This had caused some first-time buyers to abandon hope of getting on the ladder, homeowners have been caught out by rising mortgage repayments and soaring rents have forced young tenants from the capital, after the disastrous mini-budget of September 2022 marked the beginning of an unprecedented flurry of interest rate rises.
In just 12 months, the Bank of England increased the base rate seven times (from September 2022 to August 2023) to 5.25 per cent in order to curb inflation. A possible rise expected tomorrow would mean that UK households have stomached 15 consecutive rate hikes.
This has sent shockwaves through the housing market, with the average mortgage interest as a percentage of income more than doubling from 7.1 per cent to 14.7 per cent since last summer and the total mortgage repayment jumping from 16.8 per cent to 20.6 per cent, new research by Savills reveals.
I was angry and disappointed, I had looked after the place so well and felt it was my home, only to be forced out
“The average buyers’ mortgage bill has gone from £19,355 per year (£1,613 a month) to £27,237 per year (£2,270 per month),” says Lucian Cook, head of residential research at Savills, meaning the average homebuyer has to find another £650 a month to afford a property.
Cook says: “London’s existing housing issues became even more intense in 2023.”
Hannah Churchill, 29, moved into a three-person flatshare in a Victorian terrace in Archway in 2021, paying £550 a month. A year ago her rent was raised by three per cent to £564, which she could manage. However, shortly after the mini-budget, with her contract nearing expiry, she was given a week to sign a new contract with her rent going up 23 per cent.
“I was angry and disappointed, I had looked after the place so well and felt it was my home, only to be forced out. You don’t have a voice as a tenant anymore as there is such demand for property,” she says.
Hannah Churchill points out that London rents are increasing far beyond wages
/ Juliet MurchyChurchill, an actress and producer, “sofa surfed” for a month before a friend offered her a room for £600 a month in Finsbury Park. “The landlord said that the increase reflected the current market but it was certainly not an increase that reflects inflation. My wages have not increased by 23 per cent,” she says.
For many it means staying put and “swallowing” higher rents or mortgage repayments and dramatically cutting spending on other things.
“I have never seen the rental market so hot… There is not enough stock and there is no let-up in demand,” says Marc Von Grundherr, of Benhams estate agents.
I have never seen the rental market so hot
The increased cost of buying a home has forced more first-time buyers to ditch plans to purchase a property and continue renting. On top of this, more buy-to-let landlords have stopped renting out their flats in order to sell. In combination with the return to the office, the rental market is being flooded with tenants, Von Grundherr explains.
Analysis from Hamptons reveals that for an individual living alone, the average rent accounts for 63 per cent of their salary (excluding bills), the highest since before the pandemic.
Dating and relationship expert Clarissa Bloom, who also works for the stag do planner thestagcompany.com, says she can’t afford to go on a date herself. “Asda basics is now my new Friday night,” she says. Her studio flat in Hounslow went from £850 per month to £1,250 — an increase of 32 per cent. “They were going to charge £1,350 but I pleaded with them. The compromise was still a heavy increase and I will have to move on as I simply can’t afford to lose that much each month,” Bloom says.
Rents are rising at an astronomical rate, according to Polly Ogden, managing director of John D Wood. “We are seeing rents put up 40 per cent between tenants. People cannot afford to buy and now they cannot afford to rent either,” she says. This poses a bigger threat to the vibrancy of the capital as young Londoners are forced to move out.
The idea of ever being able to purchase my own property years from now is becoming an increasingly impossible dream
Hamptons research reveals that 40 per cent of London-based tenants on their books left the capital for the home counties this year, slightly higher than during the pandemic (38 per cent in 2021).
“More and more talented, creative people are being pushed out of their homes,” says Churchill. “The idea of ever being able to purchase my own property years from now is becoming an increasingly impossible dream.”
Tech entrepreneur Nigel Walley lives with his wife in Chiswick. The couple are reverse empty nesters as both their grown-up sons have moved back home due to high housing costs. Conor, 26, is on his third job in the gaming industry in Soho and was renting in inner London. Harry, 24, is on his first job in gaming after graduating from Manchester.
Nigel Walley’s sons have moved back home to escape escalating rental costs
/ Handout“Given over half of their wages would have been spent on some dingy flat, they have decided to stay at home and save for a deposit,” says Nigel. But their social lives and their sense of independence have both taken a knock. “They are trading their freedom of having their own place against the ability to plan for the future,” he says.
