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What will 2019 bring for the Struggling Housing Market?

Published On: December 21, 2018 at 9:57 am

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The property industry is looking ahead to what 2019 will bring for the UK’s struggling housing market.

We all know that 2018 has been a turbulent year for the housing market, with huge changes across the private rental sector, continued pressures on social housing, and no let up in the difficulties that people face in getting onto the property ladder.

Alexandra Morris, the Managing Director of proptech firm MakeUrMove, discusses the greatest issues that will affect the housing market in 2019:

Brexit: Deal or no-deal?

“It’s hard to make any predictions for the housing market without talking about Brexit and its potential implications on all sectors of business.

“Of course, we still don’t know whether or not Theresa May’s Government will be able to secure a deal that will be beneficial to lenders, tenants, landlords and homebuyers alike, or if we will crash out of the EU with no deal at all.

“The biggest impact of a no-deal Brexit in relation to housing is a potential fall in house prices – the Bank of England has warned that it could lead to a fall of up to 30% in house prices, although this is very much a worst-case scenario. As a result of a fall, even a smaller one, many homeowners could find themselves in negative equity.

“The industry is hopeful that this would be a short-term blow, but I expect that the housing market will slow down dramatically in 2019, as home movers slam the brakes on plans to buy or sell, adopting a wait-and-see policy.

“A fall in house prices because of a no-deal Brexit may provide some opportunities for property to be bought by first time buyers next year. However, because it will be a time of uncertainty, it’s likely that people will be more cautious about making commitments such as buying property. Buying conditions may also become more difficult. Instead, it’s likely larger landlords will grow in 2019 as they acquire these properties, because they will be able to spread the risk.

What will 2019 bring for the Struggling Housing Market?

“With uncertainty about the rights of EU workers if the UK leaves without a deal, areas of the country where landlords provide accommodation to large EU migrant communities could also be affected next year. If EU workers return to the continent, there will be a host of empty houses and flats. Landlords will be hit financially if they can’t find new tenants to let the properties.

“This will have a knock-on effect on rental prices. In areas where there is then an oversupply of rental properties, landlords will be forced to reduce rents or sell.

“On the other hand, leaving with a good deal could drive the market upwards in the latter part of 2019, as strengthened consumer confidence leads to stability, which is what we need in the industry right now, after such a prolonged period of uncertainty.

“If Theresa May can secure Parliament’s approval on her deal with the EU, we will have until December 2020 before anything fundamental changes, and, during this transition period (which could yet be extended), we will still be subject to existing EU regulations, giving the industry a much-needed adjustment period.”

The tenant fees ban

“The private rental sector has undergone significant changes in 2018, and there’s no sign this will change in 2019. Tenant fees legislation continues to progress through Parliament, and could be the biggest change the sector has seen for decades.

“We’re confident tenant fees will be banned in 2019, but, although this has been hotly anticipated for spring, I predict that it will be autumn by the time anything comes into practice.

“Whilst we always welcome regulation to support tenants, it needs to be carefully thought through. The bill has a much wider impact than simply removing tenant fees, and it’s likely to have many unintended consequences. In 2018, we carried out research and discussed this matter with our landlords and tenants to gauge their response, and, whilst landlords are understandably nervous, it’s clear many tenants don’t appreciate the additional long-term costs they are likely to face, with 85% of tenants saying they don’t understand the ban and a quarter unaware it could lead to a rent rise.

“Our fear is that, while the Government’s intention was to make the private rental sector more affordable and fairer for tenants, they will likely end up worse off. Unless letting agents can transform their business models, many landlords, particularly the smaller landlords – who make up the biggest proportion of the private rental sector and often operate on very tight margins – will be forced to raise rents to cover the increased costs they will incur as a result of the bill.

“We are working hard to develop a new technology solution, which will ensure that our landlords don’t face additional costs, and, as a result, tenants who rent their properties through our portal won’t have to shoulder any rent increases.”

Section 24

“The introduction of Section 24 has had huge implications for UK landlords, and will continue to in 2019.

“The act, which started in April 2017, is being phased in gradually over four years. It means that mortgage, loan and overdraft interest costs will not be considered when calculating taxable rental income, and will ultimately see many landlords paying more tax on their property income.

