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.

Property is now around 20 per cent more expensive than it was before the pandemic.

That’s according to the Nationwide’s latest UK house price index, which puts the average house price in the UK at £260,000. It’s a jump of nearly £30,000 since February last year and more than £44,000 higher than in the same month in 2020.

That makes it 6.5 times the cost of the average UK take-home pay.

Inflation still to make its mark on property market

The Nationwide’s chief economist Robert Gardner, commented that he was surprised inflation hadn’t appeared to hit the property market yet. 

“The continued buoyancy of the housing market is a little surprising, given the mounting pressure on household budgets from rising inflation, which reached a 30-year high of 5.5% in January, and since borrowing costs have started to move up from all-time lows in recent months,” he said. 

“The strength is particularly noteworthy since the squeeze on household incomes has led to a significant weakening of consumer confidence.”

Property prices to drop after summer

That fall in house prices is likely towards the latter half of the year, though warn business analysts. To the extent that they could drop by as much as a tenth in a year. Those most likely to be affected are those who overstretched in order to meet the Stamp Duty deadline, together with first time buyers (for the same reason).

Karl Thompson, of think tank, the Centre for Economics and Business Research, predicts a drop of 1.5 per cent every three months from September onwards. That’s then expected to fall one per cent every year for the foreseeable future.

Andrew Wishart, of Capital Economics was more optimistic, predicted property prices would “stagnate rather than collapse in 2023.”

War in Ukraine contributing to higher UK living costs

When it comes to the cost of living, the war in Ukraine has added to petrol costs. This in turn, has caused the Bank of England to consider rising interest rates later this year, say economists. National insurance payments will increase by 1.25 per cent in April while, around the same time, energy bills are due to rise by around 54 per cent. Utility bills may even double again towards the end of the year, costing the average UK household around £3,000 per year.

‘Corrupt Russians’ with £1.5bn of property in capital

The war in Russia has also raised eyebrows over ownership of property in some of London’s swankiest neighbourhoods. These include Kensington, Chelsea and Westminster where properties can regularly cost upwards from £7 million. 

According to the not-for-profit organisation Transparency International, Russians with either links to the Kremlin or who have been linked to corruption, have £1.5bn worth of property in the UK today. Many of those property assets have been purchased via off-shore accounts, meaning it has been bought anonymously.

Upmarket estate agents Frank Knight say London was the most popular city in the world for purchasing luxury property during the first year of the pandemic. It even outsold real estate in Hong Kong and New York.

Despite the ongoing rise in the cost of living, lumped with looming energy bills, the cost of property in the UK continues to rise. 

At least that was the findings from property portal Rightmove’s House Price Index this week which showed monthly growth at 2.3 per cent – £7,800. 

Average home nudging £350,000 mark

The sum was the largest monthly increase since 2001, which is when the company began recording data. On an annual basis that works out at a 9.5 per cent increase over the past two decades. 

It brings the cost of the average home in the UK to £348,800, according to the survey’s figures, which are based on asking prices on property from 13,000 estate agencies.

London prices benefit from return to city working 

With Boris Johnson announcing the end of COVID restrictions this week, a look back at property values over the past two years since the UK first locked down in March 2020, shows an average increase for property of £40,000.

Interestingly, the end of restrictions has also been reflected in London’s property prices. They jumped by six per cent between January and February, as commuters and foreign travellers began returning to the city. It was also a 7.3 per cent increase from February 2021.

Analysts blame the shortage of available stock for pushing prices up UK-wide. That is closely followed by low mortgage interest rates (the Bank of England raised then from 0.1 to 0.25 per cent at the end of last year).

In fact, interest on the typical two-year fixed mortgage rate is expected to double in June in comparison with September 2021. That’s according to Samuel Tombs of Pantheon macroeconomics. This, the economist insisted, will certainly slow down any rising property growth.

Renters paying more for city living

But it’s not just buyers who are paying more – and particularly in London – for a new roof over their heads. According to recent findings by rival property portal Zoopla, city centre rents are up by £62 per month compared to pre-pandemic amounts.

