Buy to let investors, first time buyers and private home owners in England and Northern Ireland will make savings from the recent revision to Stamp Duty thresholds.

The increased threshold to £250,000 – up from £125,000 – has been welcomed as a slight boost to the market. First time buyers can look forward to an increased threshold of from £300,000 to £425,000). They can also buy a property up to the value of £625,000 and still claim relief (that’s an increase from £500,000 previously). Unlike his cut to the 45 per cent higher earner’s tax rate (which has subsequently been reversed), the public did welcome this part of the new chancellor Kwasai Kwarteng’s ‘mini budget.’

Buy to let landlords still pay additional three per cent

According to its UK House Price Index report for September, rival portal Zoopla said the cuts would affect 43 per cent of properties on its site (ie the properties would be Stamp Duty-free). Although, of course, buy to let landlords and second home owners in general will still have to pay a three per cent Stamp Duty cost.

After doing some calculations Rightmove executives said around 45 per cent of the houses and flats for sale on their property portal were already exempt from Stamp Duty – even before the increased thresholds were applied.

North of England to benefit most from Stamp Duty changes

Areas where property prices are least expensive, such as the north of England, will benefit most from the cuts since they’ll make the properties more affordable. The north of the country – together with the Midlands – is already enjoying the fruits of relocation. With more jobs moving to Manchester, Leeds, Birmingham and Liverpool, there’s a bigger demand for properties in these busier cities.  Buy to let investors were benefiting in particular, thanks to high yields.

Many analysts are predicting a property crash of up to 15 per cent next year as grocery price hikes and the impact of rising energy bills on household finances really take hold. Rising mortgage interest rates will add to the unaffordability of moving home. 

Large variations in salary percentages for housing

One recent lender – Nationwide – pointed out that the average UK property works out at almost seven times the cost of the average take-home pay for individuals. That works out at 40 per cent per month of a salary going towards housing costs. Variations are wide though – in the city the figure is around 64 per cent (or 11 times the average take-home pay), whereas in the north of England, housing payments take up just 26 per cent (4.5 per cent) of a salary.

As the markets went in to turmoil this week, lenders withdrew hundreds of mortgage products. The result was many house sales fell through as buyers panicked over rocketing interest rates. After the chancellor’s U-turn on the higher tax earning rate, the panic began to subside and rates fell slightly. What will happen next with the economy as this new government attempts to make its mark is anyone’s guess. But one thing is for sure, it’s not going to be even sailing for some time to come.

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More rental properties are available in the capital, resulting in a lowering of monthly rents, according to one leading estate agent. 

There are in fact 60 per cent more rental properties advertised in London this month – nearly a quarter more than there was at the start of the pandemic. That’s still 40 per cent fewer than the same time last year (when many tenants moved home). At that time, owners of holiday lets also turned to long-term renting following the effective closure of the tourist market.

Rental income falling in the capital

The data, from Chestertons estate agents, also revealed that many rental properties were from ‘accidental landlords.’ These could be buy to let landlords put off by the low selling prices in the capital. They could also be couples looking to save money by co-habiting and renting out the other property. 

The result is the increase in supply is expected to flatten rental prices in the city.

House price drops of seven per cent by 2024

At the same time, homeowners can expect the value of their property to plummet over the next couple of years. Experts began to speculate last week following the latest Office for National Statistics figures, which showed a five per cent fall in house price growth between May and June. Despite this, the average UK house price was £286,000 in June – £20,000 higher than the same time last year.

The predictions are for a seven per cent fall in property prices over the next two years. This is fuelled by expectations that the Bank of England will increase interest rates to 3.75 per cent in April next year. It is currently sitting at 1.75 per cent. In London and the South East – where prices are highest compared to average incomes – the price drops are likely be even more severe. There the price of property could fall by as much as 12 per cent.

Gazumping on the rise 

Rightmove recording a drop of £23,000 in asking prices for 

property in London this month. The result has been an increase in gazumping tactics, according to several estate agents in the capital. 

One conveyancer, from the capital’s Osbornes Law firm said this form of ‘price chipping’ pointed to a weaker market – one that was already swinging from seller to buyer.

A shortage in the number of homes for sale is continuing to support the property market’s frenetic activity but higher mortgage interest rates and increasing inflation is expected to slow things down considerably. To the extent that next year is expected to show the slowest property market activity in over a decade.

