House prices are officially STILL rising (but only just): ONS reveals annual growth of 0.2%
- Average sold prices increased by 0.2% in the 12 months to August, says ONS
- This contrasts to July last year, when annual prices were up 13.8%
- All the leading indicators suggest that prices will head downwards from here
House prices are officially still rising, with the ONS revealing that average sold prices increased by 0.2 per cent in the 12 months to August.
The average house price was £291,000 in August 2023, which was little changed from 12 months ago, but £9,000 above the recent low point in March 2023.
While sold prices remain in positive territory, house price growth has been slowing since July last year when prices were up by a huge 13.8 per cent.
Edging up: The average house price was £291,000 in August 2023, which was little changed from 12 months ago, according to ONS data
There are also slight disparities depending on where in the UK people live.
House prices over remained flat in the 12 months to August in England at £310,000. Meanwhile, typical prices decreased in Wales by 0.1 per cent to £217,000 and increased by 1.1 per cent in Scotland to £194,000.
The North East saw the highest annual percentage change of all English regions in the 12 months to August 2023, rising 3.6 per cent, while the East of England fell 1.6 per cent.
Will house prices start to fall?
All the leading indicators suggest house prices are heading downwards.
Separate house price indices from Nationwide and Halifax report that house prices have already started falling.
These relate to their own approved mortgage applications, so are a little ahead of the ONS sold figures. However they don’t include cash buyers or mortgage data from other lenders.
Nationwide data shows house prices falling by 5.3 per cent in the 12 months to September, while Halifax says prices have fallen 4.7 per cent during that time.
The latest survey by the Royal Institution of Chartered Surveyors (Rics) which takes a monthly poll of Rics’ estate agent members, gives a snapshot of what is happening on the ground in the property market right now.
House price growth: ONS data shows that prices are officially still rising, going up by 0.2% in average in the 12 months to August
For the past few months the vast majority of those surveyed have said they are seeing house prices falling.
And earlier this week, Rightmove reported that newly-listed asking prices rose 0.5 per cent in October compared to the previous month. This sounds positive until you factor in that its the smallest October increase since 2008.
Based on the last 20 years, the average asking price increase in October is 1.4 per cent, according to Rightmove.
Richard Harrison, head of mortgages at Atom bank expects house prices to continue to fall as a result of higher mortgage rates.
He said: ‘Prices continue to rise more slowly, with today’s data reflecting the challenging time the property market has experienced so far in 2023, with rising rates negatively impacting how much buyers are able to borrow as well as customer confidence.
Average house price: While sold prices remain in positive territory, house price growth has been slowing since July last year, when annual prices were up 13.8%
‘However, there is some cause for cautious optimism. Softening prices present an opportunity for first-time buyers, and many experts now think that base rate has reached its peak, with headline mortgage pricing falling over the last 12 weeks.
‘This is unlikely to stimulate an immediate dramatic bounce in activity and prices, but it does reduce the potential of a more pronounced reduction in prices as had previously been speculated by some commentators.’
Jeremy Leaf, north London estate agent and a former Rics residential chairman, added: ‘These slightly historic figures are more comprehensive than other surveys as they are based on completions rather than offers, and include all sales including cash and mortgages.
‘They show resilience at a time of great turbulence for the market on the back of rising mortgage rates.
‘The market remains price-sensitive although stabilising inflation and mortgage rates as well as the growth in real wages has improved affordability and prompted more viewings and offers, especially for small family houses.
‘Very few forced sellers and low stock levels mean prices are likely to continue softening rather than significantly correcting.’
I have had a Lifetime Isa (Lisa) since they launched in 2017, as I am saving for my first home.
During the first five years I maxed out my contributions, saving £4,000 per year, and with the Government bonus and interest on top I now have over £25,000 in the account.
There is a £450,000 limit on the value of a property that can be purchased with savings from a Lisa. This was perfectly adequate in the East Midlands where I lived until last year.
But in 2022, I moved to London. I stopped adding money to the Lifetime Isa, as I think I would struggle to buy a suitable home in London for less than £450,000.
The Lifetime Isa was launched in 2017 to help savers get on the property ladder. Savers under the age of 40 can open a Lifetime Isa and get a 25% Government bonus
Is there likely to be any movement from the Government on the maximum property value?
If not, me and many others are going to have to withdraw our money – and pay significant penalties – in order to purchase our first property.
Is it worth moving my money out of a Lifetime Isa now while savings interest rates are higher to try and build back some of the penalty that will be lost, or should I keep it in the Lisa in the hope that the Government does the right thing?
Also, can you transfer from a Lisa to an Isa so it stays in a tax free wrapper? Via email
Helen Kirrane of This is Money replies: Many banks – not to mention prospective homeowners – have been calling for the maximum property value on the Lisa to be increased.
Savers between the ages of 18 to 40 can save up to £4,000 in the account each tax year and the Government will add a 25 per cent bonus, up to a maximum of £1,000, each year.
