Rents look set to rise over the next 12 months as the supply of new rental properties dries up, according to the latest survey by the Royal Institution of Chartered Surveyors (RICS).
It said small scale landlords are pulling out of the market due to recent tax and legislative changes which have made buy-to-let investments less profitable.
Landlord instructions remain in decline, with this indicator having been stuck in negative territory since 2016.
Going forward, rents are expected to increase as a consequence of the imbalance between rising demand and falling supply.
In the sales market, activity levels are benefiting from greater political certainty following the outcome of last month’s general election.
There has been a notable increase in residential property sales and this trend is likely to continue for the foreseeable future.
The December 2019 RICS Residential Market Survey shows that sales expectations have increased significantly, with a number of other key activity metrics turning positive for the first time in several months.
Sales expectations for the next 12 months have increased to a net balance of +66%, up from +35% in November, following a sharp rise in enquiries from potential buyers.
This change in activity levels is expected to lead to property price growth in the near and longer-term due to continued imbalance in supply.
In December, 17% more survey respondents saw a rise rather than fall in enquiries from new buyers, up from -5% in November, at the headline level across the UK.
Regionally, the majority of areas saw growth in interest from new buyers, with respondents in Wales and the North East in particular reporting solid growth.
Enquiries also rose in London and the South East, marking a noticeable turnaround from the negative results in November.
Aside from a rise in enquiries from buyers, the number of agreed sales edged up at the national level to +9% net balance. This is the first time since May 2019 that the number of agreed sales has shown a positive result.
Agreed sales in London and East Anglia delivered amongst the strongest improvement in sentiment, with net balances of +22% and +23% respectively, while sales reportedly weakened in Northern Ireland and Scotland.
Sales expectations for the next three months are also positive, for the third month running, with +31% of respondents anticipating transactions will increase.
This sentiment is mirrored for sales prospects over the 12 twelve months, which have seen an even greater improvement.
A net balance of +66% of survey participants forecast that sales will rise in the year ahead, up from +35% previously. The strongest net balances were returned in Wales and the South West, although all regions are showing strong improvement.
Simon Rubinsohn, RICS chief economist, commented: “The signals from the latest RICS survey provides further evidence that the housing market is seeing some benefit from the greater clarity provided by the decisive election outcome.
“Whether the improvement in sentiment can be sustained remains to be seen given that there is so much work to be done over the course of this year in determining the nature of the eventual Brexit deal.
“However, the sales expectations indicators clearly point to the prospect of more upbeat trend in transactions emerging with potential purchasers being more comfortable in following through on initial enquiries.”
While new instructions picked up at the national level, a net balance of +9% of contributors reported an increase, outside London and the South East, new sales instructions were more or less flat rather than picking up to any degree.
With regards to house prices, the survey’s headline net balance came in at -2%, compared to -11% previously, signalling a broadly flat national trend for the time being.
Going forward, however, near term price expectations were revised higher in all parts of the UK. This indicates a large shift across previously weakening areas, such as London and the South East.
Back at the national level, a net balance of +61% of survey participants see prices increasing at the twelve month horizon (a rise from +33% last time). What’s more, the outlook for house price inflation was adjusted higher right across the UK.
Rubinsohn added: “The ongoing lack of stock on the market remains a potential drag on a meaningful uplift in activity although the very modest increase in new instructions in December is an early hopeful sign.
“Given that affordability remains a key issue in many parts of the country, the shift in the mood-music on prices is a concern with even London expectations pointing to a reversal of course both over the coming months and looking further out.
“This highlights the critical importance of the government addressing the challenge around housing supply particularly with the gradual phasing out of the Help to Buy incentive.”
Fresh research from Proportunity reveals how different property types performed over the past decade, based on price growth.
The data, collected across England and Wales, shows that terraced houses have been the best performing housing type in the past 10 years, with terraced homes in London enjoying the highest house price growth during that time.
The company, which provides Help to Buy-style equity loans, analysed the changing price per square metre of all properties sold in England and Wales since 2010, and found that the compound annual growth rate (CAGR) for each property type by region, and also at an England and Wales-wide level.
Despite recent stagnation, Greater London was home to the highest performing property types in all but one category over the past decade. The capital’s flats, terraced and semi-detached houses all outperformed their counterparts in other regions, with growth of 4.93%, 5.07%, and 4.33% respectively.
But owners of detached houses in the East of England saw only a marginally higher growth: 3.07% compared to 3.06% in London.
Across all of England and Wales, the top performing property type was terraced houses, with an average growth of 3.05%. Semi-detached houses had growth of 2.9% on average, with flats seeing growth of 2.35%. The slowest growing property type was detached houses, with annual growth rates of 2.33% since 2010.
Flats in the North East performed the worst of any regional property type, with an average decrease in price of 0.5%. Flats in Yorkshire and The Humber, and the North West also lost value over the decade, with 0.12% and 0.04% decreases annually respectively.
