UK Property News Week 35

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

• UK House Prices Poised for Growth in 2024

• Are Estate Agents Inflating Home Values to Secure Listings?

• Keir Starmer Anticipates a ‘Painful’ Autumn Budget: Potential Tax Increases Explored

• Surge in Rental Properties for Sale as Landlords Exit the Buy-to-Let Market

• London’s Parks Drive Up Property Prices by Over 50%

• Government Launches Taskforce to Fast-Track Housebuilding Initiatives

UK Property News Week 35

UK House Prices Poised for Growth in 2024

The UK housing market is showing signs of recovery and is expected to experience modest growth in 2024. After a challenging 2023, which saw sustained price declines, the market is now poised to edge higher, supported by a combination of favorable economic conditions and government interventions.

According to recent forecasts by Knight Frank, UK house prices are predicted to rise by 3% in 2024. This marks a significant improvement from earlier projections, which anticipated a 4% decline. Several factors contribute to this optimistic outlook:

1. Mortgage Market Revival: The ongoing mortgage pricing war among lenders is a critical driver of this recovery. As lenders compete for market share, mortgage rates have been pushed lower, making home financing more accessible to a broader range of buyers. Notably, the average mortgage rate is expected to dip below 4% this autumn, further stimulating demand.

2. Economic Confidence: The anticipation of additional interest rate cuts by the Bank of England in the final quarter of the year is bolstering market confidence. Lower interest rates reduce the cost of borrowing, encouraging more transactions and driving price growth.

3. Government Policies: The new Labour government’s economic policies, including measures to support first-time buyers and potential adjustments to capital gains tax and inheritance tax, are also expected to play a role in shaping the housing market. These policies aim to create a more balanced and accessible housing market, which could further stabilize and boost prices.

While the overall UK market is expected to see a 3% increase, regional variations will persist. For instance, Greater London, which saw a 1.6% growth in house prices in the year to June 2024, is expected to achieve a 2% increase by year-end.

In contrast, prime central London (PCL) may experience more modest growth or even slight declines, with forecasts suggesting a -1% change due to ongoing uncertainties in the prime property market.

Assemble a high-performing property portfolio with NestInisghts. Our platform offers 11 user-friendly tools, empowering you to make data-driven decisions. Direct your resources towards the highest yielding real estate opportunities today: Check it out for free!

Are Estate Agents Inflating Home Values to Secure Listings?

The practice of estate agents inflating property values to secure listings, often referred to as "over-valuing," has been a contentious issue within the UK housing market. This strategy, while potentially beneficial for agents in the short term, can have significant negative consequences for both sellers and the broader market.

Over-valuing occurs when estate agents deliberately set the asking price of a property higher than its market value to win the seller’s instruction. The logic is simple: sellers are often tempted by the promise of a higher sale price, leading them to choose the agent who quotes the most optimistic valuation.

However, this approach can backfire once the property fails to attract buyers at the inflated price, resulting in prolonged time on the market and, eventually, price reductions.

According to data analyzed by TwentyEA, a substantial number of properties listed for sale in 2023 and early 2024 did not sell at their initial asking prices. In fact, only about 53% of all properties listed actually completed sales, highlighting a significant disconnect between asking prices and what buyers are willing to pay.

This figure is even more concerning in regions like London, where less than 40% of listed properties were sold.

The Impact on Sellers and the Market

For sellers, the consequences of over-valuing can be severe. When a property is priced too high, it tends to linger on the market, leading to reduced interest and potentially damaging the property's perceived value.

Sellers may eventually need to lower the asking price, sometimes multiple times, to generate interest, often selling for significantly less than the original valuation.

This practice also distorts the market, contributing to an inflated perception of property values. When multiple agents in an area engage in over-valuing, it creates a false sense of market buoyancy, leading other sellers to expect similarly high prices.

This can slow down the market overall, as properties remain unsold for extended periods.

Despite the clear downsides, over-valuing remains prevalent due to the competitive nature of the estate agency industry. Agents are under pressure to secure instructions, and in a market where sellers have many options, the temptation to offer an attractive but unrealistic valuation can be strong.

However, as the data suggests, this approach is unsustainable in the long term. As market conditions become more challenging, with buyers becoming more price-sensitive and better informed, the practice of over-valuing is likely to face increased scrutiny.

Keir Starmer Anticipates a ‘Painful’ Autumn Budget

As the UK braces for the upcoming autumn budget, Prime Minister Keir Starmer has warned that it will be "painful," signaling potential tax increases and tough economic measures. With a £22 billion public finance shortfall to address, the government is under significant pressure to balance the books, and the property market is likely to be affected by the decisions made.

