As expected, the Bank of England declared a second base rate cut this week, reducing the amount from 5% to 4.75%.
This is due to a lowered inflation figure, which is now sitting at less than 2%. It’s a rate which the Office of Budget Responsibility say could last until 2029, giving homebuyers renewed confidence of stable mortgage interest rates for the foreseeable future. The Bank’s first base rate cut this year was in August when it fell from 5.25% to 5%.
In anticipation of a 0.25% drop, mortgage rates had already begun falling in recent weeks. They are expected to go down even further in the next few days and weeks, giving a welcome injection to the property market. At the moment mortgage rates are the lowest for two years.
Base rate predictions for a longer trajectory
The base rate is expected to continue to fall over time, but this will be at a slower pace than previously predicted, following Labour’s ambitious borrowing and spending plans in the recent Budget.
Not only are there more properties coming on to the market – to the extent it is fast becoming a buyer’s market – but mortgage approvals too are on the up. October was in fact, the fourth month in a row where, with a total of 65,647 mortgages given the green light, figures have surpassed those of the previous month.
House prices at highest rate ever
Meanwhile, house prices reached their highest total ever in October, with the average property now sitting at £293,999. That’s according to the latest Halifax House Price Index. The price has increased 3.9% compared to the same period last year. Regionally, the biggest increase was in the north west of England, where the value of property jumped 5.9% year-on-year to £235,587.
The fall in mortgage interest rates isn’t the only fuel being added to the property market fire, however. The looming stamp duty deadline of April 1 is also accelerating growth. That’s because buyers are looking to secure a housing deal before stamp duty relief rates revert to their previous higher levels. Expect much activity from now and well on into 2025.
Landlords looking to sell one-bedroom properties shouldn’t have too much difficulty over the coming months.
That’s because, stamp duty thresholds and the ‘nil rate’ for first-time buyers, will revert to normal in April next year. And that means would-be first-time buyers will be rushing to buy and complete before the deadline looms. House price completions are currently taking around 152 days, according to the Rightmove property portal.
At the moment, buyers who purchase a property below £250,000 pay no stamp duty ie ‘nil rate.’ This cut-off point is likely to fall to £125,000 next year. By the same token, the threshold of £425,000 for first-time buyers could revert to £300,000. That means anyone purchasing a property at the UK average rate of £370,759 will have to pay an additional £3,538 in Stamp Duty Land Tax.
Rightmove’s Tim Bannister said that were the first-time buyer threshold of £425,000 to fall to £300,000 then only 37 per cent of properties would be stamp duty-free compared to 58 per cent today.
“This will particularly affect buyers in regions with higher property prices, such as London and the South East,” he added.
What buyers want in a property
Meanwhile, if you’re looking to sell your one-bedroom property then you’ll have a better chance of doing so if it has a breakfast bar or kitchen island and a good EPCA rating.
Estate agents Yopa found that properties with at least one of these three attributes, sold quicker than others of the same size.
The breakfast bar was deemed the most desirable feature (13.6 per cent of Yopa listings had one). Kitchen islands may not be possible in a smaller one-bed property, but it’s something that 12.6 per cent of all homes on the list offered. The same percentage of properties listed had a good EPC rating (of ‘C’ or above).
Other desirables that home buyers in general are looking for include a freestanding bath, wooden beams, high ceilings throughout and a walk-in clothes closet.
Figures released by the Office for National Statistics this week show property prices rose 2.8% from August 2023 to the same month in 2024.
The official statistics – which are reported every quarter – don’t deviate greatly from recent house price indexes and show that the market is indeed ‘on the up.’ House prices were, in fact, around £8000 higher than the previous year, bringing the cost of the average property to £292,924. August was the sixth month in a row in which property prices were higher on a year by year basis.
North West of England shows biggest jump in prices
In terms of regional variation, the biggest prices jumps were in the North West of England. There the average property jumped by 4.5% to £225,248.
The poorest property price rises over that 12-month period to August 2024 were in the South West, where property jumped just 0.8% to £320,774.
Analysts attribute the growth in property prices to increased interest in the market, thanks to lower mortgage interest costs and a settled economy with Labour proving triumphant in the general election. Added to this, interest rates are predicted to fall even further before the end of the year – thanks to an expected Bank of England base rate cut.