Vadim Toader, founder and CEO of Proportunity, said: “The 2010s were marked by the after-effects of the financial crisis, and then by Brexit uncertainty.
“Despite these headwinds, we have largely seen growth across the board but the clear winner is terraced housing, or more specifically, terraced homes in London, with buyers likely attracted to their historic characteristics and charm, as well as their limited supply, compared to new builds. Yet, despite their popularity, they are out of reach for many first time buyers in the capital, with Help to Buy restricted to new-builds only, which are typically flats or semi-detached or detached houses.”
Compound Annual Growth
|Region Name||flat cagr 2010-2019||terr cagr 2010-2019||semi cagr 2010-2019||detached cagr 2010-2019|
|East of England||2.62%||3.47%||3.59%||3.07%|
|Yorkshire and The Humber||-0.12%||0.91%||1.30%||1.32%|
|England and Wales||2.35%||3.05%||2.90%||2.33%|
Price per square metre (£)
|Region Name||flat ppsqm 2010||flat ppsqm 2019||terr ppsqm 2010||terr ppsqm 2019||semi ppsqm 2010||semi ppsqm 2019||detached ppsqm 2010||detached ppsqm 2019|
|East of England||2563.4||3234.3||2423||3294||2474.8||3398.9||2703.6||3550.2|
|Yorkshire and The Humber||1791.2||1772.2||1496.3||1623.3||1691.7||1899.9||1966.6||2212.7|
|England and Wales||2417.1||2978.6||2225.2||2915.7||2347.2||3037||2600.9||3200.3|
The government’s decision to invest an additional £4m in funding for local councils to tackle criminal landlords and letting agents has been warmly welcomed by The Guild of Property Professionals.
The housing secretary, Robert Jenrick, announced on Friday that he has pledged new funding to be used to clamp down on rogue landlords, with the money set to be shared between more than 100 councils across England
He commented: “Councils already have strong powers to force landlords to make necessary improvements to a property through the use of a range of measures, including civil penalties and banning orders for the worst offenders.
“The grants will support a range of projects to enable councils to make the best use of these powers. This will include trialling innovative ideas, sharing best practice and targeted enforcement where we know landlords shirk their responsibilities.”
There are more than 4.5 million households in the private rented sector in England, with recent statistics showing that 82% of private renters are satisfied with their accommodation, which although impressive, does suggest that there is room for improvement
The Guild’s inhouse Compliance Officer, Paul Offley, said: “We fully support this initiative as it will ensure that rogue landlords and letting agents are punished for breaking the law and it will also ensure that more tenants are treated fairly.
“With the funding providing councils with a means to crack down on illegal activity in the lettings market, tenants will have more protection and the standards of the rental sector will be raised.”
“An environment where exploitative landlords are stamped out will enable good landlords and letting agents to thrive,” he added.
But the government funding to root out criminal landlords has been described by the Residential Landlords Association (RLA) as inadequate to tackle the scale of the problem.
David Smith, policy director for the RLA, said: “We welcome the government’s focus on rooting out criminal landlords. For too long the debate has been driven by ideological calls for more regulation of the sector. What is needed is better enforcement of the powers already available to tackle the minority who bring the sector into disrepute.
“The funding though is nowhere near enough. Instead of offering inadequate and sporadic pots of money, it is critical that the government provides proper, multi-year funding to enable councils to plan and prepare workable strategies to find the criminal landlords. This should be supported by councils having the political will to prioritise enforcement against the crooks rather than tying good landlords up in licensing schemes which do nothing to protect tenants.”
Greater confidence and more certainty in the housing market following last month’s Tory election victory looks set to boost the housing market and unleash pent-up buyer demand from property buyers, including buy-to-let investors, in the early part of 2020, analysts predict.
But Anton Frost, a partner at Carter Jonas letting agents, believes that continued political uncertainties, in particular, the deadline for Brexit rade talks at the end of the year, will keep a lid on activity levels in the housing market, including the buy-to-let sector.
He said: “2020 may begin with a new government but the familiar uncertainty over our departure from the EU will remain, and there is no doubt that this year will see the lettings market continuing to navigate through what has been a turbulent period.”
Frost, like many letting specialist, is concerned that tax and regulatory changes will dampen landlords’ appetites to invest and expand their property portfolios, with many consolidating their assets, or opting to flee the sector altogether.
Frost commented: “Policy changes and financial pressures on landlords has left many concerned that their investments are no longer viable. We’ve already seen the tenant fee ban and continuation of tax relief changes deter investors from the market in 2019, and this may well continue into 2020.
“With less stock comes increased competition and higher rents, and without legislative changes that can stabilise the landlord market, the tenant struggle for the right home at an affordable price may go unchanged.
“That said, no matter what picture the political landscape paints, people need to move and there has and always be a healthy level of activity in the rental market. Yield potential and tenant affordability are problems that remain paramount, but the market will always be transactional.
