UK Property Insight Q3

House Price Dynamics

Softening momentum: After modest gains through early summer, UK house price inflation eased over Q3. Annual growth slowed to c. 2.8% by July, with higher-frequency indices for August/September showing flat-to-marginal monthly movements and growing regional dispersion.

Regional divergence:

• North East & Scotland: Still lead annual growth, supported by relative affordability and resilient local demand.

• Wales & Midlands: Mid‑pack, with steady but slowing growth.

• London & South: Broadly flat year‑on‑year, with higher‑value segments more sensitive to borrowing costs and tax-policy uncertainty.

New instructions vs. pricing: Supply improved in many areas over the summer, pushing sellers to price more competitively. Discounts of ~2–3% to asking remain common in overheated micro‑markets.

Buyer Sentiment & Mortgage Lending

Demand cools into quarter‑end: Estate‑agent and survey evidence point to weaker new‑buyer enquiries across most regions by August/September.

• Mortgage rates: Headline 5‑year fixes stabilised/ranged during Q3, with effective borrowing costs trending sideways as markets weighed slower inflation against policy caution.

• First‑time buyers: Activity held up best in regional towns/cities where price‑to‑income ratios are lower; some pullback is visible in London/South East.

• Time to sell: Marketing periods lengthened modestly vs. Q2 as stock rebuilt and price sensitivity increased.

Rental Market Pressures

Cooling but still elevated: Annual rent inflation continued to slow through Q3 from 6–7% earlier in the year toward the mid‑5% range, yet rent levels remain at record highs.

• Supply: New landlord instructions remain weak amid regulatory and tax headwinds; net supply growth is limited.

• Where rents are still rising fastest: More affordable northern cities and select Midlands hubs.

• Affordability: Rent‑to‑income ratios remain stretched in London and core regional centres; rental stress persists for lower‑income households despite slower growth.

Commercial Property Market

Offices: Polarisation entrenched

• Prime Grade A (ESG‑compliant): Continued rental resilience and low vacancy underpin further prime rent growth, particularly in Central London and top regional CBDs.

• Secondary/B‑grade: Ongoing value pressure where refurbishment to meet sustainability standards is uneconomic; higher voids and incentives.

• Leasing mix: Demand concentrates in best‑in‑class, flexible, amenity‑rich space; pre‑lets on high‑spec refurb/new‑build remain a feature.

Retail: Resilience in select segments

• Retail parks: Still outperforming on the back of essential anchors and omni‑channel retail strategies.

• High streets: Split picture—affluent commuter towns improving; weaker high streets continue to see churn and rent re‑basing.

• Leasing: Experiential, F&B, health and community uses help absorb secondary space.

Industrial & Logistics: Normalising from strong levels

• Occupier demand: Still healthy in key nodes (outer London, East/West Midlands, Golden Triangle) with build‑to‑suit more common than speculative.

• Rents: Growth moderating from the post‑pandemic highs but remains positive in undersupplied micro‑markets.

• Development: Pipeline constrained by finance and construction costs; land values stabilising.

Investor Sentiment

Selective and income‑led:

• Volumes: Overall investment activity steady but below long‑run averages; signs of bottoming vs. late‑2024/early‑2025.

• Who’s buying: Middle East and Asia‑Pacific capital remain active in logistics and living; UK institutions tilt toward BTR and life sciences where fundamentals and ESG credentials are strong.

• Green premium: Assets with EPC A/B ratings continue to command notable pricing premia vs. sub‑standard stock.

Financing Conditions

Policy backdrop: Bank Rate held at 4.0% in September, with QT pacing eased. Lenders remain selective; margins stable in the 275–325 bps range and LTVs typically 60–65% for strong sponsors.

• Development finance: Available for logistics, BTR, and prime office‑to‑best‑in‑class refurb; secondary projects remain challenging to fund.

• Distress & recap: Opportunistic capital is active in secondary office auctions and structured deals, though systemic stress is limited.

Regulatory & Structural Drivers

• Planning & supply: Backlog and capacity constraints still dampen new‑build delivery; target‑led policy signals supportive but transmission is slow.

• Rental reform: Ongoing preparation for tenancy and standards changes keeps smaller landlords cautious; institutional PRS/BTR platforms continue to scale with professionalised management.

• Sustainability: MEES compliance and embodied‑carbon scrutiny drive retrofit first strategies in offices and retail; capex planning remains central to underwriting.