Kwasi Kwarteng’s ‘mini budget’ didn’t just affect the value of the pound – it also hit the property market hard, as the most recent housing statistics of that time are unveiled.

Zoopla’s House Price Index showed annual house price growth fell in October to 7.8 per cent. Quarterly growth was 0.7 per cent – its lowest since February 2020. That was just before the start of the first major pandemic lockdown. Sellers have also been accepting bids of around three per cent below their asking price.

Housing demand dropped 44 per cent in October

A drop in demand by 44 per cent compared to October 2021 also coincided with Liz Truss’s short-lived role as UK Prime Minister. Actual sales were down 28 per cent. At the time she was also confronted with escalating utility prices and a cost of living crisis. Banks and other high streets lenders responded by withdrawing hundreds of lower-rate fixed priced mortgage products. Mortgage rates also soared to more than six per cent in November. 

Zoopla’s executive director, Richard Donnell, said he believed believes rates would drop to between four to five per cent at the start of next year. In their report, the property portal referred to the fall in prices as a market ‘shake out’ rather than ‘the start of a crash.’

His predictions are backed up by HMRCs house sales figures for October. These show that, despite the cost of living crisis, homeowners are still keen to move. There were, in fact, 110,850 property transactions last month – 29 per cent more than in October the previous year. The October figure is just two per cent down on September’s numbers.

First-time buyer desperation as rents increase

Although Donnell did expect growth to stop next year and perhaps even enter a negative phase. He also expected rents to increase, leading to a boost to the number of first-time buyers looking to secure themselves a step on the property ladder.

There is 40 per cent more housing stock on the market today than this time last year. However, that number is 20 per cent less than before the start of 2020.

The good news for first-time buyers is, of course, the cuts to Stamp Duty, under the ‘mini-budget’ and which current chancellor Jeremy Hunt confirmed would remain under Sunak’s government. These are no tax on the first £250,000 of a property’s value and pay 5 per cent from £250,001. First-time buyers pay stamp duty on property valued at over £425,000. They can claim first-time buyers’ relief on properties valued at up to £625,000.

Strong rental market tempting investors

The UK rental market is particularly strong at the moment, tempting more property investors back into the buy to let sector, according to a survey by bridging finance broker Finbri. Void periods for landlords are down while yields are increasing.

At the moment the typical yield in the UK a landlord can expect is around 4.7 per cent. Some locations though are expected to fare better than others. These include busy cities, such as Aberdeen, Liverpool, Reading and Bolton.

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House prices are no longer rising, according to the latest RICS Residential Survey. 

Basing its findings on October’s results, the report states that mortgage interest rises have resulted in potential buyers stalling. Around two per cent of surveyors – especially those in the South East of England and in East Anglia – said they’d even seen property prices fall.

The number of buyer enquiries has also dropped – for the sixth month in succession. The length of time taken to sell the average property is also up two weeks; 18 weeks rather than 16 weeks is the new norm.

The majority of estate agents now believe that prices have peaked and can only go down. But that’s not unreasonable, many insist, especially when you consider they increased by around 25 per cent during the pandemic years.

Tenant demand grows 

Nearly half (46 per cent) of surveyors noted an increase in demand for rental properties in October. They predict rents will rise by around four per cent by the same time next year.

Simon Rubinsohn, RICS’ chief economist, said: “Realistic pricing is now much more important to complete a sale…As far as the lettings market is concerned, the imbalance between demand and supply still appears unusually extended, leading to rent expectations in the survey remaining at elevated levels and it is difficult to see this changing any time soon in the current environment.”

Estate agents Foxtons recently revealed their average rental in London was costing tenants £553 a week – with around 29 tenants all competing for the same property. In Central London weekly rentals were costing around £636 per week.

Private individual landlords make total of £40 billion

Meanwhile, HMRC have recently reported their rental income statistics for the period 2020-2021. A total of 2.74 million unincorporated landlords declared income from property; the vast majority of unincorporated landlords being in London (16 per cent). They made the most money from renting out property (£10 billion) with landlords in the South East making £8 billion. Landlords in the East of England and South West both made around £5 billion from their property interests.