“Landlords are dubious about what 2020 holds, but clarity over if, how and when Britain leaves the EU should see an overall sense of stability return to the market, which can only be a positive thing.”
There are tentative signs that landlords are beginning to return to the buy-to-let market, particularly in London where house price falls and steady rental growth are gradually enticing investors back, according to Knight Frank.
The company reports that during the first 11 months of 2019, landlords acquired 11% of homes sold in Great Britain, the same level as 2018. But in November alone, the proportion of homes bought by investors increased to 12%.
London recorded a bigger rise in landlord purchases. Landlords purchased 13% of homes sold in the capital during the first 11 months of 2019, up from 11% during the same period of 2018. This was the first rise since 2015 but is in part due to fewer owner-occupiers transacting in the market. But will this trend continue?
The latest UK Finance mortgage data published this week suggests that property purchase and remortgage approvals in November held up relatively well given that the country was in full general election mode.
Andrew Montlake, managing director of the UK-wide mortgage broker, Coreco, said: “For a lot of British households, November was a classic case of better the devil you know.
“They chose to get their houses in order and secure a mortgage before a potentially disruptive election result.
“In the week following the general election result we saw a slight uplift in enquiries but the buyer spirit was largely trumped by the Christmas spirit.
“January will be the real test of consumer sentiment as we approach our departure from the EU.
“There is still much uncertainty as to the intricacies of how we leave the EU, but people at least now know it’s coming and that creates confidence.”
The figures also reveal that there were 16,200 remortgages in the buy-to-let sector in October, 2.4% fewer than the same month in 2018.
Montlake added: “While we are expecting an uplift in transactions and remortgages, it would be premature to assume that 2020 will be a boom year for the property and mortgage markets.
“As negotiations with Brussels unfold there is still the potential for volatility.”
A new landlord organisation, which is the largest ever trade body in the letting sector, has been officially launched.
The National Residential Landlords Association, which came into force yesterday, has a membership of more than 80,000 landlords.
The new organisation has come about after the National Landlords Association (NLA) and the Residential Landlords Association (RLA) agreed to merge in autumn, with a view to delivering a stronger voice for landlords in the private rented sector.
Ben Beadle is the NRLA’s new chief executive, having joined from Touchstone, part of the Places for People housing group. He was previously managing director of TDS Northern Ireland and director of customer service with the TDS.
The two previous chairs, Alan Ward of the RLA and Adrian Jeakings of the NLA, said in a joint statement: “After more than 20 years of friendly competition the time is right to create a single organisation to represent and campaign for landlords.
“With so much of our work done in parallel there are major benefits to be gained for our landlord members.
“We will be stronger together when presenting a unified voice to government both nationally and locally about the importance of supporting the majority of landlords who do a good job providing the homes to rent the country needs.”
With Britain edging closer to its first recession since the financial crisis, a leading property auctioneer is urging property investors, including buy-to-let landlords, to hold their nerve against the spectre of an economic downturn.
The country’s dominant service sector, which accounts for about 80% of the economy, unexpectedly plunged into contraction last month, in a sign of the increasing stress facing the economy as Brexit looms.
According to IHS Markit and the Chartered Institute of Procurement and Supply (Cips),
activity in the sector fell as companies reported a fall in sales, job losses, cancelled and postponed projects and weak investment levels.
There has been a recent rise in properties going into receivership, banks unwilling to lend for construction projects and a decline in tenants looking to rent business or residential properties, according to Mark Bailey, managing director of Landwood Group, who says that a rise in auction sales is also evident, largely down to an increase in repossessions.
He said: “Worryingly, at Landwood we are also receiving more instructions over the past few months than we have done for a year or more – instructions for properties that have sadly gone into receivership.
“It is harder for property owners to let business space and for domestic landlords to find tenants – there’s no doubt that a squeeze is on.
“With each failed building project, banks become more nervous to lend, builders stop building… and we fall headlong into a dreaded recession. Once we do, it’s anyone’s guess how deep it is or how long it lasts.
“The blame for all of this cannot be put at the door of Brexit… well, not entirely. There is no arguing with the fact that this is a period of change – domestically and globally. People err to the negative whenever there is change on the horizon – until events transpire and the scales balance out. The big issue is uncertainty and property is key to all of this. Uncertainty causes negativity, while a solid market has the opposite effect.”
So, if the pointers are all correct and a recession is upon us, what is the advice?
“Sit tight,” said Bailey. “Whether you are a commercial property owner or a domestic landlord, try your best to ride it out, perhaps for six months, before making any business decisions. Look at your borrowings and don’t over-stretch yourself at this time.
“There are always people who benefit from downturns in the market and they tend to be cash buyers. So if you have cash to invest long-term, a ripe time to buy may be about to begin.
“For the rest of us, it’s time to batten down the hatches and ride out the storm – see you on the other side.”