Hertford matured as a market town for generations of London traders who sold their corn and overseas imports to the surrounding countryside. Today, Hertford maintains a perennial presence among the list of places where London leavers are most likely to put down roots. The post-pandemic two or three-day commute has heightened Hertford’s appeal, redrawing the commuter belt boundary deep into the Hertfordshire countryside and well beyond its traditional boundaries.
The last 18 months
Like many towns in the London commuter belt, house price growth in Hertford slowed to a crawl in 2023. Higher mortgage rates squeezed more expensive housing markets across London and the South East hardest, the sorts of places where buyers tend to borrow the most relative to their incomes. Locally, 18 months of mortgage rate rises have increased mortgage repayments more than the last 10 years of house price growth.
The value of larger homes, often bought by upsizers stretching their mortgage, saw the weakest growth. Meanwhile, existing investors, who are more likely to own smaller properties, have been somewhat more sheltered. In a reversal of what happened between 2017 and 2022, the value of apartments and smaller houses mostly found in the town centre conservation area has outstripped the value of larger homes over the last year. This reflects some buyers downsizing their expectations in the face of much higher borrowing costs.
The longer-term picture
Hertford has seen particularly strong house price growth since values bottomed out in 2009 following the 2007 crash. Since then, prices have risen 81%, surpassing the increases recorded in London where prices have risen 73% over the same period. This reflects that price growth locally didn’t slow as sharply as it did in the capital since 2016 or during the pandemic.
Herford was and still is one of the big beneficiaries of the ‘race for space’ as Londoners who didn’t have to be at their office desk each day spread their wings. While previous house price cycles suggest that values locally tend to follow those in the capital fairly closely, the gap between prices here and in London has now closed much further than it did during previous cycles.
Rising rents
Over the last two years, landlords have gone from earning a living in a world of low returns to being squeezed by mortgage rates which often exceeded their yield. Rents responded rapidly, and average gross yields on new purchases in Hertford have risen from 4.3% in 2019 to 5.8% in 2023. With rents set to rise faster than house prices in both 2024 and 2025, it’s likely yields will remain elevated at today's levels, at least until interest rates move materially downwards.
While these higher yields improve the calculations for new landlords, investors are still being squeezed. Given that 25% deposits used to be the norm, new landlords now need deeper pockets to put down 40-50% deposits to make the sums stack up today. Traditionally, landlords here have seen the vast majority of their returns come from capital growth, but in the short-term it's rising yields that look set to make up an increasingly large chunk of investor's returns.
What's next?
Mortgage rates have already fallen this year, and markets are betting that rates will end the year well below the point where they started. This will serve to support prices both locally and across the south of the country in general. In places where affordability is particularly stretched, lower rates will reverse the reductions in buyers’ budgets recorded during most of 2022 and 2023.
Even small falls in mortgage rates will help landlords (and homeowners) balance their books. While these lower rates and stretched tenant affordability will probably help slow the pace of rental growth during 2024, rents still sit 30% higher than pre-pandemic levels. Rental growth will also be slowed (but not stopped) by more would-be landlords entering the market, attracted by these higher rents and falling returns available from savings accounts.
Where interest rates settle after the Bank of England meets its 2% inflation target will probably have the single biggest bearing on future house price growth locally. With markets pencilling in higher rates in the long-term than most mortgage payers have become accustomed to over the last decade, this could well keep a cap on house price growth. But history shows us that markets have been notoriously poor predictors of step changes in interest rates, meaning the medium-term future of mortgage rates is far from certain.