Zoopla’s statistics also showed that demand for rental accommodation in cities was up by as much as 76% last month – that’s compared to the last four months of January. And it wasn’t just London that rents had increased in – Manchester, Liverpool, Newcastle and Edinburgh all recorded a similar increase.

Grainne Gilmore, head of research at Zoopla, said: “The flooding of rental demand back into city centres thanks to office workers, students and international demand returning to cities means the post-pandemic recalibration of the rental market is well underway.”

Increase in companies looking to lease office space

Meanwhile, office space is also coming under the radar, with many companies keen to tempt their staff back to city centre working.

An earlier report by Rightmove, looking at commercial property, reported an increase in business owners looking to lease office space. And that’s not just compared to pandemic figures (a 54 per cent jump on January 2021), but even pre-pandemic, with interest in leasing today 15 per cent higher even than in 2019.

‘Levelling Up’ is about to give certain homeowners a massive boost and at the same time potentially put a number of property developers out of business.

The government’s new agenda to improve opportunities across the UK, is already planning to making life easier for tenants by banning Section 21 evictions. 

Now regeneration plans mean householders in 96 areas across the British Isles will see the value of their property increase. That’s because the government has earmarked big regeneration plans worth £58.7bn for regional cities and towns.

Homeowners in Yorkshire to benefit most

According to research by developer StripeHomes, Yorkshire and the Humber will accrue around £9bn in improvements. East Midlands is the second biggest region to get a regeneration boost – to the tune of around £8.5bn. Scotland and the North West will both benefit by around £6.6bn each, while those who live in the West Midlands will see around £6.5bn in cash benefits. That’s because property analysts predict that regeneration in an area is likely to increase a property’s value by at least 3.6 per cent.

James Forrester, Managing Director of StripeHomes said he was glad to see from the plans that the government did indeed plan to spread the wealth.

He added: “It’s reassuring to see that the intention to spread opportunity and prosperity to all parts of the UK is there, with London taking a bit of a backseat in terms of focus.”

When it comes to individual homeowners, the developer’s research shows that those who live in Derbyshire can look forward to a boost in house prices by around £7,709. Considering there are around 439,000 homes in the areas, that means a total boost to the area’s property market of £3.4bn. Other cities to benefit include in a similar fashion include Birmingham and Gloucestershire (by £3.3bn each), Edinburgh at £2.8bn and home owners in Leeds by a total £2.8bn.

Developers to pay cost of cladding replacement

Another part of the Levelling Up agenda focuses on encouraging developers to make existing cladding on medium and high-rise buildings safer. 

To the extent that developers who don’t pay for fixing dangerous cladding may be prevented from continuing in the UK property market. That’s because they will be breaking the law otherwise. It means many leaseholders will be spared having to fork out tens of thousands of pounds for the repairs themselves.

The measure is in response to the Grenfell Tower tragedy when 72 people were killed after the fire, made worse by the aluminium composite cladding surrounding the building.

Levelling Up Secretary Michael Gove said: “We cannot allow those who do not take building safety seriously to build homes in the future, and for those not willing to play their part they must face consequences.”

The forthcoming legal amendments will be added to the Building Safety Bill. Other legislation allows leaseholders to sue developers who install defective products or materials which could endanger lives. This part of the Bill will also take historic cases into consideration ie those dating back 30 years and even when a previous payment had been made.

Halifax recorded the value of the average UK property price at £276,759 last month. 

That was a rise of 0.3 per cent on the previous month and lower than in previous months, the bank’s Housing Index showed.

Having said that, the cost of a UK property – based on the number of mortgage approvals – is an increase of £24,500 on January last year, and £37,500 higher than in January 2020. 

Meanwhile, the average UK property is selling in around 39 days. 

Property increase more than median salary

That annual increase of £24,500 is a jump of 9.7 per cent and as one property commentator pointed out, is more than the median wage for the under 30s. That makes it seem even more unlikely that a first-time buyer will be able to afford their own home without help from the Bank of Mum and Dad and/or other financial means.