Around 99 per cent of landlords were individuals declaring property income as part of their self-assessment tax return. That resulted in a total property income figure of £40 billion.

The average income for renting out property for the period 2020-2021 was £15,000. That was drop of £2,000 compared to 2016-2017. But, 2020-2021 was the first year in which the pandemic began to have an effect on income.

Housebuilders also feel the property pinch

Housebuilders were also being impacted by rising mortgage interest rates and the mini-budget. Persimmon completed 9,974 home sales from 6 June to 6 November. That was around 800 fewer than the previous year. Cancellations had jumped from 21 per cent to 28 per cent following the mini-budget. At the same time, the average selling price per property was down by around two per cent.

Both the Nationwide and Halifax building societies reported house price falls last month – by 0.9 per cent and 0.4 per cent respectively.

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Property conveyancers were this week officially warned to brace themselves for a big fall in transactions. 

The Council for Licensed Conveyancers (CLC) told members to expect up to a 40 per cent fall in business over the next few months. 

Growing mortgage interest rates, a reduction in the number of mortgage deals available and fewer properties coming on to the market have all been blamed for the reduction by the Conveyancers body. Added to that is the rise in the cost of living, particularly food costs and escalating utility bills. 

Conveyancing process still dragging down house sales

One mortgage broker countered the CLC claims, saying that the number of re-mortgages was rising and that many delays were often due to a slowdown in the conveyancing process itself.

So far mortgage interest rates have reached six per cent but the Bank of England base rate is expected to continue to rise above its current 2.25 per cent, pushing mortgage payments even higher. Average two-and five-year fixed rates are sitting at 6.55 per cent and 6.43 per cent respectively. Those are the highest mortgage interest rates since the beginning of the last big recession back in 2008, but economists are bracing themselves for another bank rate rise at the start of November. 

Mortgage interest rates rising globally

The rise in interest rates were exacerbated by the Mini Budget introduced by then PM Liz Trust last month. They have started to fall slightly with the news this week that Rishi Sunak was to become the new PM. But it’s not just in the UK that mortgage interest rates have been rising. It’s become more of a global issue, prompting central banks in America, Australia, and other first and second world economies to increase bank rates to fight inflation.

Some housing market analysts are more optimistic about the property market than many economists. That’s because they say there are several points worth noting in its favour. This includes the expansion of the stamp duty threshold, which will help some individuals and couples – especially first-time buyers who don’t have to pay any stamp duty on property worth up to £450,000. A shortage of stock will continue to keep prices high, as will the fact there just aren’t enough New Build’s being put up to cope with demand.

Buy to let landlords not as badly hit

Many landlords may weather the rising mortgage interest rate storm by putting up rents. That’s providing tenants don’t default on payments because they are already having difficulty paying rent and buying food etc due to rising living costs. 

The rental market is also expected to swell over the next few months. That’s because rising mortgage interest rates is expected to encourage first time buyers to wait before purchasing a property. That’s to see if house prices will fall, but mainly to give them time to save for a bigger deposit.

Other landlords – many of whom don’t pay self-assessment tax because they are registered as a limited company – can claim back the mortgage interest payments against their corporation tax bill.

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The cost of the average property in the UK last month was £294,260, according to Halifax’s records. 

That was a jump of 0.4 per cent on the previous month, but down 0.5 per cent on typical monthly prices rises. Annually the rate of growth has fallen from 11.8 per cent in July to 11.5 per cent in August. Having said that, property has still increased by £30,000 over the past 12 months. Over the past decade the price of your typical property has actually increased by an astounding 60 per cent.

Today’s slowing down and falling of average growth points very much to the cost of living crisis beginning to hit in the UK. Certainly, the country now expects to go in to recession soon. 

The Bank of England’s monetary policy committee is expected to raise interest rates again when it meets later this month. The current base rate is at 1.75 per cent – the highest since 2009 – and economists predict it will rise by another 0.5 per cent in September. This is in response to spiralling inflation, with some analysts fearing it could rise to more than 18 per cent by January 2023.  

Meanwhile, the energy cap rise is expected to reach £2,500 in October – hitting both householders and businesses (leading to unemployment fears). 