Property prices expected to remain stable for remainder of year
The increased interest in the market isn’t expected to wane up any time soon, meaning house prices are expected to remain stable for the foreseeable future.
Marc von Grundherr, Director of capital estate agents’ Benham and Reeves, isn’t expecting the upcoming Autumn Statement to bring any property purchasing incentives.
He added: “The housing market is likely to march on undeterred and we’re set for a very strong end to the year, despite the usual seasonal lull that comes with the Christmas period.”
And, of course, it wasn’t just in England that house prices exceeded their previous peak. Property in Northern Ireland rose by 6.4% year-on-year to £185,025. In Scotland the jump was 5.4% to an average £199,971 and in Wales, bricks and mortar investments rose 3.5% to £222,925.
An increase in the sale of second homes is putting up rental demand.
Changes to tax regulations and a possible increase in capital gains tax has seen landlords list their properties – to the extent almost one third of all properties listed last month were second homes. That in itself could signal an increase in existing rents as demand begins once again to far outstrip supply.
Majority of surveyors expect property prices to rise
The findings, from the latest report of The Royal Institution of Chartered Surveyors (RICS) backed up other house index figures released last week from the Nationwide and property portal Zoopla. They pointed to an accelerated UK property market – one in which property prices were expected to rise over the next year, according to more than half of surveyors interviewed.
Analysts refer to reduced mortgage interest rates as the kickstart the market needed. And these rates are expected to fall even further with expectations that the Bank of England will reduce its base rate by a quarter percent in early November. The Bank cut it from 5.25% in August – the first reduction in four and a half years.
Meanwhile Finance Minister Rachel Reeves warns she may increase capital gains tax from 33 per cent to 39 per cent in the budget at the end of this month.
Difficulties for today’s first-time buyers put into perspective
From second home owners to first time buyers, upmarket estate agency Hamptons this week showed just how difficult it is to access the property market today.
Their report showed that the typical mortgage payment for Generation Z (who were born in the late 1990s) is double that paid by previous generations. The typical sum for Generation Z is £1,739 a month. Millennials have had it much easier. Those born in the 1980s pay roughly £863 a month, while Baby Boomers (born in the 1960s) have been enjoying much lower mortgage costs of £775 on average.
Not surprisingly, the costs are down to a mixture of house price increases far outstripping inflation.
The onset of Autumn has seen the property market rise from its summer slump, figures show.
A report by the Nationwide saw the average UK house price jump 0.7% from August to September, bringing the figure to £266,094.
Not only that, but Zoopla’s House Price Index shows house sales were 25% higher in September than they were at the same time last year, showing the market is beginning to swing in to action for the next quarter.
Zoopla’s Richard Donnell, said: “Market activity is up across the board…We remain in a buyers market and greater choice of homes for sale will keep house price inflation in check into 2025.”
The surge in market activity and pricing has been attributed to the increased number of properties for sale, as well as the prospect of further mortgage interest falls. The latter, together with wages rising higher than inflation, is encouraging formerly hesitant buyers to finally step into the fold.
Second homes freed up for first-time buyers
Around one third of properties recorded are second homes, for which tax changes were introduced in the last budget, making them more expensive to rent out as holiday lets. At the same time, future changes surrounding increased council tax, are also believed to be imminent. There are also suggestions by the government that capital gains tax on second homes will be vastly increased.
Most of the second homes coming on to the market are two-bedroom properties which will appeal to first time buyers and those in their 30s looking to step up the property ladder. Meanwhile, banks are making properties more affordable by increasing the how much they are prepared to lend. Nationwide say it will give first-time buyers up to six times their annual household income. Lloyds and the Halifax have followed suit by both offering 5.5 times household income.
Mortgage rates are lower than they have been for some time, following the Bank of England base rate cut in August. To the extent, many of the big high street lenders are offering five-year fixed rates for less than four per cent. Many analysts are confident rates will continue to fall along with the base rate later this year and into 2025.
You may be in the fortunate position of having some spare cash to invest this week. And wondering, at the same time, where to start the search for your next buy to let property.
Well, it wouldn’t be a bad idea to start focusing on Wrexham, Glasgow, Bristol, Plymouth or The Wirral. For those are the top five properties attracting the most rental attention in the UK right now.