But it’s not all doom and gloom. Anthony Codling, of property website Twindig, tempered pessimistic attitudes by reminding the doom-mongers: “We tend to overestimate the likelihood of bad things happening. House prices have fallen in only 16 out of the last 91 years.

‘Increasing living costs and rising mortgage rates are likely to temper house price growth…once we have won the war on inflation we can expect prices to continue to rise.”

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The property market continues to flourish as would-be buyers rush to settle purchases before mortgage interest rates rise further. And chains continue to fall apart as gazumping flourishes and desperation rises. 

And it’s not just the buyers who are desperate – conveyances too are turning away work, unable to cope with the demand, according to one recent property analyst.

Country and Seaside slowdowns

Last year’s hot spots such as countryside villages and seaside retreats are still popular but, as one Cornwall estate agent put it: “the froth is coming off the market.” 

Truro estate agent Duncan Ley said: “It’s a lot less frantic than it was — where you’d get ten competing bids on a property last year, there’s now maybe two or three, and surveyors are being a lot more conservative about values.”

Neighbouring Cornwall estate agents report similar, saying poor or overpriced properties are being left – unlike last year when ‘pretty much anything went.

And it’s a similar story in Norfolk where demand is definitely falling, according to one estate agent in Burnham Market – to the extent it’s “pretty much a trickle.” 

Property reductions appearing in South East

Those looking for price reductions though, would be better heading north where property purchasers HBB Solutions say the biggest property price discounts are in the North West, West Midlands, Yorkshire and Wales. But further south there’s the appearance of shifting prices too. In the South East, for instance, one in four properties have reduced their asking price.

‘Secret sales’ on the up

Property analystists TwentyCi expect 18,600 more properties than last year to be sold privately ie without being publicly advertised. And it’s not just million pound properties either – a lot of estate agents already have lists of ready buyers fed up with being previously gazumped and willing to go above the asking price.

Rightmove’s latest figure show the average home asking price dropped by £4,795 for the first time this year. It brings the asking price of the typical property in England and Wales to £365,173. That was a drop of 1.3 per cent between July and August. 

Executives at the property portal attributed to fall to the summer holiday period, insisting the market would finish with seven per cent year-on-year growth by December this year. But other property onlookers believe it’s more than that. They insist the speedy rise in the cost of living is beginning to take effect.

New mortgages costing more than old

The Bank of England’s base interest rate rise this month was the largest increase in 27 years. For the first time in almost a decade the typical interest rate for new mortgages is higher than for existing mortgages. 

Lending rates have risen from one per cent to four per cent within the past year – substantially increasing monthly mortgage costs for many borrowers.

When rates have risen this dramatically in the past it has been during a period when the property market was extremely slow.

However, responsible lending this time round (compared to the 2007 recession) means many homeowners haven’t over-stretched their budgets, insist analysts. That means we’re not expecting too many repossessions.

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The cost of the average property was down in July by 0.1 per cent to £293,221.

That’s according to the latest Halifax House Price Index, where – not surprisingly – analysts attribute the monthly fall to the increasingly tightening cost of living crisis, as well as the jump in mortgage interest rates.

Monthly mortgage hikes strike

The Bank of England increased its interest rate by 0.5 per cent this week. It took the UK base rate to 1.75 per cent, meaning those on tracker and variable mortgage rates will see a hike in their monthly payments. The interest rate rise itself was the highest in 27 years. 

Banking organisation UK Finance say there are around 800,000 borrowers on a tracker mortgage and another 1.1 million on a Standard Variable Rate (SVR) deal. 

The best two-year mortgage package is already more than two per cent higher than in January this year, according to a survey by L&C Mortgages. That means a typical £150,000 repayment mortgage over 25 years is now £159 higher per month, while a £150,000 tracker mortgage with 20 years remaining would go up £38 a month. Meanwhile, there are around 1.3m fixed-rate mortgage deals due to end between now and the end of the year.

Many economists have been expecting property prices to fall since the start of the year. Yet despite the drop (from 12.5 per cent to 11.8 per cent), property is still around £30,000 higher in value than in July 2020 when the market could only be described as ‘frenzied.’ There is plenty of agreement across the industry that prices are expected to drop further in 2023.

Mortgage approvals falling

June saw mortgage approvals down for the fifth month in a row. The number of householders granted finance fell from 65,681 in May fell to 63,726 last month. Both figures are lower than the month before the pandemic struck (February 2020) when 67,000 mortgages were approved.

