While UK housing market has not only been buoyed by an improving economy, the drive for energy efficient homes is also having an impact.
Thanks to a growing level of confidence in both the UK housing market and the wider financial market, leading to more enticing mortgage options for borrowers, house prices have climbed by 2.4% over the past year, according to Nationwide – the fastest rate of growth in almost two years.
Almost two years ago, short-lived prime minister Theresa May revealed her mini-Budget, which proved disastrous for the economy and had a knock-on effect on the UK housing market. One big driver behind this wobble was the impact of interest rates – and mortgage rates – shooting up.
While rates still remain much higher than they were then, they have stabilised this year, with the expectation that they will continue to fall over the course of this year and next. According to Nationwide, house prices will also continue their resilient streak, with further rises on the cards.
For prospective buyers and investors, this prediction as well as the trends we have seen so far in 2024, could prove to be a strong incentive to act now. But the type of property to focus on could also be key, according to Nationwide’s findings.
Focus on energy efficient property
The number of buyers looking for energy efficient properties – including investors looking for the most future-proof assets in the current market – has been on the rise for a number of years.
For landlords, a big part of this was due to upcoming legislative changes to increase minimum energy efficiency standards (MEES) in rental homes, with a target of bringing all rental properties up to an energy performance certificate (EPC) rating of C or above.
The new government has reinstated this, with slightly different goalposts, so the UK housing market seems likely to see a greater interest in energy efficient properties from property investors at least. However, homeowners are increasingly taking EPCs into consideration, too.
Top EPC demand
According to Nationwide’s latest research, properties with an A or a B rating on their EPC commanded a price premium of an average 2.8% compared with similar D-rated properties, which is the average rating across the UK housing market.
However, the lowest-rated homes (F or G-rated) can be seen to get a “noticeable discount” on their pricing, of up to 4.2% below the price of a similar D-rated home.
Robert Gardner, Nationwide’s chief economist, said: “Our research suggests while energy-efficiency impacts remain relatively modest, they have increased relative to pre-pandemic levels, with A/B properties now attracting a larger premium compared with 2019 and F/G properties seeing a larger discount, as shown in the chart below.
“The value that people attach to energy efficiency is likely to continue to evolve, especially if the government takes measures to incentivise greater energy efficiency to help ensure the UK meets its climate change obligations.”
Will UK housing market see an “autumn bounce”?
As competition ramps up in the UK housing market, some analysts are looking out for an autumn bounce when it comes to both activity and house prices. The Bank of England’s latest decision to reduce its base rate from 5.25% to 5% is expected to continue to support this, particularly as mortgage rates come down.
Karen Noye, mortgage expert at Quilter,: “As conditions become more predictable, both buyers and sellers are gaining confidence that they can achieve their housing goals without the looming threat of mortgage shocks, which might mean there is a bounce in prices in the autumn.
“The recent decision by the Bank of England to cut its base rate from 5.25% to 5% has further bolstered this confidence, even though the cut’s direct impact on tracker mortgages and standard variable rate [SVR] mortgages will be relatively minor, and fixed rate mortgage costs have largely already factored in this small reduction.”
Meanwhile, Tom Bill, head of UK residential research at estate agent Knight Frank, said: “The UK housing market is in a better place than it was last summer as inflation comes under control and lenders trim their rates.
“Financial markets are pricing in another cut this year and as mortgage rates fall this autumn, it should underpin transactions and modest single-digit price growth.”
While Nationwide’s own prediction is: “Providing the economy continues to recover steadily, as we expect, housing market activity is likely to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house price growth.”.