Property analysts expect the rise to level out even further as time goes on, thanks to rising household bills and increased bank interest rates. Unfortunately for householders on variable mortgage rates, these are expected to increase by around one per cent this year. 

Households face biggest cost of living squeeze in 30 years

Meanwhile, the Bank of England expects inflation to rise to around 7 per cent. Then there are the huge utility costs most UK home face from April onwards. No surprise then that the coming months are being billed as ‘the biggest cost of living squeeze’ for 30 years.

Halifax managing director Russell Galley commented: “While the limited supply of new housing stock to the market will continue to provide some support to house prices, it remains likely that the rate of house price growth will slow considerably over the next year.”

So low is the amount of housing stock available – both for sale and rent – that property consultancy TwentyCi say it’s the lowest number since they started collecting data, back in 2008. 

In January this year there were 350,980 properties listed for sale throughout the UK. That was 36 per cent fewer than the same time in 2021. 

“In my living memory, we’ve never been in this situation before,” said Colin Bradshaw, managing director at TwentyCi. “The lack of supply has broken the sale and lettings markets.”

London bucks the trend – for the wrong reasons

In London, TwentyCi report the number of homes for sale today has actually increased from the past two years, at 75,470 and 71,850 respectively. That’s because there are 20 per cent more flats on the market – while people are still looking for detached and semi-detached houses (as a result of the pandemic race for space).

Richard Donnell, executive director at Zoopla says that the number of first-time buyers is also contributing to the property shortage – simply because they have no property to sell (ie put back into the market). And considering one third of homes are sold to first time buyers, that’s a big shortage. Another 10 per cent of homes, he said, are sold to property investors who then rent them out as a buy to let investment. 

Build to rent just seems to be getting bigger and bigger – both in terms of its reach across the UK housing market and its popularity.

The British Property Federation (BPF) this week revealed that construction began on more than 13,500 build to rent homes in regional cities last year. That’s not just double, but triple, the amount of provision in London (where the sector first started).

The Federation’s Ian Fletcher acknowledged the huge rise of the sector in northern towns and cities, acknowledging that it went hand-in-hand with regeneration initiatives.

“[Build to rent] is not just about increasing housing provision, it is also a major economic driver,” he said. “It helps attract and retain skilled workers, serving as a catalyst for urban regeneration.

“The strong growth of the BTR sector across the regions will support the government’s levelling up initiative and help revitalise town and city centres.”

At the same time, researchers and upmarket estate agents Savills are convinced the build to rent sector will double within the next few years. They are confident of their prediction because they’ve already seen many local authorities push through planning consent for build to rent developments, in the knowledge their own housing stock is diminishing or already diminished.

Research from estate agency Ascend Properties revealed that planning permission requests for build-to-rent units were up by as much as 52% during 2020 – the most intense period of the pandemic.

Even the middle-aged are going for Build to Rent

The demand is there too. Many young professions can’t afford to become homeowners these days, while the middle-aged like the flexibility and lack of maintenance etc responsibility that renting can bring. Understandably, they also enjoy the inbuilt benefits of build to rent complexes, such as gyms, pools, work spaces and cinema rooms. Some even come with concierges and domestic cleaning and laundry facilities.

Insurer Admiral has produced figures that show there are almost twice as many people in the UK looking to rent one of these new BTR properties, as there is accommodation. That increase to one in every ten individuals in Salford. 

‘Zoom room’ and retro caravan perks

One new build to rent facility on Liverpool’s quayside even has its own ‘zoom room’. Those renting at the former HMRC office block now redesigned and renamed The Keel, can look their best on-screen thanks to the room’s tinted windows.

In another build to rent development in north west London renters can choose to work from a retro camper van if they so wish. It’s a perk, along with the cinema room, of paying the £1,770 a month rent, plus utility bill of around £200, also monthly.

BPF figures show there are 26 per cent more build to rent units across the UK than in 2020. Property advisers CBRE calculated that a record £4.1bn was invested in the sector last year. Another 141,215 build to rent developments are currently being built, or are about to be. Cities which have seen the biggest jump in build to rent provision are Birmingham, Sheffield, Manchester and Liverpool.