This Weeks Property News

March property sales edged previous month, HMRC reveals.

Residential property transactions edged up 1% in March 2023 compared to the previous month, the latest HMRC figures have revealed.

Across the UK, there were 89,560 home sales last month, according to the provisional seasonally adjusted estimate. While this was slightly higher than February’s total, it represents a 19% decline on the figure for the corresponding period of the previous year.

The monthly rise broke a run of drops, however, including a 4% dip between January and February and a 3% drop from December to January.

According to HMRC’s non-seasonally adjusted estimate, meanwhile, there were 94,870 transactions in March, which was 26% higher than February and 14 % down year-on-year.

Commenting on the figures, Tom Bill, head of UK residential research at Knight Frank, said: “The steep drop in property sales that followed the shock of the mini budget has bottomed out. The mortgage market has stabilised, and buyers increasingly accept they are in a new lending landscape after 14 years of ultra-low rates.?

“Buoyed by savings accumulated during the pandemic, record levels of housing equity and a strong jobs market, activity has been solid but not spectacular this year at all price points.?

The further we get from the mini budget, the stronger the market is performing.”

Danny Belton, head of lender relationships at Legal & General Mortgage Club, said the uptick in transactions from February to March was “positive… kickstarting a strong spring selling season”.

He added: “This is supported by a growing number of mortgage products coming to market – surpassing 4,000 earlier this year, according to Moneyfacts – and the growing competition from lenders is only making them more affordable.”

However, according to Phil Tennant, COO of Upstix, the monthly 1% rise in transactions isn’t representative of a “wider picture that demand has dropped dramatically by almost a fifth over the last year”.

He added: “Our experience has shown that when differentiating by property type, the picture is even starker.?

“Those trying to sell apartments and smaller homes are seeing very low demand as those on the bottom end of the market, and in particularly first-time buyers, feel the impact of worsening affordability due to higher mortgage rates and the recent end of Help to Buy.”

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Rising mortgage rates pose most risk to younger BTL investors.

A landlord who purchased a property last year with the minimum 25% deposit will likely see a profit of only ￡760 this year as a limited company or lower-rate taxpayer, according to the latest Hamptons buy-to-let report.?

In contrast, an average investor who obtained a 75% loan-to-value (LTV) mortgage two decades ago can expect to remortgage at a 32% LTV in 2023, generating an annual post-tax profit of ￡4,120.

According to the report, it’s younger investors who recently maximised their borrowing who are facing higher risks of incurring losses due to rising mortgage rates. Meanwhile, older landlords, especially those who have not released equity, are expected to be less affected by the changing conditions.

According to the report’s example, a landlord with a 75% LTV and paying basic-rate tax would only be able to tolerate mortgage rates of up to 5%. However, an average landlord with a 60% LTV could still turn a profit with a mortgage rate of up to 7%.

While rising mortgage costs pose challenges, most existing investors have seen their yields increase over time due to rising rents, providing some cushion against higher expenses. However, for rents to compensate for the increase in mortgage rates to 5% over the past year, they would need to rise by 28% across England and Wales, the study found.

Investors who purchased properties in 2015 experienced an initial average gross yield of 6.1%. Thanks to rental growth, those same properties now achieve an average yield of 7.3% relative to the original purchase price. Even landlords who entered the market in 2021 have already witnessed a 0.6% increase in their yield, partially insulating them from the impact of rising interest rates.

On paper, the average landlord now needs to be earning a gross yield in excess of 4% to turn a profit, according to the report. This is based on a lower-rate taxpayer or limited company landlord who owns a ￡200k buy-to-let with a 60% LTV mortgage.?

By contrast, in 2020, when rates were lower, investors could still make money with yields of 2%, the analysis found. Higher-rate taxpayers now need a yield of at least 5% to stay out of the red once mortgage payments, maintenance costs and tax have been accounted for.

Generally, the longer an investor has owned a buy-to-let property, the more they have gained from appreciation. Assuming no equity withdrawals, their LTV ratio will be lower compared to the property’s current value, meaning they will be less affected, said the report. According to Hamptons’ example, an average lower-rate taxpayer landlord who purchased a property five years ago for around ￡155,000, now worth ￡200,000, is likely to turn a profit of ￡2,070 when remortgaging at the February 2023 average rate of 4.84%.