The increasing rise in mortgage interest repayments is prompting many in the property industry to advise re-mortgaging as soon as possible – before those monthly payments become unaffordable.

Barratt’s home reservations beneath pandemic levels

Even the country’s major housebuilder Barratt Developments said it expected house prices to fall. This was in response to a slowing down of the number of house reservations – to the extent it’s less than before the pandemic hit. 

In contrast to the expectation of falling house prices and a forthcoming recession, good news comes in the form of ‘digitalisation of the house buying and selling process.’

Land Registry to undergo ‘digital transformation’

Land Registry has announced plans to bring the process more up to date and fit for ‘a paperless and much more transparent society.’

Their three-year business plan focuses on five key areas – 

• Secure and efficient land registration
• Buying and selling of property to be achieved digitally
• Providing real time information
• Making digital register info more accessible
• Work with the property market to look at innovation

In effect then all property applications to the Register are to become digital by the end of this year. The need for digitalisation of the buying and selling process was clear after it emerged it took 49 per cent longer to complete housing transactions last year than in 2007.

In terms of ‘real time information,’ Land Registry says all local land charge data will be online by 2026 while the Registry itself is to become ‘more accessible and easier to use.’

Timothy Douglas, Head of Policy and Campaigns at Propertymark, said: “The technological mindset of consumers has advanced considerably in recent years, and HM Land Registry’s 2022+ strategy compliments moves we are seeing in the sector to enhance and improve home buying and selling.”

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Around 40 per cent of private rentals in England aren’t going to make the government targets for energy efficiency, it’s been claimed.

And, landlords whose properties are in blocks of flats are particularly hampered due to a ‘flawed’ assessment process, according to Hamptons.

The English Housing Survey shows that between 2012 and 2020 the number of rented homes which had a C energy rating increased by 20 per cent (from 19 per cent to 39 per cent).  

All new tenancies to have ‘C’ rating by 2025

Yet the government’s draft strategy wants all new privately rented properties to have a C rating in their Energy Performance Certificate (EPC) by the year 2025. Otherwise, it will be against the law for landlords to let the properties out. By 2028 this demand for an EPC ‘C’ rating is to be extended to all rented properties. And yet, this is a figure that Propertymark insists is unattainable for many landlords. 

Difficulties in incentivising landlords to upgrade

Timothy Douglas, head of policy and campaigns for Propertymark said landlords didn’t have the same incentive as home owners to make their properties more energy efficient because they wouldn’t directly benefit.

He added: “Our member agents are already seeing rental properties disappearing from the market for a variety of reasons and there is a real danger more could go with the EPC rating target hanging over them.”

The UK government has already pledged to have a net zero target by 2050. England’s private rental sector of 4.4 million properties makes up nearly one fifth of the total housing stock in the country so it’s an important factor in that equation.

Private rental sector lagging behind for EPCs 

The same English Housing Survey shows that the housing association sector is leading in terms of energy efficiency, with 68 per cent of their homes boasting a ‘C’ rating. Local authorities are second highest in term of providing ‘green’ homes, with 61 per cent of houses and flats meeting the target. Home owners don’t have an impressive record though – only 42 per cent of properties comply with the ‘C’ standard.

Assessors give varying ratings for similar properties

Meanwhile, a report by upmarket estate agents Hamptons found that assessors were grading very similar properties differently – especially in blocks of flats. This was despite all individual homes having the same characteristics in terms of size, construction and thickness of the walls. He claimed that in some blocks of flats, EPC rating fluctuated wildly, from an A to a G rating.  

David Fell, of Hamptons, said independent assessors often used different assumptions about a property’s energy efficiency. This he said was mainly based on the extent of cavity wall insulation.

One energy assessor admitted that EPC ratings for the same block of flats can vary depending on who is making the assessment. In other words, the practice isn’t an exact science. But he did point out that here was a difference in heat variation between ground and top floor properties (the lower property being colder).

One mortgage broker warned that poor energy ratings could hit landlords hard in the pocket. 

Chris Sykes, of mortgage broker Private Finance, said the gap was likely to widen. “I can see a premium in mortgage rates being put on properties that aren’t EPC band C or above,” he said.

A government spokesman said they were already looking at ways to improve the EPC assessment process.

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