“As per the tenant fees ban, this could mean that smaller and accidental landlords, who operate on small budgets, could end up passing these costs to tenants by increasing rents. Considering that these landlords are currently propping up the UK housing market, the act spells disaster for the housing market as it rolls out throughout 2019.”

Electrical safety

“Next year, we hope to finally see new legislation introduced which places more focus on electrical safety within the private rental sector.

How will Lettings Law Change in 2019?

“2018 saw an initial consultation by the Government on making the five-year Electrical Installation Condition Report (EICR) mandatory for all landlords.

“However, with research by the Government showing that tenants are more likely to face electrical shocks and fires caused by electrical faults in their private rental property than those in social housing, it needs to be clear to landlords exactly what their responsibilities are when it comes to electrical safety. The current legislation is confusing and can cause misunderstanding. For example, landlords are not required to have an electrician carry out an annual inspection for their portable appliances, but they do have an obligation to check their safety throughout the tenancy and not just at the start.

“We welcome any changes by the Government which make electrical safety a mandatory aspect for landlords, as it will ensure both the landlord and tenant are protected, should any electrical faults arise.

Continued uncertainty

“The housing market is currently suffering from market failure. This is one of the biggest problems our economy faces next year.

“A major worry for 2019 is that, with Brexit and other issues dominating the agenda, the Government will be distracted, taking their attention away from solving the problems we already have in the housing market.

“We saw this in the 2018 Budget, where, despite the complete failure of the housing market, only small concessions were made on housing.

“What’s more, the Chancellor announced that the Government is going to consult on lettings relief, with a view to reducing the amount of Capital Gains Tax relief that landlords get.

“The move will particularly affect the UK’s accidental landlords in the coming year, many of whom purchased at the height of the market and are renting out their properties after being unable to sell them. This is a phenomenon that picks up when market activity slows, exacerbated by a reluctance among buyers to commit to a big property purchase, which is largely being driven by Brexit uncertainty, and the fear of a no-deal Brexit related crash.

“If, after the consultation in 2019, as the Chancellor outlined, the relief only applies where the owner is sharing occupancy of the home with the tenant – and the final period of exemption from Capital Gains Tax is reduced from 20 months to nine months – the Government will be actively discouraging stock into the private rental sector.

“This suggests the Government will continue to move in the direction of professionalising the market in 2019; they appear to want to reduce the numbers of private landlords and replace them with larger portfolio landlords, who run their properties as a business.

“If this is true, smaller landlords, who make up over 90% of the market, will be continually penalised. The Government needs to realise the true value of these landlords fast, and bring in legislation to support them, or they risk a mass exodus of smaller landlords from the rental market.”

What do you think of Morris’ predictions for the 2019 housing market?

Does PropTech have the Potential to Save the Property Sector?

Published On: December 21, 2018 at 9:00 am

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By Marc Trup, the Founder and CEO of Arthur Online

Historically, property management has been slow to embrace technological change. In the last decade, technological advances have shaken up property management, drastically changing the way these businesses are run.

Many property managers are falling short of tenants’ expectations, stemming from a lack of communication between landlord/agent and occupier. There is a clear need to modernise property management, starting with more transparent and consistent levels of service.

So, what’s the solution? Companies need to innovate and adopt cutting-edge business processes, and advance the use of technology as a means of measuring, monitoring and maintaining consistent standards. Disruptors and innovators have an opportunity to make a positive and significant difference.

As a result of the rise of digitisation, more and more property professionals have started to move their businesses to the cloud. By introducing software designed specifically for the property sector, landlords and agents can streamline their businesses, allowing them to scale more easily or simply reduce the cost of their current business. Proptech platforms also allow companies to further professionalise and formalise their business processes, thanks to the many white labelling and customisation options available.

There are now lots of different software out there to make your life easier. Be that new payment systems, such as GoCardless, e-signature platforms, such as Signable, or full management systems such as Arthur Online.

Does PropTech have the Potential to Save the Property Sector?

At its heart, property management is a people business. Managers are tasked with keeping tenants, owners and contractors happy, whilst trying not to tear their own hair out at the same time. One way that proptech is making management easier is by bringing all these groups together. In the past, disparate communication between different groups meant a manager would spend half their time on the phone, typing with one hand and writing an address with the other, and heaven forbid they had to produce proof of receipt.