The section of the market that is really suffering are the first-time buyers, according to Arnold. “Those who made their first-ever purchase in 2020 and 2021 on a two-year fixed mortgage at a relatively low interest rate are going to be really stretched when it comes to refinancing,” he explains.
September 2022
2.99pc with monthly repayment of £1,686 through Darlington
September 2023
6.07pc and monthly repayment of £2,309 through Virgin
For many wannabe first-time buyers, the rise in interest rates will have dashed their home ownership hopes. Traditionally, the hurdle for first-time buyers was the size of a deposit. That is still an issue — in fact the average deposit has risen from £207,896 last summer to £210,025 — but now it is also about how much debt you can take on too.
“A first-time buyer taking out a mortgage will pay significantly more than they would have done a year ago, particularly in London where there are also higher property prices to contend with,” says Mark Harris, chief executive of mortgage broker SPF Private Clients. “To make payments more manageable, many first-time buyers are extending their mortgage terms to 35 years.”
The average mortgage rate has rocketed nearly threefold from 1.98 per cent a year ago to 5.60 per cent. As a result, a third of mortgage-payers (34 per cent) in London think they will struggle to meet repayments in the next six months (up from 21 per cent in January), according to analysis from City Hall.
“Those in their 40s and 50s might remember that six per cent interest rates are not that unusual. But younger homeowners and wannabe first-time buyers will have been shocked by the pace at which interest rates spiked,” says Ogden.
People are on borrowed time. As every month ticks by more households will exit their fixed-rate mortgage agreements
So buyers have scaled back their budgets, transactions have dropped and house prices have fallen. Earlier this month Halifax reported that house prices in London had slid 4.1 per cent over the last year, a drop of £22,777, and the biggest decline of any region.
For Ogden prices will continue to fall. “People are on borrowed time. As every month ticks by more households will exit their fixed-rate mortgage agreements. This creates uncertainty as people cannot predict what this will mean for their repayments or their household budgets,” she says. “For those who want to sell there is no point holding out. While current prices may be a hard pill to swallow, they are higher today than they will be tomorrow.”
Peter Arnold, chief economist at the consultancy firm EY, agrees: “For the next three or four years we’ll see that pain being felt as it takes time for those higher rates to pass through.”
Compliance officer and mother-of-two Katie Le Roux managed to hold onto her one-bedroom flat in Putney after her first son was born 11 years ago. She and her husband bought a three-bedroom house a few streets away, rented out the flat and juggled two mortgages.
For the next three or four years we’ll see that pain being felt as it takes time for those higher rates to pass through
However, the interest-only mortgage mean that in July this year her mortgage rate jumped from 1.84 per cent (a monthly repayment of £872) to 5.9 per cent (a monthly repayment of £3,038).
“We knew some kind of significant increase was coming so we put the flat on the market last year but have not been able to sell it. This summer I have redecorated it and lowered the price and now we’ve had 13 viewings and one offer this week for £700,000. The asking price is £750,000 but I think we’ll have to take it,” she says.
Lenders are readying to deal with more customers reaching the end of their fixed-rate terms and facing higher interest rates and therefore higher mortgage repayments. “We are back in Covid territory when banks had to offer mortgage holidays,” says Cook.
This summer, the Treasury published the Mortgage Charter, signed by 90 per cent of lenders and designed to ease anxiety of mortgage holders in a high interest rate and inflation environment.
If a customer is going to struggle to make repayments but is not in arrears, the banks can either switch the mortgage temporarily to an interest-only deal or can extend the length of the mortgage. Both these arrangements cut monthly repayments but make the mortgage more expensive long-term.
Introduced to Parliament in May, the Renters (Reform) Bill seeks to improve the private rental sector for both tenants and landlords. The bill will legislate for reforms set out in the private rented sector white paper published in 2022, which focuses on abolishing ‘no fault’ evictions and reforming landlord possession grounds.
The need for reform
The private rental sector has undergone substantial growth, doubling since 2004. Comprised of 11 million renters, the sector provides essential flexibility and a steppingstone towards homeownership for many.
However, not all renters enjoy the same level of security and well-being within this sector. The practice of ‘no fault’ evictions under Section 21 of the Housing Act 1988 has left some tenants vulnerable to short-notice displacements, leading to adverse effects on educational outcomes for children, job stability, and community engagement.
