What is going on with this crazy housing market, why can’t you find any available tradespeople and how are both linked to puppies?
Usually one side of the housing market is up and the other is down but 18 months into the pandemic and we find ourselves in a ‘perfect storm’ where both the housing and rental sides are suffering the same issues of high demand and low supply.
This blog will look at the Housing Market, Private Rental Sector, Construction & Trades as well as a look at the Mortgage Market and finally Investing in Energy Efficient Homes. There’s a bit about puppies too.
The Housing Market
Zoopla’s July Housing Index showed a 25% imbalance between supply and demand, improving since May when it was 31%. In their House Price Index the Office of National Statistics (ONS) reported house price growth reached a whopping 13.2% in the year to June 2021, up from 10% in May. The race for space, new ways of living such as Work From Home (WFH)/work flexibility will continue to drive the market by property type as well as location. Demand has slowed since the end of Stamp Duty Land Tax (SDLT) holiday on 30 June 2021 though. RICS recent residential market survey showed new buyer enquiries shrinking over the month of July, with a net balance of -9% of respondents seeing a fall, down from +10% in June, and ending a positive four-month streak for the UK housing market.
With the SDLT holiday for purchases under £250,000 ending on 30 September it is possible the market will cool a bit further (but that is cooling from being white hot). The most likely outcome will see price rises flattening out but just bear in mind it is extremely difficult to predict anything accurately when there are so many variables to consider, especially those which can change suddenly EG lockdown.
The boom has been great for homeowners with no plans to move or those downsizing with equity increasing dramatically freeing up the possibility of a remortgage, home improvements or a better deal.
For first time buyers it is not such a pretty picture both looking back and forward. Average UK prices have soared £31,000 in just one year, stretching finances to get on that first rung of the ladder. All the while likely renting a property which has seen equally if not more intense pressures and rent increases making saving even harder. Holding tight is likely the only option for many.
The Private Rental Sector
So that moves us onto the PRS. There has been pretty much non-stop graft at Bishop Sullivan for the last 18 months, the closest market to this one is that after the Credit Crunch in 2009/2010 where rents increased sharply following a major shift from buying to renting.
The factors influencing the PRS this time round are below:
- Homeowners. Hamptons recently reported that 10% of homeowners selling in the last year have moved into a rental property rather than their next purchase. With 27% fewer homes to purchase in 2021 vs 2020 this is partly due to lack of stock and partly to present as an attractive buyer with no chain in a very competitive market. This is the highest % since 2016 and thus has reduced stock more than usual and had an effect on rent levels.
- WFH. Since lockdown 1 employers across the UK, and planet, have realised that staff really can be trusted to do their job well (if not better) at home. Since that point many Tenants have realised they no longer need to live in the city centre and there has been a noticeable and on-going exodus from London into the home counties. The added influx of Tenants has in turn has increased demand, reduced stock and increased rent levels.
- Suitability. After spending so much time at home over the last 18 months many owners and Tenants realised that they did not like where they lived due to location, size, finish but especially outdoor space. This did not necessarily affect stock levels as when a Tenant vacates that frees up a property as well as removing one from the market. What this requirement did was increase demand and therefore rent for specific types of property, especially those with gardens, patios, balconies and close proximity to green space or the seafront.
- Renewals. The on-going lack of stock has become more acute the further past lockdown 1 we have got and as a result rents have increased dramatically. Due to the difficult conditions of the market a much higher % of Tenants in rental property have renewed rather than moved. This has reduced the usual churn of property which has been especially noticeable in June, July and August 2021. In turn the loss of this monthly churn has reduced stock levels and increased rent.
- Section 24. Supply of newly purchased stock in the last year has been very low. Back in 2017 the Govt decided to make Landlords unique, in that they became the only business model in the EU (remember then?) which was taxed on turnover not profit. As is often the case the industry’s views were not listened to but I am sure it won some votes. 4 years later when the best housing market for 13 years came along many Landlords with poorly performing property businesses did the logical thing and sold them. These properties were not bought by investors who tend to avoid rising markets, they were lost to the PRS for good, reducing supply and increasing rent.
- Staycation. With the majority of Brits choosing to take their holidays in the UK due to the pandemic much like the sudden inability to find a puppy, a new bike and a plumber finding somewhere to stay has become a mission. With tax regs for short term lets still fairly loose there has been a shift of traditional long term rental Landlords moving to the short term (AirBnB) market, especially in seaside towns. And as you guessed it this in turn has reduced stock levels and increased rent. Watch this space re those tax regs though, the HMRC net is closing in there also. If considering joining that market you also need to budget for the potential of being stuck with an AirBnB property during a lockdown, Covid ain’t going nowhere.