And yet, there are still plenty of house transactions taking place. According to property research company TwentyCi, there are, in July, around 10 per cent more homeowners getting ready to move compared to April this year. 

The company’s MD Colin Bradshaw said: “Our previous observation that the owner-occupied sector appears to be detached from the woes that are befalling the wider economy continues to hold true. Transactional levels remain greater than 2019 and we are yet to see a sharp re calibration of the residential property market in either price or volume.” 

Nearly 1.2 million property transactions are expected to have taken place in 2022 by the end of the year. Sales in Inner London have picked up again – at a 28 per cent increase since the start of the pandemic. 

Repossessions are ‘up’

Mortgage arrears fell for the first three months of the year – a drop of almost four thousand households. But repossessions are up this quarter (from 320 properties to 390) according to statistics from the latest UK Finance data. Of those properties 580 were homeowner mortgaged and 370 buy-to-let properties. 

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Property prices in the UK will remain strong and keep rising right through to 2024 and beyond, according to a leading accountancy firm report, released this week. 

Instead of plateauing or falling, the EY report predicts growth slowing to 1.8 per cent in 2023 and 1.2 per cent the following year. 

Property rises almost seven per cent higher than GDP

It goes on to insist that a housing crash is highly unlikely even despite the squeeze on household budgets (UK inflation rose to a 40-year high of 9.1 per cent in May), fall in government support and escalating interest rates. When compared to GDP growth over the past couple of years, the report says, the housing market has fared so much better, with a ‘real’ price rise of eight per cent compared to 1.2 per cent. 

That’s because in March 2022 the average property had risen by £48,000 (21 per cent) in just two years. The lower figure of eight per cent is when inflation is taken in to account.

Nationwide analysts show less optimism 

Interestingly, the Nationwide building society – whose monthly house price index is due any time now – isn’t issuing a forecasting house price report due to the ongoing upheaval in the economy. Upmarket property firm Knight Frank show no such reservations – the have increased their forecasted house price growth figure from five per cent to eight per cent for this year.

Analysts at the Nationwide don’t predict as buoyant a market as either EY or Frank Knight. Looking at mortgage figures they see a decrease in activity, with approvals down by 3,500 to 66,000 in April compared to the previous month. Borrowing was down £4.1bn from £6.4bn for the same period. In both cases this was lower than before the onset of the pandemic in March 2020.

Why EY report remains positive for market

The Bank of England base rate has, of course, gone up post-pandemic – five times recently, pushing up mortgage costs for those on variable rates (or about to be). But, argues the EY report, existing home owners tend to be older and with higher salaries. They are also more likely to have been savers during the three periods of lockdown – a nest egg that can be converted into a bigger mortgage deposit.

Also, during previous recessions, house prices tended to fall when unemployment rose, forcing reluctant householders to sell their homes after a job loss. Today, unemployment is at its lowest in 50 years – 3.8 per cent in April and the lowest since the 1970s – sparking no such fears. 

Supply of housing too is in short supply. And that’s not just down to the number of New Builds – older homeowners are holding on to their property for longer, insists the report. As a nation we are living longer than previous generations. This also means fewer larger three and four-bedroom properties coming on to the market (not everyone wants to downsize). 

Add to that the fact that many of the smaller one and two-bedroom properties belong to buy to let landlords. They tend to be more interested in holding on to property for long-term capital appreciation.

Then there is the undisputable fact that although mortgage rates are rising, they are still historically low.

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Fewer recorded property sales and increasingly higher mortgage rates show that the cost of living crisis is finally beginning to bite the property market. 

According to the latest HM Revenue & Customs figures, the 106,780 properties sold last month was the lowest figure since the stamp duty holiday came to end six months ago. 

Mortgage interest rates highest in 13 years

The drop of 10.5 per cent coincided with a six month rise in mortgage rates from 1.29 per cent to 2.35 per cent. That mortgage interest rise was itself the biggest leap for 13 years. It follows reports that lenders are rapidly withdrawing existing rates and increasing them at short notice. 

Mortgage lending criteria tightening

The lending criteria too is changing with stricter rules concerning self-employed individuals and those in ‘risky’ professions. The amount someone can borrow compared to their salary is also reducing, according to many first-time buyers.