Responsible landlords face their own challenges, such as dealing with non-paying tenants, those displaying anti-social behaviour and being undercut by criminal landlords. The Renters (Reform) Bill aims to celebrate good landlords and ensure they have the means to regain possession of their properties when necessary.
Overview of reforms
The Renters (Reform) Bill introduces a range of reforms that have been developed in consultation with landlord and tenant groups over the past five years. The reforms are as follows:
Abolish section 21 ‘no fault’ evictions: eliminating the uncertainty of ‘no fault’ evictions, providing more security for tenants, and empowering them to challenge poor practice and unfair rent increases without fear of eviction.
Simplify possession grounds: allowing landlords to recover their property, including where they wish to sell their property, move in family, or evict tenants who are at fault.
Protection against excessive rent increases: ensuring tenants are able to appeal excessively above-market rents which are designed to force them out, known as backdoor evictions.
Private Rented Sector Ombudsman: a dedicated ombudsman will provide fair impartial and binding resolution to issues, in a quicker process than the court system.
Privately Rented Property Portal: an online portal to help landlords understand their legal obligations and demonstrate compliance, while also supporting tenants to make better informed decisions when renting.
Right to request a pet: landlords must consider the request and cannot unreasonably refuse; landlords will be able to require pet insurance to cover any damage to the property.
Other changes to the sector
The Government is also committed to other reforms that were contained in the white paper but have not been included in the Renters (Reform) Bill. This includes a Decent Homes Standard, like that already in place for the social rented sector, that seeks to improve the quality of homes, as well as outlawing landlords and agents from having a blanket ban on renting to tenants in receipt of benefits or with children.
When can we expect to see the reforms introduced?
The bill is currently at the second reading stage, which will provide MPs with an opportunity to debate on the bill’s main principles. However, with no indication of when the second reading will take place, the legislation – which was first proposed in the Conservative’s 2019 General Election manifesto – has been estimated to take up to 18 months to pass through Parliament.
Once the Renters (Reform) Bill has become law, the reforms will be introduced in two stages to ensure there is a sufficient notice period to implement necessary changes. After at least 6 months all new tenancies will be governed by the new rules and then after at least 12 months existing tenancies will also need to adhere to the reforms.
Reception by the sector
Despite the bill providing much needed support for renters, there is fear that a lack of clarity on how the reforms will work could drive landlords away from the sector. This comes after increasing repair, maintenance and mortgage costs are already bringing the viability of the sector into question for many landlords. Given the current housing shortage, it is important that any reforms adequately protect tenants but do not come at an unfair expense to landlords, as to avoid compounding the crisis.
To find out how Sava is helping to make buildings better through education, technology and professional services, head to our website at www.sava.co.uk
Investors are currently betting that rate-setters will increase the base rate again at their next meeting on September 21, from the current 5.25pc to 5.5pc.
They are split, however, on whether further hikes will come after that, with some predicting they could peak at 5.75pc by the end of 2023 and others predicting they could reach as much as 6.5pc.
Rising rates have pushed up mortgage rates for borrowers, forcing them to shoulder much higher monthly repayments when negotiating new deals with banks.
Aneisha Beveridge, head of research at Hamptons, said: “There’s a strong argument that the Bank of England’s quest to quell inflation has hit the rental sector harder than any other part of the housing market.
“A build-up of long-term supply issues combined with soaring landlord costs is putting upward pressure on rents.
“And it’s hard to see any of these pressures receding any time soon, which is why we expect rents to continue rising over the next few years.”
However, the research said the impact of rising rates so far seemed to be much more pronounced on rents than on house prices.
The estate agent is predicting a 2.5pc fall in house prices this year, followed by no change in 2024, 3pc growth in 2025 and 5pc growth in 2026.
Many Americans are house-rich, at least on paper.
Thanks to skyrocketing housing prices, homeowners are now sitting on nearly $30 trillion in home equity, according to the St. Louis Federal Reserve — just shy of the 2022 peak.
That’s roughly $200,000 cash per homeowner in equity that can be tapped, which is the amount most lenders will allow you to take out while still leaving 20% equity in the home as a cushion.
