UK Property News Week 21

Welcome to NestInsights, where we investigate the currents shaping the UK property market. Our focus extends across a spectrum of issues and developments that are pivotal to understanding the dynamics at play within the property sector.

This week, our coverage includes property news about record high asking prices as estate agents respond to market improvements, the potential introduction of rent caps under a Labour government, and the anticipation surrounding early summer interest rate cuts. Additionally, we explore the simplified regulations for converting unused farm buildings into homes, the East of England overtaking London as the top region for property investors, and landlords advocating for policies to ensure tenant financial responsibility.

Our goal is to offer a comprehensive overview that informs and empowers our audience to make informed decisions in a dynamic market.

Table of Contents

• Record High Asking Prices as Estate Agents Respond to Market Improvements

• Labour Government May Introduce Rent Caps

• Early Summer Interest Rate Cuts

• Simplified Regulations for Converting Unused Farm Buildings into Homes

• East of England Overtakes London as Top Region for Property Investors

• Landlords Advocate for Policies to Ensure Tenant Financial Responsibility

UK Property News Week 21

Record High Asking Prices as Estate Agents Respond to Market Improvements

The property market has seen a significant boost as asking prices hit a record high.

According to recent data, the average asking price for properties coming to the market has reached £375,131, reflecting a 0.8% increase, or £2,807, from the previous month​​.

This rise is primarily driven by the momentum of the spring selling season, which has exerted upwards pressure on prices despite ongoing challenges in the broader economic landscape.

Pent-up demand from would-be buyers, who had previously paused their plans, is a key factor behind the increased activity. This resurgence in buyer interest has occurred despite elevated mortgage rates, which have remained higher for longer than initially anticipated.

The number of sales agreed in the first four months of the year is 17% higher than the same period last year, outpacing the 12% increase in the number of new sellers entering the market​​.

Tim Bannister, Rightmove’s Director of Property Science, highlights that some sectors of the market, particularly the top-of-the-ladder segment, have led this price growth. The North East, known for having the cheapest average prices in Great Britain, has also experienced the strongest price growth, indicating a robust regional performance​​.

Despite the positive indicators, the market remains highly price-sensitive. Average asking prices are only 0.6% higher than a year ago, illustrating that while there is growth, it is modest and reflective of cautious optimism among buyers and sellers. Rightmove's analysis suggests that properties requiring an asking price reduction take significantly longer to find a buyer compared to those priced correctly from the outset.

Properties priced right from the start take, on average, 32 days to agree on a sale, whereas those that need a price reduction take about 112 days​​.

A persistent challenge in the property market is the lengthy time required to complete a sale after finding a buyer. On average, it takes 154 days from agreeing on a sale to legal completion, making the total process from listing to moving in over seven months. This protracted timeline is a significant hurdle for both agents and home-movers​​.

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Labour Government May Introduce Rent Caps

Shadow Chancellor Rachel Reeves has suggested that a Labour government might introduce rent caps in certain local areas. This proposal aims to address the pressing issue of affordability within the private rental sector (PRS), which has seen rent rates soar in recent years, particularly in urban centres.

Rachel Reeves has indicated that rent controls would not be applied uniformly across the country but rather tailored to specific local markets where the need is greatest. This nuanced approach stems from the recognition that housing markets vary significantly across regions. Reeves emphasized,

There may be the case for that in some local areas, but as a blanket approach, I’m not convinced by that

The Labour Party's contemplation of rent caps is informed by similar policies previously implemented in Scotland under Nicola Sturgeon's leadership. Scotland's experience revealed both the potential benefits and drawbacks of such measures.

While rent controls in Scotland aimed to prevent exorbitant rent increases, they also led to unintended consequences, such as a reduction in the availability of rental properties as some landlords exited the market​​.

Labour's proposal is part of a broader strategy to ensure fairness and stability for renters while maintaining a viable rental market. The party has committed to abolishing Section 21 "no-fault" evictions, ending tenant bidding wars, and extending Awaab’s Law to the private rented sector.

These measures aim to provide renters with greater security and protection against sudden and unjust evictions​​.

Early Summer Interest Rate Cuts

As we approach the summer months, anticipation builds around the prospect of an early interest rate cut, a potential shift that could have far-reaching implications for the property market and broader economy.

Recent data and expert opinions suggest that such a move by the Bank of England is becoming increasingly likely, driven by a notable decline in inflation rates.

The latest figures from the Office for National Statistics reveal that inflation fell to 2.3% in the year to April, down from 3.2% in March.

This marks the lowest inflation rate in nearly three years, largely attributed to significant reductions in gas and electricity prices following the adjustment of the energy price cap by Ofgem. Prices for electricity, gas, and other fuels plummeted by 27.1% over the past year, the most substantial drop since records began in 1989​​.

The Bank of England's outgoing deputy for monetary policy, Ben Broadbent, has indicated that an interest rate cut could occur "some time over the summer" if the economic conditions continue to evolve as expected.

This sentiment is echoed by various City experts who view the current Consumer Price Index (CPI) data as a milestone towards the first rate cut since 2020. With the next Monetary Policy Committee (MPC) meeting scheduled for June, the financial markets are closely watching for any indications that could lead to a reduction in the base rate​​.