One of the key concerns for property investors and homeowners is the potential for tax hikes in areas such as capital gains tax (CGT), inheritance tax, and other property-related levies. While the Chancellor, Rachel Reeves, has ruled out increases in national insurance, VAT, or income tax, she has hinted at changes in other areas.

The government’s focus on “difficult decisions” suggests that property owners could be targeted as part of the broader effort to raise revenue.

For instance, capital gains tax is widely expected to be revised, particularly for second homes and investment properties. This could discourage some investors, especially in the buy-to-let sector, where margins are already being squeezed by rising costs and increased regulatory demands.

The potential for higher CGT rates may prompt a rush to sell before the new rates take effect, which could temporarily increase the supply of properties on the market, affecting prices and sales volumes.

Impact on the Property Market

The prospect of a tough budget has already created a mood of uncertainty within the property market. Knight Frank, a leading estate agency, has noted that while overall UK house prices are expected to rise by 3% in 2024, the outlook could change depending on the specifics of the budget.

In particular, the prime property market, especially in central London, is facing a hazier outlook, with prices already experiencing a decline of 2.4% as of July 2024. This trend may continue if the budget introduces more stringent taxes on high-value properties or further limits tax reliefs that benefit the wealthy.

Another area of concern is the potential impact on rental markets. If capital gains tax increases lead to more landlords exiting the market, the already tight supply of rental properties could become even more constrained, pushing rents higher. This would exacerbate affordability issues for tenants, particularly in high-demand areas like London.

Surge in Rental Properties for Sale as Landlords Exit the Buy-to-Let Market

The UK’s buy-to-let market is undergoing a significant shift as more landlords opt to sell their rental properties. This trend, driven by rising costs, increased regulatory burdens, and the anticipation of future tax hikes, is reshaping the landscape of the private rental sector and could have far-reaching implications for tenants, property prices, and the overall housing market.

Recent data from TwentyEA highlights a striking increase in the number of rental properties being listed for sale. As of June 2024, 18.4% of all properties listed for sale had previously been available for rent within the past three years. This represents a staggering 100.6% increase compared to June 2023, and a 34.6% rise compared to pre-pandemic levels in June 2019.

London, in particular, has seen a pronounced impact, with 22% of all newly listed homes in inner London in July 2024 having been rental properties. This figure marks a ten-year high, reflecting the heightened pressure on landlords in the capital.

Across the UK, however, the percentage of previously rented homes listed for sale was significantly lower at 9%, indicating that the trend is particularly concentrated in high-demand urban areas.

Why Landlords Are Leaving the Market

Several factors are contributing to this exodus of landlords from the buy-to-let sector. One of the most significant drivers is the rising cost of borrowing. With mortgage rates increasing over the past year, many landlords are finding that their profit margins are being squeezed. This is compounded by the prospect of further capital gains tax increases, which may prompt landlords to sell before these potential changes take effect.

Additionally, the government’s push for higher energy efficiency standards and other regulatory changes have added to the financial burden on landlords. Compliance with these new rules often requires substantial investment, which some landlords are unwilling or unable to make, particularly in older properties that may need extensive upgrades.

Colin Bradshaw, Chief Executive Officer of TwentyCi, notes that these factors have made the rental sector "much more expensive and unpredictable" for landlords. The reduction in available rental properties is also exacerbating the already tight supply in the market, with the number of properties available to rent at its lowest level in 15 years.

In July 2024, the UK had just 276,000 rental properties available, compared to 369,000 in July 2019—a decrease of more than 25%.

Impact on Tenants and the Rental Market

For tenants, the reduction in available rental properties is contributing to rising rents. As supply dwindles, competition for the remaining properties intensifies, driving up prices.

The average asking rent across the UK reached £1,869 per month in July 2024, while in inner London, it soared to £2,399 per month.

This increase in rental costs is placing additional strain on tenants, particularly in urban areas where demand remains high.

The decline in rental stock also has broader implications for housing affordability and mobility. As fewer rental properties become available, tenants may find it more challenging to move or secure housing, leading to increased pressure on social housing and other forms of affordable accommodation.

London’s Parks Drive Up Property Prices by Over 50%

London’s green spaces have long been considered one of the city’s most attractive features, offering residents a rare respite from the hustle and bustle of urban life. However, these parks are not just a source of leisure and tranquility—they also play a significant role in driving up property values.

Recent research reveals that homes located near some of London’s most cherished parks command substantial premiums, with prices exceeding the broader market by over 50%.

According to an analysis by Foxtons, properties adjacent to London’s premier parks are, on average, priced 53% higher than the surrounding boroughs. This remarkable premium underscores the high demand for homes that offer both the convenience of city living and easy access to green spaces.