For the occupiers, using an app allows them to raise and track maintenance issues, access documents, track their rental statements and so much more. This is guaranteed to give them peace of mind. In the long-term, this will help promote a longer relationship with tenants, improving trust and therefore tenant retention.

Thanks to technology, property managers can send emails with recorded delivery. Systems like this protect a property manager against potential disputes. Alternatively, managers can use CRM systems to email their contacts; this means that all their conversations are marked against the contact. By keeping records of interactions with someone against their contact card, management is made a lot easier. The best solutions bring all the different groups onto one platform, allowing them to communicate with only the people that matter. This prevents different people using different platforms.

One of the areas that property managers can waste a lot of time is financials. With the best will in the world, rents don’t get paid, payments get missed and it can cause managers a lot of problems. However, now there are a lot of different options for managers to make their life easier. New payment portals, such as GoCardless and Strype, allow managers to have greater control over charging and recharging tenants. On top of this, managers are now using cloud accounting software, like Xero and QuickBooks, to follow live payments and reconcile charges to easily see the state of their portfolio. Finally, by linking management platforms together, automated communication can be set up to notify tenants of outstanding charges. By creating this sort of ecosystem around the payment of monies, arrears can be brought down, and time can be saved, thus making the management of a property portfolio easier.

Property management can involve a vast amount of paperwork. Previously, this meant having a room dedicated to filing cabinets. That was until software, such as Dropbox and Google Docs, came to be. This solved part of the problem, however, they were not specific to property. Now, true document management systems for property have been created.

There are several different areas where these systems can be very helpful and streamline your business. The first is by constantly updating your documentation to ensure you have a legal contract, notice, etc. The second is by reminding property managers when something needs to be done. As an expiry date approaches for a certificate, systems can automatically contact contractors or managers. This prevents a manager from non-compliance.

In the world of cloud software, some systems integrate by using open APIs. This means the two systems have a conversation, pushing and pulling data to offer a complete solution.

The next five years will certainly be an exciting time, as we continue to see accelerated adoption of proptech, with the UK leading the way.

Annual House Price Growth at Lowest Rate for 5 Years

Published On: December 20, 2018 at 11:01 am

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Annual house price growth in October – for which the latest official data is available – was at the lowest rate for over five years, according to the most recent House Price Index from the Office for National Statistics (ONS).

The average house price in the UK rose by 2.7% in the year to October, which is down on September’s rate of 3.0%. This is the lowest annual growth rate since July 2013, when it was 2.3%.

Over the past two years, there has been a slowdown in UK house price growth, driven mainly by a decline in the south and east of England.

During the year to October, the lowest rate of growth was seen in London, where the average house price dropped by 1.7%. This is up, however, from the 1.8% decrease recorded in September.

The average UK house price in October was £231,000. This is £6,000 higher than in the same month of last year.

On a non-seasonally adjusted basis, the average property value in the UK fell by 0.2% between September and October this year, compared with a 0.1% rise during the same period of 2017.

On a seasonally adjusted basis, the average house price in the UK increased by 0.2% between September and October 2018.

By country

House prices in England grew slower than other countries of the UK in the year to October, at an average of 2.4%, which is down slightly on the 2.6% recorded in September. The average property in England is now worth £248,000.

House prices in Wales rose by an average of 3.8% in the 12 months to October, to reach £161,000.

In Scotland, the average property value was up by 4.4% on an annual basis, to stand at £152,000 in October.

The average house price in Northern Ireland currently sits at £135,000, following an increase of 4.8% over the year to the third quarter (Q3) of 2018.

Regionally

Across the English regions, the North West showed the highest annual house price growth in October, at an average of 4.9%. This was followed by Yorkshire and the Humber, at 4.4%.

London had the slowest annual growth of all English regions, at -1.7% in the year to October. House prices in the capital have fallen every month this year since July.

While annual house price growth in London is slowing, it still remains the most expensive place to purchase a home, at an average value of £474,000, followed by the South East and East of England, at £327,000 and £295,000 respectively.

Annual House Price Growth at Lowest Rate for 5 Years

The North East continues to have the lowest average price, at £128,000, and is the only English region yet to surpass its pre-economic downturn peak.

Falling house prices in London are driven primarily by inner London, for which annual growth has been consistently negative since January this year. In the 12 months to October, house prices in outer London fell by an average of 0.2% – its first annual decrease since September 2011.