Up until last year, taking cash out by refinancing was a popular way to access the equity you’ve accumulated in your home. With mortgage rates currently over 7%, that’s suddenly a lot less appealing.
Even with high rates of home equity, borrowers are more likely to take out a second loan to pull cash out, rather than lose their low rate through a cash-out refi.
Otherwise, a home equity line of credit, also known as a HELOC, lets you borrow money against a portion of your home’s equity. Instead of taking out a home loan at a fixed amount, a HELOC is a revolving line of credit, but with better rates than a credit card, that you can use when you want to, or just have on hand.
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More unmarried couples are buying homes together
Some costly financial surprises for first-time homebuyers
Last year, originations of home equity loans and HELOCs increased 50% compared with two years earlier, according to the Mortgage Bankers Association, or MBA.
“Given the nearly $30 trillion of accumulated equity in real estate, there is untapped potential for home equity lending for lenders and borrowers,” said Marina Walsh, MBA’s vice president of industry analysis.
When it comes to borrowing against your home, the terms can vary greatly, according to a LendingTree report that analyzed more than 580,000 home equity loan offers across the country.
The average home equity loan amount offered to homeowners is $104,102, LendingTree found. Homes in Iowa had the most favorable terms with an average interest rate of 9.88% — two percentage points higher than the average rate of 7.88% offered in Maryland, the lowest in the nation.
Still, at less than 10%, rates are significantly lower than what it costs to borrow on credit cards, which charge roughly 20%, on average.
However, “it’s not that easy to withdraw money from your home,” said Zillow’s senior economist, Nicole Bachaud. “Not everybody is going to qualify for getting an extra loan.”
Fewer banks offered this option during the height of the Covid pandemic, when lenders tightened their standards to reduce their risk. Access to HELOCs has improved, although the most preferable terms still go to borrowers with higher credit scores and lower debt-to-income ratios.
“Though a home equity loan can be a good way to pay for big expenses, like major renovations, or to consolidate high-interest debt, getting one isn’t without drawback,” added Jacob Channel, LendingTree’s senior economist.
“Not only can qualifying for a home equity loan be more challenging than qualifying for other types of debt, defaulting on a home equity loan can have serious negative consequences,” Channel said. In some extreme instances, defaulting on a home equity loan can mean that you’ll lose your house, he noted.
Even now, “borrowers shouldn’t rush out to get a home equity loan until they fully understand all of the risks associated with them,” Channel cautioned.
Keep in mind that different lenders will also offer different terms and interest rates, Bachaud added. She recommended talking to several mortgage companies or loan officers, as well as weighing all the costs before deciding what makes the most sense.
As estate agents, it is important to make sure that your business is efficient and cost-effective. One of the ways to do this is to outsource your calls. Outsourcing your calls can provide many benefits to your business such as improved customer service, access to specialised services and cost savings. In this blog post, we will discuss why it makes sense for estate agents to outsource their calls and the benefits they can enjoy.
The benefits of an estate agent using call answering services are almost limitless. Firstly, there is the cost savings that come with outsourcing, as it is typically much more affordable than hiring and managing a team of receptionists. Furthermore, when you outsource your calls, you will be able to make use of a dedicated team that specialises in customer service and telephone techniques. This means that customers will always receive professional and polite service, regardless of how busy the day is. Additionally, as an estate agent, outsourcing your calls will allow you to create more time in your day by taking care of customer service enquiries while you focus on other aspects of the business.
Call Answering can increase your sales potential, as it provides an extra layer of customer service. With someone taking all incoming calls, estate agents are free to focus on what they do best – selling. When customers call with questions about a property, the call answering service can answer their queries and help the customer decide if the property is a good fit. Additionally, the customer service staff on the other end of the line has experience in dealing with buyers and sellers and knows how to guide customers in the right direction. By providing this level of customer service, estate agents can ensure that more of their leads result in conversions.
When it comes to customer relationships, there are many benefits to estate agents outsourcing their calls. Firstly, outsourced call services provide greater efficiency and accuracy when dealing with client inquiries and requests. Instead of estate agents having to answer a large number of phone calls themselves, calls can be routed directly to a dedicated team of experts. This ensures that customers are dealt with swiftly and any queries are answered in a timely and efficient manner.
