on the English
market. One notable trend was a significant increase of the number of first time buyers using a gift or loan to
fund a deposit. Around 35% of first time buyer deposits now fall into this category, up from 29% in 2015/2016
and 27% in 2014/2015. Another significant trend to emerge from the survey is the proportion of first time
buyers taking longer mortgages. Despite the average age of first time buyers increasing by nearly a year to
33.2, the percentage of those buyers taking a mortgage for over 30 years has increased to 52% (from 40%).
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17
Monthly Mortgage Approvals
New Home Purchase Remortgaging
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Savings Gift or loan from family or friend Inheritance Other
Source of 1st Time Buyer Deposit
2014/2015 2015/2016 2016/2017
6Cushman & Wakefield | Residential
Author
Lee Layton
Associate Director
Residential - Research
020 3296 4574
Contacts
Candice Matthews
International Partner
Head of Residential
020 3296 3988
Mike Bickerton
Partner
Residential – New Homes
020 3296 3837
Jack Simmons
Partner
Residential - Investment
020 3296 4991
Fergus Jack
Partner
Residential - Investment
020 3296 4494
Neil Batty
Partner
Residential – Head of International
020 3296 4303
Jonathan Stickells
Partner
Valuation & Advisory
020 7152 5271
Nick Jacks
Partner
Valuation & Advisory
020 7152 5264
Jonathan Godfrey
Partner
Valuation & Advisory
020 7152 5760
Andrew Palmer
Partner
Residential - Land
020 3296 4033
Daniel McDonagh
Partner
Residential - Land
020 3296 4674
About Cushman & Wakefield
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Disclaimer
This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified,
professional advice. Whilst facts have been rigorously checked, Cushman & Wakefield can take no responsibility for any
damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should
not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be
credited to Cushman & Wakefield.
© Cushman & Wakefield April 2017
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