Real estate and financial analysts are divided on the immediate impacts of a potential rate cut. Tom Bill, head of UK residential research at Knight Frank, notes that while the inflation data is promising, the persistent services inflation may delay the rate cut, keeping mortgage rates elevated and applying downward pressure on house prices.

Conversely, Emily Williams, director of research at Savills, believes that the latest inflation figures could boost market confidence, potentially leading to increased mortgage affordability and a resurgence in transactional activity similar to the start of the year​​.

Ben Thompson, deputy CEO at Mortgage Advice Bureau, adds that the near-target inflation rate could be the catalyst needed to rejuvenate the housing market. As inflationary pressures ease, swap rates are expected to fall, subsequently lowering mortgage rates and improving conditions for those looking to buy or remortgage​​.

Simplified Regulations for Converting Unused Farm Buildings into Homes

The government has recently introduced new permitted development (PD) rights, significantly simplifying the process of converting unused farm buildings into residential homes. These changes, which came into effect this week, are part of a broader initiative aimed at boosting the housing supply and supporting rural economies.

The new regulations allow for the conversion of unused farm buildings into homes without the need for a full planning application. This streamlining of the bureaucratic process is expected to make it easier and faster for farmers and developers to repurpose agricultural structures that are no longer viable for modern farming operations.

In addition to residential conversions, the regulations also permit the transformation of these buildings into shops, cafés, and sports facilities​​.

These changes are a component of the government's Long-term Plan for Housing, announced in July of the previous year.

Since April 2014, only 5,000 homes have been developed on farming land.

The new proposals are intended to significantly increase this number, thereby addressing the housing shortage and creating new job opportunities in rural areas​​.

In addition to easing the conversion process, the new PD rights also allow for the expansion of existing farm buildings. Farms over 5 hectares can now increase the size of their buildings by up to 1,500 square meters, while those under 5 hectares can expand by up to 1,250 square meters.

The volume allowance for extensions has also been increased to 25% from the previous 20% limit without requiring prior approval​​.

East of England Overtakes London as Top Region for Property Investors

In a noteworthy shift within the property investment landscape, the East of England has surpassed London as the most attractive region for property investors over the next 12 months.

According to Handelsbanken’s latest Property Investor Report, 26.5% of respondents identified the East of England as the most appealing region for investment, followed closely by North East & Cumbria, North West, and South East​​.

The East of England's rise to prominence reflects a broader trend among investors who are now prioritizing regions with higher yield characteristics over those with historically strong demand. This shift is indicative of a strategic move by investors to seek out better returns amid fluctuating market conditions.

Last year, London was the leading investment hotspot, but it has since dropped to fifth position, highlighting a significant change in investment preferences​​.

Investor sentiment remains overwhelmingly positive, with 81% of respondents expecting the value of their portfolios to increase over the next year.

Nearly a third of these investors anticipate a growth of more than 20%, and almost 50% foresee a slight uptick of around 5%. This optimism is most pronounced in Wales, where 59% of respondents expect a substantial upswing in property values​​.

Landlords Advocate for Policies to Ensure Tenant Financial Responsibility

As the rental market faces ongoing challenges, landlords are increasingly advocating for measures that ensure tenant financial responsibility. This push is driven by a combination of high mortgage rates, rising overhead costs, and the bureaucratic burden of managing properties.

A recent survey conducted by the Leaders Roman Group (LRG) among 630 landlords in England has highlighted these concerns, prompting calls for targeted reforms​​.

The survey revealed that landlords are less worried about the proposed Renters (Reform) Bill and more concerned with the financial pressures of maintaining rental properties.

These pressures include high mortgage rates, increased service charges, maintenance costs, and the VAT on contractors' fees. Such financial strains make it imperative for landlords to secure reliable rental income and minimize the risks associated with tenant defaults​​.

One of the most significant reforms landlords are calling for is the linkage of rent arrears to tenant credit ratings. This measure aims to ensure that tenants meet their financial obligations and provides landlords with a tool to identify and avoid problematic tenants.

A substantial 70% of surveyed landlords support this initiative, believing it would encourage tenants to prioritize rent payments and maintain their financial commitments​​.

In addition to credit rating links, 45% of landlords advocate for the creation of a tenant register to track individuals with histories of arrears or property damage. This register would help landlords make informed decisions and mitigate risks associated with renting to unreliable tenants.

Furthermore, there is broad support (61%) for establishing a separate housing court to expedite landlord-tenant disputes. Such a court would streamline legal processes, reducing the time and costs involved in resolving issues​​.

Conclusion

The property market is currently experiencing significant changes, from record high asking prices driven by market improvements to the potential introduction of localized rent caps under a Labour government.

The anticipation of early summer interest rate cuts underscores the delicate balance needed in managing economic recovery, while the simplified regulations for converting unused farm buildings into homes aim to boost housing supply and support rural economies.

The East of England's rise as the most attractive region for property investors highlights the strategic shifts occurring in investment preferences, while landlords' advocacy for policies ensuring tenant financial responsibility underscores the ongoing challenges within the rental market.

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