According to Rightmove’s latest Demand Tracker, there are 54 enquiries for every rental property in Wrexham. The Welsh City, whose club is owned by actor Ryan Reynolds – not that there’s a correlation between high rents and the Hollywood star as far as we believe – also led the rental poll last year.
Glasgow isn’t far behind though, with 52 enquiries per rental property. Bristol is one behind with 51, Plymouth has 50 and there are 47 would-be renters for every property in The Wirral. The national average per listing is 19 enquiries.
In term of average rents pcm for the top five rental locations, Bristol is highest with £1,658 and Plymouth next at £1137 pcm. Rents in Glasgow average around £1,078 pcm, it’s £999 in The Wirral and finally, £967 pcm in Wrexham. Overall, average rental prices for houses outside London are currently five per cent higher than they were in 2023.
Why is Wrexham so popular for rentals?
Estate agents in Wrexham (which was awarded city status just two years ago) say it’s the lack of available properties that has led to huge demand. To the extent that one three-bedroom property they had for rent attracted 160 enquiries. They say landlords have been encouraged to leave the market due to new legislation allowing tenants to withhold rent if, for instance, a washing machine is broken or plug sockets don’t work.
Why is there a shortage of rental properties in the UK as a whole?
The rental market is still subdued in terms of both supply and demand. For instance, there are 32 per cent fewer rental properties available than in 2019, prior to the pandemic. That equates with 17 per cent more people looking to rent.
With the belief that capital gains tax may increase considerably in the next budget, more landlords may leave over the coming months. What this means is that for those investors prepared to weather the storm, rental income could increase even higher.
It’s been a tough year for the property sector. Thankfully there were certain measures in the Autumn Budget Statement, announced recently, to swell the heart of property investors. But there were many omissions to moan about too.
One of the biggest boosts to developers was the consultation into permitted development rights which could make it possible to divide one house into two flats. The only stipulation being that the exterior of the property doesn’t change. This could mean big profits for those investors prepared to get their hands dirty and do the development work themselves.
Private rental sector still hugely relevant
The huge demand for private rental properties will continue too, thanks to the chancellor doing nothing to cut Stamp Duty. This fact and the current high mortgage rates make it impossible for many couples to buy their own home.
Jonathan Stinton, Head of Intermediary Relationships at the Coventry Building Society, pointed out that failing to do anything about Stamp Duty changes could result in homebuyers having to fork out an additional £2,500 on an average priced home by March 2025.
Mortgage guarantee scheme extension
First time buyers and current home owners though were thrown a lifeline in the form of an 18-month extension to the Mortgage Guarantee Scheme. This allows them to buy property worth £600,000 with just a five per cent mortgage. And that property doesn’t have to be a New Build.
Having said that, not all mortgage companies were impressed.
Rachael Sinclair, Director of Mortgages and Financial Wellbeing at Nationwide Building Society said she was disappointed that the scheme continues to restrict qualifying loans to 4.5 times income. “Research shows that most homes remain unaffordable through the scheme,” she added.
A plus for property investors is they can now feel more reassured when renting to individuals and couples in receipt of Local Housing Allowance (LHA). That’s because, in the Budget, the Chancellor announced a £1 billion investment into the sector, designed to cover market rents for the bottom 30 per cent.
Cut in self-employed landlord NI
Self-employed landlords – along with much of the population – will benefit from the abolishment of class 2 national insurance. That’s to the tune of £192 per year. Class 4 national insurance is to be cut from nine per cent to eight per cent on profits between £12,570 and £50,270, resulting in a saving of around £350 a year.
One of the big omissions in the budget according to Maria Harris, Chair of the Open Property Data Association (OPDA), was Jeremy Hunt’s failure to implement any real measures to speed up the way homes are bought and sold in the UK today. He ordered just £3 million for pilots to look at proptech development and digitising local council property stats – which compared unfavourably to the £500 million for developing Artificial Intelligence.
Harris added: “The Chancellor stated that the UK’s tech sector has grown to become the third largest in the world, this needs to filter through urgently into the tech and digitisation of the home buying and selling process where all key data is held centrally and can be accessed easily and quickly by every relevant party.”
It currently takes an average of 19 weeks to buy and sell in the UK – that’s 77 per cent longer than back in 2007 according to data from The Landmark Information Group.