Referring to the big bank and building society lending institutions, Mortgage broker Sabrina Hall said: “If something is making them nervous, they will tweak the credit score system in the background to set the bar higher for those people that they consider to be a high risk.”

Despite Chancellor of the Exchequer Rishi Sunak yesterday promising a windfall tax on energy providers to pay for a £15bn package of support for UK households, the energy price cap is still expected to rise. Analysts say it will go up by 40 per cent, to £2,800, in September. At the same time, a Which? Report shows 265 supermarket grocery items have risen in price by more than 20 percent over the past two years. It means higher mortgage interest rates will only heap further pressure on existing households who are faced with re-mortgaging in the near future.

Rents expected to rise in line with demand

Getting back to property prices, rents too are expected to start going up – according to the April quarterly property market analysis by surveyors’ body RICS. More than 63 per cent of surveyors are convinced tenants will be asked to pay more over the next three months. To the extent it will be the highest rents since RICS began recording the data back in 1999.

The prediction is backed up by the fact that just over half of RICS members (52 per cent) reported an increase in rental demand between Feb to April. In Glasgow, the average property is being let in eight days. 

Landlord yields to increase

Researchers at Capital Economics reckon rents will go up by up to six per cent by the end of this year. It means gross yields should keep rising to 4.9 per cent by the end of 2024. The average yield is currently sitting at 4.3 per cent. 

That’s because they expect tenant demand to increase even higher as owning a property becomes just a dream for more first-time buyers, thanks to rising mortgage interest rates. At the same time property portal Rightmove recorded a 50 per cent drop in available properties to rent year-on-year. 

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Will rising interest rates result in more buy to let landlords selling up? That’s the prediction of some property analysts with further Bank of England base rate increases expected over the coming months. 

They say smaller landlords, in particular, may feel the cost of rising interest rates more than others, especially since the gradual stripping away of mortgage interest relief. Then there is the necessary energy improvements and the boost to Tenant’s Rights. 

Corporate landlords more likely to ride storm

Corporate landlords and institutional investors aiming at the Buy to Rent and serviced apartments sectors will be more likely to absorb the rising costs. 

But it’s not just small buy to let landlords who will feel the strain. House owners too will be hit, with inflation now at nine per cent – the highest it’s been in four decades. And, it’s predicted to rise to 10 per cent before the year is out. 

There could be light at the end of the tunnel for smaller buy to let landlords though. Research group Capital Economics are predicting that, later this year, the cost of a monthly mortgage will be higher than monthly rent for the first time since 2004.

Capital Economics’ Andrew Wishart, said: “When mortgage payments have exceeded rents in the past, it has been a harbinger of house price falls. That’s because prospective buyers choose to rent instead when buying is more expensive, weighing on demand.”

Gap between house prices and earnings biggest in 40 years

Nationwide says the gap between house prices and earnings is the widest it has ever been, with the average home costing 6.8 times the average salary. And, despite this, the cost of property is still rising. ONS figures showed this week that the price of your average property in England was 9.9 up year-on year in March. That means your typical property is just short of £300,000 at £297,524. First time buyers don’t even get a look in.

Halifax said between March and April this year, prices rose by around £3,000 (or 1.1 per cent). That wasn’t as high as the rise (1.4 per cent) between February and March, but it still wasn’t going down. Property has been steadily rising month on month since February 2021.

No sign of property price falls

Those waiting for prices to fall may be waiting a long time yet. That’s because there were 28 per cent more sales in April than there were in January this year. Admittedly, it’s not exactly red hot, but there are certainly no signs of a big let-up in the property market yet. 

Once again solicitors and surveyors are being forced to work overtime to keep up with demand, with buyers rushing to finalise deals. Because, although the cost of living is rising sharply and mortgage interest rates will surely go up again at least one more time this year, there is still a huge shortage in supply of housing. It isn’t helped by the fact many developers have purchased land but aren’t building on it. Planning approval for developments is still taking months, even years to come through. For the sake of the property market in general, surely speed is off the essence?

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The rise in the bank of England interest rate has put what appears to many property analysts as ‘the final nail in the coffin’ for rising house prices in the UK.

The expected increase of 0.25 per cent to the base rate – and which was confirmed by BoE Governor Andrew Bailey earlier today – means the rate now sits at one per cent. And it’s not likely to stop there. Economists predict the rate could increase to as much as three per cent by 2023 in an effort from the bank to curb rising UK inflation. 

