Urban Property Gains Steady Despite Mortgage Woes

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Annual house price growth in the UK’s ‘Big Six’ regional cities has remained steady, even with the challenges brought on by rising interest and mortgage rates. This consistency in the market is highlighted in recent research conducted by global property advisor JLL.

The ‘Big Six’ report from JLL tracks key metrics such as residential development activity, property prices, and rental trends across six major cities: Manchester, Birmingham, Leeds, Bristol, Edinburgh, and Glasgow. Despite the broader economic pressures, the report reveals that house prices in these cities have continued to grow.

Specifically, the data shows that sales values have increased by 1.9% over the past year. This growth suggests that the regional property markets are holding up well, maintaining their upward trajectory despite the higher borrowing costs that have impacted other areas of the housing market.

The research indicates that while higher interest rates and mortgage costs have posed challenges, they have not significantly derailed the steady appreciation of property values in these key urban centres. The resilience of the ‘Big Six’ cities highlights their ongoing appeal and stability in the face of economic pressures.

The research also identified a shift in buyer preferences towards more affordable property markets. Among the ‘Big Six’ regional cities, Glasgow and Leeds have experienced the highest annual growth in house prices. This trend indicates that buyers are increasingly looking for value in less expensive areas, which are showing stronger appreciation compared to other cities.

Demand for rental properties across the six cities has remained strong, particularly among young professionals. This group is drawn to the lifestyle benefits offered by city centre living, which continues to drive the rental market. The appeal of urban amenities and convenience keeps demand steady, despite broader economic conditions.

Despite the ongoing demand, JLL’s research shows that the rental market has become more balanced this year. After a period of rapid growth in the first half of 2023, where annual rental growth surged to double-digit levels, the rate has since moderated.

Currently, annual rental growth across the ‘Big Six’ cities has settled at an average of 6.6%. This moderation reflects a more stable rental market, moving away from the extreme growth rates seen earlier in the year.

While Glasgow and Leeds are seeing significant price increases and rental demand remains high, the market is adjusting to more moderate growth rates. This balance suggests a stabilisation in the property and rental markets of these key urban centres.

Higher debt costs and the resulting viability challenges have significantly slowed investment in Build to Rent (BTR), with funding dropping by 77% from 2023 to £217 million. This dramatic decline reflects the current difficulties in securing investment for BTR projects. So far this year, only Manchester (including Salford) and Leeds have managed to attract BTR capital, with Leeds emerging as the most active city. Leeds has benefited from securing the largest BTR deal in the first half of 2024, highlighting its leading role in the sector.

In a notable shift, more than half of this year’s investment has moved towards suburban single-family rentals for the first time on record. This trend indicates a change in investor preference, moving away from urban BTR projects towards more residential-focused suburban developments.

Marcus Dixon, Head of UK Living and Residential Research at JLL, observes: “The 2024 housing market has presented a complex landscape. Increasing interest and mortgage rates are tempering growth, creating challenges for buyers, tenants, and developers across our Big Six cities.” This comment underscores the broader issues affecting the housing market, with rising costs and shifting investment patterns adding to the difficulties faced by those involved in the sector.

“While the sales market is currently facing some difficulties, the rental market, especially in the higher price brackets, remains strong. This resilience in the rental sector is notable and provides a positive outlook. Looking ahead, we expect to see an increase in activity across the Big Six cities. This anticipated uptick is supported by recent positive reactions from both the property markets and mortgage lenders to the recent interest rate reduction.

“As we move through 2024, the year seems to be developing a sense of cautious optimism. The adjustments made by lenders and market responses to changing rates suggest that conditions could improve. If these trends continue, we anticipate that the positive momentum will build as the year progresses, further supporting the rental market and potentially easing some of the challenges faced by the sales market.”