So what have rents done in the last year? Homelet’s July 2021 Rental Index showed UK average rents have increased by 8.7% year on year. However more locally we have seen 10%, 15% even 20% increases, albeit some were let at low rents during the quiet market of lockdown 1. The average increase we have seen in Brighton is 17% with nearly every property let in the last 6 months having more than one offer which often leads to the price being agreed above the original asking price and which is therefore not reflected in Zoopla type reports. What is clear is that these increases are unsustainable with Zoopla’s June 2021 Rental Index showing rental affordability now at 42% of the average salary in Brighton.
So are we in another housing crisis? Yes, we are still in the last one and I am struggling to see how things are going to change. The main issue with the housing crisis is the lack of social housing, not evil Landlords you read about in the media who after 22 years in the industry I have to say are a large minority. At the last count we need to spend over £12bill to resolve the lack of social housing in the UK. Building out of a recession has worked before so lets keep our fingers crossed decisions are made to ensure people come first.
The first new Build to Rent block of 200 units is going up in Brighton which is good news for the lack of supply, this will add to the existing portfolio of refurbished build to rent blocks. We also need to build more homes for ownership with new builds falling short every year since the annual target was invented (it is currently 300,000 with 49,470 built in Q1). One slight problem there…
The Construction Industry & Trades
ONS advised monthly construction output fell for the third consecutive month in June 2021, by 1.3%. This is the largest monthly decline since December 2020 when output fell 2.2%. Difficulties accessing raw materials, labour shortages, increased transportation costs and the realities of post-Brexit trade have resulted in the perfect storm for the construction industry.
Supply of steel and timber are the two materials causing the most difficulties. Timber especially is the direct result of global warming where wood boring insects in North American and Canadian forests were previously kept in check by colder winters are now surviving and killing the trees, causing a shortage across the globe. This is real folks and along with the recent wildfires and floods is yet another early sign of things to come, we all need to do more to protect Generation Z & A – what more could you do?
Tradespeople such as builders, plumbers, electricians, decorators, handy people and so on are suffering from similar issues with supplies affecting start/finish dates and pricing but also have their own pandemic related pressures resulting in extremely high demand. Not many people are going on holiday at the moment but a lot of people are spending excess cash on their homes after spending so much time there recently. If this is you be alert if anyone can fit you into their diary anything sooner than a few months as you will have to question why they have the space!
Buy-to-let Mortgage Choice Expanding
The increased demand from Tenants has also had a positive impact on the number of buy-to-let mortgage products available. Moneyfacts highlighted 2,709 mortgages available in July 2021 – and this influx of new choice means that average rates have started to fall to lower than in July 2019. Which? notes that Landlords coming to the end of two-year fixes may even be able to remortgage at a cheaper rate.
The Paragon Bank echoes this positive sentiment, with buy-to-let mortgage lending up by a third between 1 October to 30 June against the same period in 2020, up to £911.4 million – and applications are still going strong despite the phasing out of the stamp duty holiday.
Investment Opportunities in Energy Efficient Homes
As the government continues to advance its plans to increase the minimum energy efficiency standards for PRS properties to EPC Band C on new tenancies by 2028, Landlords are understandably concerned about the costs involved with implementing the necessary changes to their properties, projected to be up to £7,646 per property according to the ONS.
However, there are opportunities out there for anyone looking to invest. 82% of Landlords, investors and brokers in a recent survey said that they’d prioritise “environmental friendliness and energy efficiency” when buying properties. This taps into increased Tenant support for sustainable solutions, and could also have a cost benefit; green mortgages could offer your buy-to-let investors lower interest rates if they were to invest in energy efficient properties.
For those with properties already, there are some low cost ways to improve the properties’ energy efficiency, including using low energy lighting, estimated to cost £38 on average, insulating hot water cylinders at around £23, and draught-proofing windows at £100. Every little helps.
So that’s a wrap. I hope you made it to the end and if you have any questions please feel free to ask.
If you need any assistance letting your property in Brighton, Hove, Kemptown and surrounding areas or if you just have some general queries please feel free to contact us on +44 (0)1273 646426 or lettings@bishopsullivan.co.uk
Best Regards,
Julian Bishop