It will save you time by enabling your team to focus on their core duties. An experienced call answering service can offer estate agents valuable insights into customer needs and queries, meaning that they can provide more efficient and targeted customer service. An outsourced call answering service can also help with customer acquisition and retention, meaning that estate agents can benefit from more business. Additionally, outsourcing calls can free up resources and personnel costs. If a professional answering service is used, they can handle both inbound and outbound calls as needed. This means that your team doesn’t need to be on-call 24/7, giving them more freedom to focus on other areas of the business. Furthermore, it allows for improved customer satisfaction through quick response times, leading to increased customer loyalty. In conclusion, estate agents can benefit from using an outsourced call answering service by saving money, increasing customer satisfaction, and freeing up their own resources.
Finally, let’s talk about the bottom line – estate agents who outsource their calls save money. For example, businesses that use an answering service can save up to 40% in operating costs in comparison to using a traditional in-house customer service team. This is because outsourcing reduces overhead costs such as salaries and benefits and eliminates the need to purchase equipment and office space. In addition, it allows estate agents to benefit from economies of scale since they only pay for services when they’re needed. Plus, by taking advantage of 24/7 customer service solutions, estate agents can ensure that no lead goes unanswered regardless of when or where it was generated. This can result in more sales and higher customer satisfaction scores.
The property market is set for its quietest year for sales since 2012, Zoopla claims.
The portal’s latest House Price Index estimates that the market is on track for 1m sales completions this year, which would be 21% below 2022 and the lowest amount for more than a decade.
Zoopla said the housing market continues to adjust to higher mortgage rates and cost-of-living pressures with weaker demand, fewer sales and very low house price growth.
Looking at the past four weeks, Zoopla revealed that demand for homes is running 34% lower than the five year average, while sales agreed are down 20%.
Listings are up 16% in some good news for estate agents.
Based on trends during the first half of 2023, Zoopla estimates that cash sales will fall just 1% this year compared with 2022 levels. However, the number of mortgaged sales is projected to be 28% lower.
Weaker demand, more price-sensitive buyers and fewer sales have also led to a “rapid slowdown” in house price inflation, Zoopla said.
Annual UK house price growth is now at 0.1%, the lowest annual rate since August 2012.
There is also a north-south divide in house price inflation.
All regions across southern England are registering year-on-year price reductions of up to 1%, according to the research, while all other regions and countries of the UK are posting low single digit price growth.
Richard Donnell, executive director at Zoopla, said: “House price growth has slowed rapidly over the last year as demand weakens in the face of higher mortgage rates. Prices are falling more in southern England where higher mortgage rates have priced more people out of the housing market, weakening demand.
“While UK house prices are 0.1% higher over the year, it is the number of sales that have been hit hardest by higher borrowing costs, especially amongst mortgage reliant buyers. Cash buyers are more immune and on track to account for more than one in three sales in 2023. Mortgage rates have started to fall slowly but rates need to fall below 5% before we see an increased appetite to move home in the second half of 2023.”
Jay Clarke, lettings manager at Johns & Co estate agents, said: “We have definitely noticed a trend that potential buyers are pausing home searches to rent.”
In the South East, the second most expensive region outside of the capital, first-time buyer mortgage payments now cost 17pc more than local rents, or an extra £2,580 per year.
Zoopla’s calculations assume a first-time buyer takes out a five-year fixed-rate mortgage over a 30-year term with the cheapest available deal at 5.6pc.
If the same buyer purchased in London with a two-year fix, with the cheapest available deal at 6.2pc, they would spend an extra £7,956 per year compared to if they rented it.
Although some banks have begun cutting mortgage rates, the average rate on a two-year fix has dipped only slightly to 6.76pc, according to data company Moneyfacts. This is well above the 5.33pc level recorded in May and is nearly triple the average 2.34pc rate in December 2021.
On average, this means the monthly cost of taking out a typical £200,000 loan has jumped by £502 – a 57pc jump.
But when it comes to the trade off between buying and renting, there is a clear North South divide. Renting is now cheaper than buying in every part of the South and Midlands.
However, in Scotland, Wales, the Northern regions and Northern Ireland, it is still cheaper to buy than rent. This is because house prices are lower in proportion to rent prices.
In Scotland, where average monthly rent is £748 – a third of the cost in London – first-time buyers will save £128 per month if they purchase the same property with a five-year fix.
But if the same buyer purchased with a two-year fix, this saving would drop to £87.
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