A recent house price index (Benham & Reeves – average of Nationwide/Halifax/Rightmove/Land Registry) shows the average value of property in the UK is now up to £252,487. Sold prices are up 2.1% on the previous quarter yet the same report shows mortgage lending down by 0.7% year on year. All this makes perfect sense as I sit behind my desk in Headingley and review our latest performance figures.
We’ve had another week with very few properties coming to the market. Hayley is now the President of the Leeds Estate Agents, Surveyors and Valuers Association (a post I held way back in 1992!) and the agents she represents are all reporting a shortage of available property for sale – and to let! Having a shortage of both is unusual. We usually find that when our sales stock is plentiful, our rental stock is depleted, and vice-versa. I have often described our business like a pair of old-fashioned weighing scales; as one side goes up, the other goes down. Today, we have the ‘scales’ horizontal, but sinking into the worktop!
I have been predicting a shortage of property to let for some time. Owners of rented property who have relatively high loan to value mortgages will now be feeling the pinch from the combination of the reduction in mortgage interest tax relief, the abolition of the 10% annual Wear and Tear Allowance, and the additional costs for letting brought about through last year’s Tenant Fee Act. We’ve seen a number of clients move from a ‘break-even’ point with their buy-to-lets, to running at a loss, in the past 12 months.
Subsiding a buy-to-let that you retain as a ‘pension pot’ isn’t unwise by any means. We don’t hesitate to pay into a private pension scheme that we can’t touch until we’re 55+. At least with property you can sell and release the equity as and when you want. But if you’re cashflow is tight, why continue? With record-low interest rates we’re experiencing record demand from first time buyers. Properties up to the £300,000 Stamp Duty exempt level have been selling superbly well but the quick sales of former rented properties to first time buyers has resulted in an 8% reduction in our rented stock level as a consequence. If all agents have seen a similar reduction in rental property due to landlords selling, the market is now short of supply of rented property.
Whenever there is consistent demand but short supply, rents rise. The current shortage of rental accommodation is driving rents even further upwards. Government is encouraging the large portfolio-landlords to create more purpose-built rented accommodation, but in a city such as Leeds, with very little land available for building (inside the Ring Road) these companies have not been able to rebalance the supply. I suspect it will take a few years for us to see additional rented property from the new-build sector in Leeds have an impact on rent levels. Without additional stock, rents are going to rise further.
The low-interest rate environment is not only encouraging first time buyers. Demand from second time buyers and families wanting to ‘trade-up’ is exceptional. We haven’t seen as many buyers on our client list since the boom of 2005-2007. This means that most properties we list for sale attract multiple buyers. Recent listings have seen half a dozen to a dozen buyers view within the first week. In most instances the viewings had resulted in multiple offers, and in a number of cases we’ve had to seek ‘Best and Final Offers’ to differentiate the buyers and close a sale – we appreciate buyers don’t like this experience but we believe this to be the best method of establishing full market value for the seller and deterring gazumping at a later date – an experience buyers detest!
I have valued as many properties this year as to date as last year, but our listings are well down. Introspection makes one question one’s selling skills, even after 40 years (or am I just getting too old?) but I’m please to say my stats indicate my conversion rate is as good as ever! The majority of properties I’ve looked at have not gone to market with other agents. The owners are simply waiting until a property comes to market that suits them, before listing their own. We therefore have a Catch-22 situation. There is clearly latent demand, and that demand is growing day-by-day, which, from experience, will lead to ever-increasing house prices until some external factor changes things.
The lack of stock is the reason mortgage applications have fallen. There simply are not sufficient available properties on the market. The mortgage market is likely to contract itself, as the mortgages which are being taken out are generally on 5-year fixed rate terms, resulting in these borrowers not refinancing for the next 5 years. A shrinking mortgage market will make lenders even more competitive, driving interest rates even further down, or making lending packages more attractive – free valuations, free legal fees, cashback on completion, etc.
We have a budget coming up in March, and a new Chancellor to present it. Rishi Sunak apparently married into a very wealthy family, and clearly has no money worries, but from what I’ve read he’s a very intelligent and experienced financier. He was involved in creating the forthcoming budget for Sajid Javid therefore I am hopeful he can see that the property market needs a stimulus to avoid spiralling rents and property prices. Long-term policy on house building is needed, but short-term measures are needed to ensure the current housing stock fulfils its needs. Reforms of Stamp Duty, taxation of landlords and more support for Help to Buy is needed if both buyers and tenants are to see some benefit.