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When it comes to the three nations, Scotland’s property market is faring far better than south of the border.
Homes aren’t only selling quicker in Scotland – twice as fast as London, in fact – but the country also has the highest year-on-year growth.
Scottish owners receive highest financial boost
The news, from Rightmove’s latest survey is in contrast with much of the rest of the UK. To the extent house prices fell by 0.4 per cent last month across Scotland, England and Wales together. Taken individually though, property owners in Scotland enjoyed a 2.6 per cent increase in the value of their homes compared to the same month in 2022. Property was selling in 32 days on average. This compared favourably to 63 days in London and 64 days in Wales.
Second fastest-selling market is the North East where property is taking 49 days to sell, followed by the South West with 54 days.
In terms of prices, property went up in only four other areas overall – by 2.6 per cent in the North East, 1.2 per cent in Yorkshire and the Humber, 1 per cent in the North West and 0.7 per cent in London. The biggest drop in prices was in Wales where property was worth 1.5 per cent less. Next was the East of England where sellers received 1.4 per cent less and the South West, with a fall of 1.3 per cent.
Mortgage interest rate rises together the increases in the cost of living, have slowed down the market as many would-be buyers began to re-assess their moving options.
Property transactions down by one fifth
Certainly, according to HMRC figures, the number of properties changing hands in July this year, fell by more than one fifth (22 per cent) compared to the same period in 2022.
And, with many more fixed rate deals coming to an end over the following months, together with no indication of mortgage rate drops, the status quo is expected to remain for some time yet. Especially when you consider that the average two-year fixed rate mortgage has gone from 2.3 per cent to 6.56 per cent over the past two years. This is due to the Bank of England increasing its base rate on 14 occasions since the end of 2021.
Fewer properties for first-time buyers
In terms of available housing, there are 10 per cent less properties than four years ago. And this figure doesn’t look like improving any time soon – certainly in terms of New Builds. That’s because planning approval for new housing in England is the lowest it’s been for 15 years. The Home Builders Federation revealed the number of new homes approved for building in England, in the second quarter this year is 54,200. The total for the past four quarters is 265,223. This is despite the government’s promise to build 300,000 new properties a year by the middle of the decade.
Developers are less inclined to build since the mortgage interest rises, as well as the withdrawal of the government’s scheme to help first-time buyers get on the property market.
Mortgage interest rates are slowly coming down in a bid to kickstart the property market. One area that desperately needs a helping hand is the construction supply sector where poor demand is already resulting in redundancies. Last month the government put skilled builders, plumbers and joiners on its ‘eligible workers’ visa list.
House prices
Average new seller asking prices dropped 1.9 per cent this month to £364,895, according to Rightmove figures. That may sound positive for first time house buyers but the majority are worse off, considering mortgage rates have increased at a higher rate.
According to Nationwide chief economist, Robert Gardner the cost of mortgage payments today would result in a first buyer paying around 43 per cent of their take-home pay on their mortgage today compared to 33 per cent last June. It’s no surprise then to find 10 per cent less properties being bought by first-time buyers, according to Rightmove.
Mortgages
Rising mortgage costs and increases in the cost of living resulted in a 14,000 drop in property purchases in June, compared to the same time the previous year. Then, 100,000 housing transactions went through, compared to 86,000 for the same month this year.
The good news is lenders are beginning to bring down their interest rates for house buyers – NatWest, Halifax and Virgin Money, Nationwide, Barclays, TSB and HSBC have all made concessions to the wider economic difficulties.
The reductions in mortgage borrowing couldn’t have come at a more suitable time. Earlier this month the Bank of England increased its base rate by 0.25, bringing it to five per cent. This was a further effort to bring down inflation. Mortgage lending criteria has also proved less restrictive in recent weeks.
Thousands of borrowers may now be worried that they acted a little hastily at the start of the summer in a bid to circumvent potentially higher mortgage rates. Bank of England figures showed an increase in mortgage approvals, from 51,100 in May to 54,700 in June. Remortgaging also increased by £5,000 to 39,100 from May to June.
Thomas Pugh, an economist at the audit, tax and consulting firm RSM UK, said: “With interest rates on mortgages continuing to rise, the average two-year fixed-rate mortgage deal broke above six per cent in June, we expect the peak in house prices to fall by around 10% with the risk of bigger falls if the base rate rises above six per cent.”