Both inner and outer London seem to follow similar trends in house price growth, with changes in outer London tending to appear slightly after those in inner London.

The Bank of England’s November inflation report highlights that the slowdown concentrated mainly in the London market since mid-2016 is probably due to the area being disproportionately affected by regulatory and tax changes, and also by lower net migration from the EU.

Comments

John Goodall, the CEO and Co-Founder of buy-to-let specialist Landbay, says: “Amidst a volatile political and economic landscape, the hesitance of buyers and sellers to act is completely understandable. Combine this with the traditional seasonal slowdown, alongside historically low levels of transactions, and stagnant house price growth really is no surprise. As we wait to see how Brexit uncertainty unravels, the private rental sector will play a more important economic role than ever, as it provides flexibility and value to renters and landlords alike.”

Lucy Pendleton, the Founder Director of independent estate agent James Pendleton, also comments: “House price growth is still bouncing around five-year lows, but it’s in London where the market is readying itself for a recovery in transaction numbers early next year.

“First time buyers are eagerly watching a contraction that, once you factor in the effect of inflation, is resulting in starter homes in the capital becoming much more affordable.

“London has posted a solid four months of annual price falls now, which is enough to begin to make a meaningful difference to the value proposition of these homes.

“The North East was the first to follow suit and post negative annual growth, but it won’t be the last. The regions are likely to continue to follow this trajectory as we head into early 2019.

“The fact that a correction in prices is unfolding now in London, where prices are highest and there is most competition, will let some pressure out of the market and inject some much-needed new blood into the volume of sales.”

Chris Sykes, the Mortgage Analyst at Private Finance, gives their thoughts on the capital: “London’s property market in 2018 has been a tale of two cities. While outer London house prices have remained relatively resilient over the course of the year, inner London – a hub for both foreign and domestic investment – has been hit hard. Punitive measures imposed on buy-to-let investors, combined with the prospect of the UK crashing out of the EU, has dissuaded potential property investors. Central London property prices have witnessed consistent decline over the course of the year, now down by 3% annually.

“While the rest of the UK may be enjoying positive growth for now, with the North West witnessing house price growth of nearly 5%, it’s important to remember the wider UK property market often takes its lead from London. With Brexit uncertainty likely to continue well beyond March 29th, UK house prices could be set to weaken nationwide in 2019.

“With property prices acting as an important barometer of strength for the broader UK economy, these figures will be a source of discomfort for some. However, for first time buyers that have long been priced out of the property market, this ongoing uncertainty marks a time of opportunity, as they gain some respite from soaring house prices.”

Landlords give Preference to White People with British Passports, Court Hears

Published On: December 20, 2018 at 10:32 am

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Some landlords are giving preference to potential tenants who are white with British passports, due to the impact of the Right to Rent scheme, a court has heard.

The Government’s controversial scheme, which requires landlords to conduct immigration checks on potential tenants, has been challenged in the High Court.

Under Right to Rent, which was introduced in 2016, landlords face the prospect of prosecution if they know or have reasonable cause to believe that someone who does not have the legal right to rent in the UK is living in their property.

The judicial review case – brought by the Joint Council for the Welfare of Immigrants (JCWI) – which concluded yesterday (Wednesday 19th December 2018), argues that the scheme puts tenants who have a legal right to be in the UK at risk of homelessness and destitution.

The barrister representing the JCWI, Philippa Kaufman QC, told the High Court that the scheme encourages landlords to give preference to white people with British passports, in order to reduce the risk of prosecution.

She described Right to Rent as an “onerous scheme” that presents “huge risks and burdens” for landlords, adding: “If someone is a British citizen, they know they are safe.”

She continued: “The evidence shows they prefer not just a British national, but a British national with a passport to show, because then they can be sure there is no doubt.

“BAME [black, Asian and minority ethnic] British citizens are treated less favourably when they don’t have a passport than white British citizens. Where they do not have a passport, you then resort to proxies – do they appear British? – i.e. skin colour, name, accent, and so forth.”

The case arrives as new research from the Residential Landlords Association (RLA) shows that 44% of private landlords are now less likely to let to those without a British passport, compared to 42% last year.

