The ICO is a useful site: its advice changes with time: I am pretty sure there was a time when they recommended there should be NO overlooking, BUT here is to-days advice and SUnny D has got it right.....
Q: Can I, or my neighbour, use CCTV?
If the cameras are installed on residential property and are for personal domestic use, they are unlikely to breach the Data Protection Act. This is because the use of CCTV cameras for domestic purposes, for example, protecting a home from burglary, is exempt from the data protection principles, even if the camera overlooks the street or other areas near the house. If you are concerned about the use of domestic CCTV, it may be worth contacting your local police. However, if you or your neighbour are using CCTV for business purposes, you'll need to comply with the Act. Read about a business' obligations with CCTV.