UK Property News Week 33

Welcome to NestInsights, your guide to the evolving UK property market. In this blog series, we explore the latest property news and developments that shape the sector, offering you the insights needed to navigate and thrive. Our goal is to provide a comprehensive overview that empowers you to make well-informed decisions in this dynamic market.

Table of Contents

• The "Great British Downsize" Begins, Reports Suggest

• Research Highlights Challenges for Landlords Meeting 2030 EPC Standards

• NRLA Seeks Government Clarity on Proposed ‘French-Style’ Hardship Tests

• UK Tenants Spend Over One-Third of Income on Rent, Study Shows

• Rental Yields Reach Decade-High Amid Shifting Market Conditions

• Major Repairs That Could Alarm Landlords

UK Property News Week 33

The "Great British Downsize" Begins, Reports Suggest

Recent data indicates that a significant shift is underway in the UK property market, with older homeowners increasingly opting to downsize. Dubbed the "Great British Downsize," this trend marks a departure from the traditional reluctance of older generations to move from their larger family homes.

According to property data and insights firm TwentyCi, there has been a 13% year-on-year increase in home sales among those aged 66 and over, signaling a growing willingness to transition into smaller, more manageable properties​.

This contrasts sharply with the overall market, where transaction numbers are either stagnant or falling among younger homeowners. For example, data shows that sales by younger owners have either plateaued or declined, underscoring the generational divide in property mobility​.

Economic pressures are likely a significant driver behind this trend. Elevated living costs—spanning from utility bills to insurance premiums—are making it increasingly challenging for older homeowners to maintain larger properties.

Rob Oatley of Winkworth, Pimlico and Westminster, notes that approximately 20% of homes under offer in his office are owned by older downsizers​. This is a marked increase, suggesting that more retirees are opting to downsize due to financial constraints as well as the physical burden of maintaining larger homes.

However, while some older homeowners are proactively downsizing, others face a more reluctant journey. Sarah Cull of Strutt & Parker Salisbury points out that many older homeowners delay moving due to the overwhelming task of decluttering homes filled with decades of possessions​.

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Research Highlights Challenges for Landlords Meeting 2030 EPC Standards

The UK government’s ambitious target for all rental properties to achieve a minimum Energy Performance Certificate (EPC) rating of A to C by 2030 presents a significant challenge for landlords.

Recent research reveals that, at the current pace of energy efficiency improvements, it could take an additional 18 years—well beyond the 2030 deadline—to upgrade the entire privately rented housing stock in England and Wales​.

This research, conducted by Hamptons, marks a notable acceleration in progress compared to earlier predictions, which had suggested it would take 89 years to achieve these standards based on the 2016 rate of upgrades.

However, despite the improvements, the current rate of upgrades remains insufficient to meet the 2030 goal. According to the data, around 340,000 rental homes will need to be upgraded annually to meet the government’s target. Yet, only about 115,000 homes are expected to meet the required standards in 2024, indicating that the rate of improvements needs to triple to stay on track​.

One of the primary issues facing landlords is the cost and feasibility of these upgrades, particularly for older properties.

In 2024, over half (55%) of rental properties that received new EPC certifications achieved a rating of C or better, but many older and less efficient homes—especially those in the North of England—remain challenging to upgrade.

For instance, EPC D-rated properties, which are more common in these regions, currently generate higher yields (7.6% on average) than newer, more energy-efficient properties rated A (5.5%). This yield discrepancy makes it financially difficult for landlords to justify costly energy efficiency improvements​.

Moreover, approximately 3-4% of rental homes are expected to fall short of the A-C rating threshold, even with substantial efforts. The research highlights that upgrading older, less energy-efficient properties, particularly those with significant structural challenges, may be economically unfeasible for some landlords.

For many, the cost of compliance could run into tens of thousands of pounds, creating a potential financial burden​.

NRLA Seeks Government Clarity on Proposed ‘French-Style’ Hardship Tests

The National Residential Landlords Association (NRLA) has raised concerns about potential regulatory changes involving the introduction of ‘French-style’ hardship tests into the UK’s rental market.

These proposed changes, if implemented, could significantly alter the landscape for landlords, particularly in the context of possession claims.