Construction
The construction sector is also feeling the pinch.Building supplier Marshalls announced this month that it would cut 250 jobs in a bid to stem losses caused by a drop in the demand for New Build homes.
The Yorkshire firm said sales were already 13 per cent down in June, year-on-year, with pre-tax profits down by twice that figure to £33m.
In July, Barratt Developments – the UK’s largest housebuilder, announced a double-digit drop in annual profits. It’s not only demand that’s fuelling the losses, supply chain difficulties are causing slowdowns while Brexit has led to a drop in skilled labour numbers.
Only this week, Crest Nicholson became the latest housebuilder to announce a profits warning. The company’s chief executive Peter Truscott, blamed a “significant reduction in sales.” This, he said, was due to “economic uncertainty deterring prospective home movers.”
Private rented sector
A recent report by property portal Zoopla shows the average PRS tenant in the UK now spends around 28 per cent of their salary on rent.
Edinburgh saw the biggest rise in rents last year, with an increase of 13.7 per cent. That was even higher than London at 13.5 per cent. The smallest increase was in Belfast, with 4.3 per cent.
According to Zoopla there are around 20 per cent to 40 per cent fewer homes to rent across the UK than before the pandemic. There’s also more tenants today than in the past five years. In the North East, for instance, there has been a 56 per cent demand for private rented accommodation since 2018, while, at the same time, supply has fallen by 42 per cent.
The highest increase in demand is in Scotland, with an 86 per cent increase, supply there has fallen by 18 per cent. The figures for the UK as a whole are a 57 per cent increase in demand and 28 per cent drop in supply.
Housing Secretary Michael Gove is to make it easier to convert retail outlets, betting shops and takeaway premises into residential dwellings.
The plan, he says, is to make better use of buildings by increasing the availability of residential property, especially in inner city areas. Current homeowners, meanwhile, will find it easier to build an extension or loft conversation after Gove lightens planning laws.
A spokesman for the Department for Levelling Up, Housing and Communities said they were confident that by relaxing the commercial to residential conversion rules, they would help rejuvenate high streets and encourage people to come and live in cities.
“We must build more [housing] in the places that make sense – in our inner cities so that we protect our countryside,” said Gove.
“And we must make better use of the buildings we already have – empty shops or offices cannot be gathering dust while we have an urgent need for more homes.”
Gove insists government in line to meet ‘advisory’ target
Gove’s speech on reforming national permitted development rights, came at a time when a parliamentary cross-party group warned the government was about to fall short of its annual target to build 300,000 new homes each year. The government’s response was to alter the target to an advisory one.
At their manifesto in 2019, the government promised to build “a million homes by the next vote.’ Gove still insists this is possible, despite a Department for Levelling Up, Housing and Communities saying the opposite.
In another bid to ‘get building’, Gove also intends to spend £24mn creating a “super-squad” of planners etc to make sure plans for major housing developments face no ‘local’ obstacles. This includes being able to ‘streamline and simplify’ planning consent matters. The first location he’ll be focusing on, he insists, is Cambridgeshire.
Major housing developers warn more reform needed
But major house developers weren’t impressed. In fact, Steve Turner, executive director of the Home Builders Federation, was clear that if Gove didn’t do more to free up red tape in the planning process then “housing supply could halve” in the coming years.
Neither were housing charities. A spokesman for Shelter said converting retail units into residential homes could result in ‘shoddy housing’ ie where the quality was poor and the buildings themselves “unsafe.”
Polly Neate, chief executive, said: “We need proper investment to build much-needed genuinely affordable homes, not more piecemeal reform.”
Meanwhile, if elected, Labour’s plan to deal with the housing crisis is to free up poorer areas of the greenbelt for developers to start building on. Housing developers and other interested parties have already written to Gove, urging him to use abandoned brownfield sites. They say this could lead to the space for a further 1.6m homes to be built in the UK and at least make inroads into the crisis.
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Keep up to date with property market news by subscribing to a free trial of Blue Bricks magazine here today. You can cancel after the trial and it costs nothing, or it’s just £9.99 if you like it and want to continue (which we’re sure you will).
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