Among the parks studied, Green Park in Westminster leads the way, with homes in its vicinity achieving the highest price premium. Properties within the W1J and SW1A postcodes, which encompass Green Park, have an average price of £1.48 million. T

his represents a 55% increase compared to the wider borough average of £954,279, making Green Park one of the most sought-after locations in the capital.

Battersea Park also commands a significant premium, with homes in the SW11, SW3, and SW8 postcodes averaging £927,098—50% higher than the broader Wandsworth borough. Similarly, properties near Kensington Gardens enjoy a 40% premium, with an average price of £1.5 million, the highest average house price among all the parks analyzed.

Several factors contribute to the substantial premiums associated with properties near London’s parks. First and foremost is the lifestyle appeal. Parks provide essential green space for recreation, exercise, and socializing, which is increasingly valued by urban dwellers, particularly in a post-pandemic world where outdoor space has become more prized than ever.

Moreover, properties near parks often benefit from enhanced privacy, reduced noise pollution, and better air quality compared to other urban areas. These factors make such locations particularly attractive to affluent buyers who are willing to pay a premium for the added benefits.

Government Launches Taskforce to Fast-Track Housebuilding Initiatives

In a decisive move to address the UK’s chronic housing shortage, the government has launched a new taskforce aimed at accelerating the construction of new homes across the country.

Announced by Deputy Prime Minister Angela Rayner, the New Homes Accelerator is a key part of the government’s broader strategy to drive economic growth and tackle the nation’s housing crisis by removing barriers that have stalled development projects.

The New Homes Accelerator: A Strategic Intervention

The New Homes Accelerator is designed to unblock the pipeline of housing projects that have been delayed due to planning bottlenecks and regulatory hurdles. Government analysis indicates that there are approximately 200 large development sites across the UK with either outline or detailed planning permission that have yet to commence construction.

These sites have the potential to deliver hundreds of thousands of new homes but have been hampered by a range of issues, from local opposition to complex planning regulations.

The taskforce will bring together an experienced team from the Ministry of Housing and Homes England, working closely with local councils, developers, and government agencies to identify and resolve specific issues that have hindered progress. This collaborative approach aims to streamline the planning process, reduce red tape, and ensure that projects move forward more swiftly.

Targeting Key Projects for Immediate Action

The government has already begun focusing on several high-impact sites, including Stretton

Hall in Leicestershire, Tendring Colchester Borders Garden Community in Essex, and Biggleswade Garden Community in Central Bedfordshire.

Together, these projects have the potential to unlock over 10,000 new homes.

The taskforce's early interventions are expected to set a precedent for how stalled projects can be revived and completed efficiently.

In addition to these initial sites, the taskforce has put out a call for evidence, inviting landowners, local authorities, and developers to come forward with details of other stalled projects. This will help the government better understand the scale of the problem and prioritize further interventions where they are most needed.

Addressing the Planning Process Bottleneck

A major focus of the New Homes Accelerator is to address the inefficiencies in the planning system that have contributed to the housing supply crisis. The government acknowledges that a lack of capacity within local planning departments, combined with misaligned incentives for public bodies, has created significant delays in the approval process.

By deploying planning experts directly to problematic sites and providing additional resources to local councils, the taskforce aims to expedite decision-making and reduce uncertainty for developers.

David O’Leary, Executive Director of the Home Builders Federation, highlighted the significance of the taskforce, stating:

The planning process and everything associated with it delivers too little land and has long been a significant constraint on housebuilding. Government has shown a welcome desire in the weeks since the election to address the problems. A lack of planning department capacity and misaligned incentives for other public bodies and statutory consultees has created a process with huge uncertainty. This creates an abundance of risk resulting in longer development timescales and severe challenges in particular for small and medium-sized house builders.

Takeaways

• House prices in the UK are expected to rise by 3% in 2024, driven by lower mortgage rates, anticipated interest rate cuts, and supportive government policies.

• Over-valuing by estate agents remains a concern, with only 53% of properties selling at their original asking prices, highlighting the risks for sellers in a competitive market.

• The upcoming budget could introduce significant tax changes, particularly in capital gains and inheritance tax, potentially impacting the property market and investor behavior.

• A sharp increase in rental properties being sold, especially in London, reflects rising costs and regulatory pressures, with 18.4% of properties listed for sale in June 2024 previously being rental homes.

• Proximity to London’s major parks adds substantial value to properties, with premiums exceeding 50%, making these areas some of the most sought-after in the capital.

• The New Homes Accelerator aims to unlock stalled housing projects, addressing planning bottlenecks and boosting housing supply across the UK.

Stay informed and empowered with NestInsights, your go-to source for property market analysis and tools. Explore our suite of analytics tools today and make confident decisions in the evolving landscape of UK property.