In France, hardship tests have been in place since 2008, allowing tenants to contest eviction if they have no alternative housing options. Recent reports have speculated that similar measures could be introduced in the UK as part of a broader “war on landlords,” aimed at enhancing tenant protections.

However, the NRLA is seeking clarification from the government regarding the validity of these claims​.

Eleanor Bateman, senior public affairs officer at the NRLA, has expressed uncertainty over whether the proposed hardship tests reflect actual government policy. Following the publication of these reports, the NRLA took swift action, meeting with officials from the Ministry of Housing and writing to Housing Minister Matthew Pennycook to seek clarity on the matter. The NRLA is still awaiting a formal response​.

The potential introduction of hardship tests is a significant concern for landlords, as it could complicate the eviction process and increase the risks associated with buy-to-let investments. While tenant protections are crucial, the NRLA emphasizes the need for a balanced approach that ensures the rental market remains viable for both tenants and landlords. Bateman noted that during discussions on the Renters’ Reform Bill, similar proposals were tabled but did not move forward. However, the current speculation indicates that the issue may resurface as the government moves ahead with the Renters’ Rights Bill​.

The NRLA has reiterated its commitment to engaging constructively with the government to ensure any new legislation is workable and fair for all parties involved.

Given the uncertainty surrounding the proposed hardship tests, landlords are advised to stay informed about regulatory developments that could affect their rights and responsibilities.

UK Tenants Spend Over One-Third of Income on Rent, Study Shows

A recent study has revealed the growing strain on UK tenants, with average renters now spending over one-third of their take-home pay on rent.

According to research conducted by Canopy, a tenant and landlord services provider, tenants are spending an average of 35.7% of their post-tax income on rent, a figure that significantly exceeds the 30% threshold typically considered ‘affordable’ by housing experts​.

This financial pressure is even more acute for nearly one in five UK tenants (19.3%), who are now allocating at least half of their income to cover rent costs. Furthermore, 11.3% of tenants are spending more than 60% of their income on rent, and an alarming 4.4% are dedicating over 80% of their earnings to rent alone​.

The regional disparity in rental affordability is stark.

In London, the most expensive region for renters, tenants spend an average of 44.3% of their income on rent, closely followed by the South West (44.1%) and the South East (41.1%). These figures highlight the growing affordability crisis in southern regions of the UK.

In contrast, the North East offers much more affordable options, with cities like Sunderland (32.8%) and Newcastle upon Tyne (33.7%) ranking among the most affordable in the country. The lowest rent-to-income ratio is found in Darlington, where 28% of renters’ income is spent on housing​.

Bournemouth, Brighton, and Edinburgh rank among the least affordable cities for tenants, with Bournemouth leading at a rent-to-income ratio of 46.9%. Chris Hutchinson, CEO of Canopy, remarked that these figures are troubling, raising serious concerns about tenants’ ability to save for homeownership or handle unexpected financial challenges.

He further warned that while regulatory measures are being considered to ease tenant burdens, overregulation could drive landlords out of the market, reducing the availability of rental properties​.

Rental Yields Reach Decade-High Amid Shifting Market Conditions

Amidst significant market changes, rental yields across the UK have surged to a decade-high, reaching an average of 6.3% in Q2 2024.

This data comes from the latest Landlord Trends report, conducted by Pegasus Insight on behalf of Foundation Home Loans, reflecting a robust rental market driven by rising tenant demand and increasing portfolio management costs​.

The research, based on nearly 800 interviews with landlords, revealed that 82% of landlords describe tenant demand as strong, a key driver behind the surge in rental yields.

Over the past four years, the incidence of rent increases has tripled, with 74% of landlords raising rents in Q2 2024. This has been largely in response to escalating mortgage costs and the overall increase in expenses associated with maintaining rental properties​.

Interestingly, the data shows that the rise in rental yields is occurring in tandem with changes in portfolio ownership structures.

Limited company ownership has become increasingly popular, with 67% of new property acquisitions now held within such structures. This shift is driven by tax efficiencies and the ability to mitigate the impact of regulatory changes, such as the phasing out of mortgage interest tax relief​.