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Research reveals ‘reality gap’ in official capital rental figures

A new study by London lettings and estate agent Benham and Reeves has found that the actual cost of renting in London is 37%, or ￡613, higher per month than the official statistics suggest.

Benham and Reeves conducted an analysis of the current cost of renting across each borough of London based on the asking rent for properties currently available on the market. They compared this data to the official figures from the Office for National Statistics (ONS) to calculate the rental reality gap.

The latest ONS data reports that the average monthly rent in London is ￡1,672, an increase of 4.7% in the last year. However, the study found that the actual average cost of renting in London is ￡2,285 per month, which is 36.6% higher than the ONS figure.

The study identified that the largest rental reality gap in London is in the City of London, where the average asking rent is ￡3,606 per month, which is ￡1,702 higher than the ONS figure. Kensington & Chelsea and Westminster also have significant gaps of ￡1,333 and ￡1,264 per month, respectively.

Other boroughs with high reality gaps include Wandsworth (￡904), Camden (￡903) and Hammersmith & Fulham (￡901). The smallest rental reality gaps are found in Redbridge (￡240), Bexley (￡248) and Harrow (￡298).

Marc von Grundherr, director of Benham and Reeves, commented: “Many people may be entering the market with an unrealistic expectation of just what and where they can afford to rent despite having researched the market beforehand.”

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Over-65s’ housing wealth hits record high as generational property divide grows.

The amount of housing wealth owned by the older generation has reached a record level, new figures show. The data, from agency brand Savills, is likely to reignite the debate and anger around the generational divide when it comes to homeownership.

According to research by Savills, owner-occupiers aged 65-plus hold a record estimated ￡2.6 trillion of net housing wealth in homes worth a total of ￡2.7trillion.

The vast majority of this is held by mortgage-free homeowners at ￡2.04 trillion.

The analysis reveals that with 50-64-year-olds holding an estimated further ￡2.213 trillion of housing equity, including ￡679bn in the private rented sector, in total the over 50s now hold 78% of all the UK's privately held housing wealth. Older owner-occupier's wealth greatest in the Southeast.

Over the past 10 years, the amount of net housing wealth held by owner-occupiers aged 65 and over has risen by more than ￡1.11trillion, according to Savills.

Half of the total housing wealth in the Southwest is owned by those over 65s. The region which is popular with downsizers and retirees for a host of lifestyle reasons sees older homeowners make up the largest percentage of equity.

However, owner-occupier wealth is highest by value in the Southeast, where over-65s hold ￡475bn of housing wealth, which is more than ￡8bn more than the total for the whole of the North of England and Scotland combined.

The Southeast has also seen the biggest increase in housing wealth held by those over-65s over the past 10 years, increasing by ￡248trillion, which is more than 2.5 times the growth in housing equity seen by those under the age of 50 in that region.

Lucian Cook, head of residential research at Savills, said: “While falls in mortgaged homeownership among younger households have abated over the past five years, older households have benefitted from the bulk of growth in housing wealth over the past decade.?

“Primarily this is because those who took advantage of the boom in homeownership in the latter part of the 20th century have reached the point where they have paid off their mortgage debt.

But it also reflects the wealth they have accumulated in residential investments, which they have seen as an important part of their retirement provision.

“The resulting generational divide in housing wealth sits at the heart of a lot of the tensions around housing, and how these older homeowners elect to deploy their equity has the potential to shape the market for the next generation.

“Differing attitudes towards new housing delivery, property taxes and buy-to-let investment are all heavily influenced by the gap between the haves and have-nots.

With higher mortgage costs and rising rents, Cook suggested the bulk of housing policy will focus on the needs of younger households, adding: “However the provision of more retirement housing along with other incentives to make downsizing more appealing are also fundamentally important.?

“Such measures would help unlock much-needed family housing and equity that can be used to help younger generations to get on and trade up the housing ladder, especially given the vital role the Bank of Mum and Dad increasingly plays in accessing the UK housing market for the first time.

“In the private rented sector, there is a delicate balance to be struck. With several private landlords at or approaching retirement age, too tight a policy squeeze risks creating further pinch-points in the availability of private rented stock.”

Have a great rest of the week.

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