Chai Patel, the Legal Policy Director for the JCWI, has accused the Home Secretary, Sajid Javid, of “ignoring” a report earlier this year by David Bolt, the Independent Chief Inspector of Borders and Immigration, which concluded that the Right to Rent scheme has “yet to demonstrate its worth as a tool to encourage immigration compliance”, and that the Home Office is “failing to coordinate, maximise or even measure effectively its use, while, at the same time, doing little to address the concerns of stakeholders”.

They added: “This is extraordinarily intrusive red tape that conscripts landlords as border officials on pain of imprisonment, and Sajid Javid won’t even check that it’s working as planned.”

The Mortgage Market will Remain Stable, Expects SDL Group

Published On: December 20, 2018 at 10:01 am

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The mortgage market will remain stable next year, in spite of Brexit, according to Rob Clifford, the SDL Group Commercial Director and Chief Executive of SDL Mortgage Services.

Clifford has released a statement ahead of the Bank of England’s (BoE’s) base rate announcement today (Thursday 20thDecember 2018).

“It’s my view that we won’t see any further interest rate rises this year,” he believes. “Any change is likely to come in the middle of next year at the earliest, depending on the outcome of Brexit, and, even then, it is not going to be dramatic – probably another 0.25% increase to curb inflation.”

He continues: “Despite the speculation around Brexit, most homebuyers are getting on with their lives, and their decision to move is very often based on personal factors, such as divorce, changing family size or relocation for work. They can’t sit on their hands forever, so many are prepared to apply for a mortgage, even if they wonder whether it is a sub-optimal time to buy a new property.

“We should remember, too that, amidst the macro-economic uncertainty, mortgages are affordable for most people. There is very healthy competition in the mortgage market, with growing numbers of new lenders and challenger banks developing innovative products for applicants with complex financial circumstances, lower deposits and/or who are buying non-standard properties.”

Clifford insists: “Nobody believes that interest rates are going to rocket in the coming year and they are likely to remain predictably low. And, although less probable, you can’t rule out other scenarios, such as the BoE cutting rates following a disorderly Brexit, or being forced to hike them to prevent a run on the pound.”

He concludes: “The mortgage market is currently in good shape and stable, bolstered by a rise in remortgaging, as consumers continue to switch to fixed and better rates. Many of those facing affordability challenges in the event of rate rises have already addressed these and locked into safer deals, so I don’t anticipate asurge in activity ahead of a further rises. While lending volumes won’t race ahead, they certainly won’t drop off a cliff. Over the coming quarter, the market should remain predictable and stable with subdued year-on-year growth.”

Are you pleased to hear some positive news regarding the mortgage market for once? We certainly are!

Check out our social media accounts for the latest news on the BoE base rate announcement: Twitter and Facebook.

ARLA Propertymark Predicts Stormy 2019 for Tenants

Published On: December 20, 2018 at 9:00 am

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ARLA Propertymark (the Association of Residential Letting Agents) is predicting a stormy 2019 for tenants, following the release of its latest Private Rented Sector Report, covering November.

Rent prices

The number of private tenants experiencing rent price rises fell for the third consecutive month in November, with 21% of ARLA Propertymark member letting agents reporting that landlords put their rents up in the month. This is down from 24% in October and 31% in September.

However, on a year-on-year basis, the amount of tenants experiencing rent increases is up from just 16% in November 2017.

Rental supply

The supply of properties available to let fell to an average of 183 per member branch in November, from 198 in the previous month.

This is the lowest level seen since April this year, when supply stood at an average of 179 properties, and is down by 4% on November 2017.

Tenant demand

Demand from prospective tenants was also down in November, with the number of home hunters registered per member letting agent branch dropping to an average of 55, compared to 71 in October.

Having assessed these statistics, the Chief Executive of ARLA Propertymark, David Cox, is predicting a stormy 2019 for tenants.

He says: “It looks like tenants are starting to take control, with the number of landlords hiking rents falling for the third month in a row. However, as we look ahead to 2019, things don’t look as positive for tenants. Our members expect more landlords to be driven out of the market by rising costs, which will increase competition and push up rent costs. If we want to secure market stability in the New Year, we need to increase stock, and making the market more attractive for buy-to-let investors is the only way this can be done.”

Do you believe that the end of this year is the calm before the storm for tenants?