Landlords are also facing significant refinancing pressures. Over one-third of landlords plan to remortgage or undertake product transfers within the next 12 months. O

n average, these landlords hold 5.3 loans, which increases to 14.4 loans for landlords with larger portfolios (over 11 properties).

The total borrowing across portfolios varies significantly, from an average of £268,000 for smaller landlords to £1.16 million for larger portfolio holders​.

Despite the financial challenges, some landlords are optimistic about the future. Approximately 10% of landlords intend to increase the size of their portfolios within the next year. Of those, 67% plan to finance their purchases using buy-to-let mortgages, while others aim to release equity from existing properties or even draw from pension funds to support new acquisitions​.

However, the outlook is not without concerns. The potential introduction of rent controls and the removal of Section 21 (no-fault evictions) have created uncertainty within the sector.

According to the report, 55% of landlords stated that rent controls would significantly impact their commitment to the rental market, with one in three landlords considering selling properties if such measures are implemented​.

Major Repairs That Could Alarm Landlords

Landlords across the UK face significant financial risks when it comes to maintaining their rental properties, with some repairs costing tens of thousands of pounds. Recent research highlights the most expensive property repairs that landlords may encounter, many of which can be financially daunting and difficult to predict​.

One of the costliest repairs landlords could face is underpinning, which is required when a property’s foundations weaken, often due to subsidence. This structural intervention can set landlords back upwards of £25,000, depending on the size and severity of the property. Fortunately, underpinning is only necessary in fewer than 10% of UK properties affected by subsidence, but when required, it becomes one of the most expensive undertakings​.

Another significant repair is a complete roof replacement, which can cost landlords as much as £10,500. Roofs generally need to be fully replaced every 25 years, although this timeline can vary based on weather conditions and the materials used. While landlords can mitigate these costs by addressing minor repairs early, such as replacing cracked or missing tiles (which typically cost around £200), neglecting these issues can escalate into major expenses​.

Electrical rewiring is another high-cost repair that landlords may need to confront. A full property rewiring can reach £10,000, depending on the property's size. This essential but often overlooked repair ensures that properties remain compliant with electrical safety standards, which is crucial for the safety of tenants and to avoid potential legal issues​.

Rendering repairs can also prove costly, with prices climbing as high as £8,500. Rendering, which involves applying a protective and decorative layer to exterior walls, is essential in properties where the exterior has deteriorated or suffered weather damage. While not as frequent as other repairs, when needed, rendering can significantly impact a landlord’s budget​.

Lastly, plumbing and water damage repairs can result in expenses reaching £5,000 or more in severe cases, such as flooding or extensive water damage. Quick action and regular inspections can prevent these issues from spiraling into more costly repairs, but when such damage occurs, the restoration costs can be substantial​.

Takeaways

• The "Great British Downsize" Begins: Older homeowners are increasingly opting to downsize, with a 13% rise in home sales among those aged 66 and over. Economic pressures and the physical demands of maintaining larger homes are driving this trend.

• Challenges with 2030 EPC Standards: Landlords face significant hurdles in meeting the government's 2030 energy efficiency targets. At the current rate of upgrades, it could take 18 years to achieve compliance, with costs potentially reaching tens of thousands of pounds for older properties.

• Concerns Over Proposed ‘French-Style’ Hardship Tests: The NRLA is seeking clarity on the potential introduction of hardship tests for tenants. These tests could complicate the eviction process and increase risks for landlords, prompting the need for a balanced approach.

• Rental Affordability Crisis: UK tenants are spending an average of 35.7% of their income on rent, with some regions, like London, seeing figures rise as high as 44.3%. This growing affordability crisis raises concerns about tenants' ability to manage other financial obligations.

• Rental Yields at a Decade-High: Rental yields have reached a 10-year high of 6.3%, driven by strong tenant demand and rising portfolio costs. However, potential regulatory changes, such as rent controls, are creating uncertainty in the market.

• Major Repairs Pose Financial Risks: Landlords face costly repairs, such as underpinning (£25,000), roof replacements (£10,500), and electrical rewiring (£10,000). Regular maintenance and inspections can help mitigate these significant financial burdens.

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