In the meantime, house owners taking out a new mortgage and those without a current fixed deal can expect to see a jump in their monthly house payments. The rise of 0.25 per cent sees an increase of £47 on a £475,000 mortgage, for instance. With a three per cent interest rate that figure would rise to more than £600 – something many households would find unaffordable. 

Of course, the rising mortgage interest rates come amid a rise in the cost of living for UK families. This is combined with escalating costs for gas, electricity and oil. All of which could force some families to downsize by selling their existing home. That, in turn, could have a knock-on effect on house prices, causing them to fall. Buy to let landlords could also be on the receiving end when tenants can no longer afford to pay the high rents being asked for in some cities, such as London, Cambridge and Edinburgh, as well as in South East England.

Existing homeowners who have fixed deals won’t be affected by the increase in the bank’s base rate in the short term. But they will find a big jump in their mortgage payments when they come to re-mortgage in a year or two’s time.

Property searches fall to lockdown level

The interest rate rise comes as Google searches for two of the UK’s biggest online property portals – Rightmove and Zoopla – were down just over 11 per cent in April. That was compared to March and is a figure far below that of November 2021. In fact, the search data was similar to the numbers searching when the property market closed down during the pandemic in May 2020.

The conflict between Russia and Ukraine is also resulting in supply chain shortages, causing further economic turmoil in certain quarters, particularly the manufacturing sector. Consumer confidence, it appears, has plummeted.

A spokesman for Built Place residential analysts said rising rental arrears could also result in not just residential homeowners, but also landlords having to sell their buy to let properties. 

He added: “I am most concerned about the rental market in the short term. Renters pay a higher share of their income on their housing costs. They are much more likely to be stretched by the cost of living crisis.”

Some analysts predict that quarterly house price growth – which was 3.5 per cent from January to March, will fall to around zero per cent by the beginning of July.

Around 8.7 million flats and houses in the UK are private rentals. That’s equivalent to around one third of all homes in the four nations. 

The growth is believed to be due to an increase in the number of tenants who, having been priced out of the housing market, are renting long-term. And yet, it comes at a time when local authorities are putting more restrictions on landlords in terms of selective licensing. 

UK private rental market worth £1.7trn

Octane Capital, who carried out the research, reckon the UK private rental market is now worth around £1.7trn. That means it has grown by £239bn since 2016. At a total worth of £500bn London properties are top of the rental market. That’s due to the high prices in the capital, together with the fact that it has around 20 per cent of all the UK’s privately rented properties/

Jonathan Samuels, chief executive at Octane Capital, said he can foresee the private rental market growing even bigger.

“Long-term renting is becoming more prevalent as a lifestyle choice,” he said. “It is already a commonplace occurrence in nations such as Germany where nearly half of all homes are privately rented. A similar trend emerging in the UK, will result in the buy to let sector continuing to swell in size.”

The majority of landlords have benefitted greatly from capital appreciation – particularly in recent months as house prices escalated. But many have also suffered void periods during the pandemic. Cuts to tax relief and an increased three per cent stamp duty on second homes have had a similarly negative effect. 

More licensing restrictions introduced

Now landlords in 11 areas of the UK will be faced with tougher buy to let restrictions. Affecting landlords in seven local authority areas in April, the new selective and additional licensing schemes will hit landlords in Bristol (two schemes), Charnwood, Durham, Ealing, Lewisham, Liverpool and Luton. 

This is highlighted by geospatial technology firm Kamma. The company’s CEO Orla Shields said they had already identified nine new schemes for 2022, meaning there will have been 20 new licensing restrictions in force during the first four months of the year. 

The cost of licenses vary between local authority areas, but landlords who fail to license their buy to let properties can face fines of up to £30,000 in some cases (especially when it comes to HMO licencing).

In addition to licenses for large HMOs, in some areas licenses are also needed for small HMOs and even standard buy to let rentals. In Liverpool around 80 per cent of the city’s privately rented properties require a licence.

Continued need for private rental properties

Meanwhile, estate agency regulatory body Propertymark say their latest research on the private rented sector highlights an increase in prospective tenants. To the extent that members have been reporting the number of tenants looking for property is 20 times higher than availability.

Despite this, the government look unlikely to make it easier for private landlords to thrive. The latest rumours include increasing capital gains tax – yet another unwelcome hit for the buy to let market.