Lisas can be used to buy homes worth up to £450,000, both within and outside London.
But London’s average house prices remain the most expensive of any region in the UK, with an average price of £528,000 in June 2023, according to the ONS house price index.
This is £78,000 more than the Lisa maximum property value, meaning first time buyers like you looking to get on the property ladder in London could be stuck.
We asked property experts for their advice on what you should do.
Will the maximum property value be increased?
Brian Byrnes of saving and investing platform MoneyBox replies: Market conditions have changed considerably since 2017, so Moneybox has been campaigning for all parties to commit to reviewing the Lifetime Isa property price cap in advance of the next election.
While it is impossible to predict the future, our proposals that the Lifetime Isa property price cap is index-linked and subject to an annual review have been well received.
With an Autumn Statement and spring Budget coming up in the next six months and an election on the horizon, it won’t be long before we have greater clarity on the measures that will be taken to support the needs of first time buyers into the future.
Tom Selby, head of retirement policy at AJ Bell replies: We know the Government are open to Isa reform and potentially Isa simplification.
But it is not clear whether that extends to improving the terms of existing products such as the Lifetime Isa.
There is a strong argument that the house price threshold of the Lifetime Isa should be increased and the exit penalty reduced from 25 per cent to 20 per cent, but there has been no formal indication that either are under consideration.
Sarah Coles, head of personal finance at Hargreaves Lansdown replies: More and more of the industry is calling for this, but unfortunately, we can’t guarantee it will happen by the time you want to buy.
We at Hargreaves Lansdown think the property maximum value ought to be linked to house prices.
Some savers hoping to get on the property ladder choose a Lisa as a home for their savings, but those hoping to buy in London find the £450,000 maximum property value a barrier
What are the penalties?
Helen Kirrane of This is Money replies: If you withdraw money from a Lisa for any reason other than buying a first property before the age of 60, the Government withdrawal charge of 25 per cent will apply.
Any withdrawals within 12 months of your first payment will also incur a 25 per cent Government withdrawal charge.
The only other reason you can withdraw funds is if you are terminally ill.
As you maxed out your contributions for five years, you have paid in £20,000 and received a £5,000 Government bonus in those five years, so you have accumulated £25,000 in your Lifetime Isa.
If you withdrew this money, without using it for a suitable home deposit, the 25 per cent penalty would apply to the whole £25,000, leaving you with £18,750 and £6,250 out of pocket.
Should you move money out of a Lifetime Isa ?
Brian Byrnes replies: This really depends on your intentions. If you are not in a rush to buy immediately and can be flexible about where you eventually buy your first home, I would recommend that you really consider your options before incurring the penalty.
It would take quite a long time saving outside of the Lifetime Isa for this reader to recoup the loss of the Government bonus on his deposit savings.
The upcoming Autumn Statement and election on the horizon will provide more clarity from all political parties on the extent to which they will continue to support first time buyers and future proof the Lifetime Isa to support the next generation of home buyers in the UK.
Tom Selby replies: This will depend on circumstances but you need to be aware that the 25 per cent early withdrawal charge applied by Government is, effectively, a 26.25 per cent penalty.
It would take a long time to get that back through marginally higher interest rates. It’s worth remembering the Lifetime Isa can be accessed tax-free from age 60, so if it is possible to build up a deposit for a first home without touching the Lifetime Isa, this could be beneficial from a purely tax perspective.
Retirement fund: Other than using a Lisa to buy a first home, the only other penalty-free option is taking out the money after the age of 60
However, this won’t be an option in all circumstances. You should be absolutely certain that you have no other options other than accessing your Lifetime Isa early (and taking the penalty hit) before taking that decision.
Sarah Coles replies: If you are on track to buy a property worth more than £450,000, you should start by calculating three different scenarios.
Start by working out the penalty you’d pay if you withdrew the cash today.
Then calculate any possible growth between now and when you want to buy, and calculate the penalty if you had to withdraw this larger sum.
Finally, look at the position you’d be in if you left the money to grow in the Lifeitime Isa and were able to buy a property using it.
The difference between the first and second figures is what you would lose by hanging on in a Lifetime Isa, just in case the rules change. The difference between the first and the third is what you would gain if you were in luck and the rules changed in time. Your decision will come down to whether the potential upside is worth the risk of the downside.
Can you transfer money out of a Lifetime Isa into another type of Isa?
Sarah Coles replies: If you choose to give up on the Lifetime Isa, you can transfer to another type of Isa – assuming they accept transfers in. However, you will pay the same penalty as if you were withdrawing the cash.
Brian Byrnes replies: Yes, you can transfer a Lifetime Isa directly into an Isa but it would depend on the provider you choose.
Your savings will remain tax free as long as long as you transfer via the funds via an Isa transfer rather than withdrawing the funds and re-depositing them into an Isa.
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Having been saving up for a while, I decided this year to start looking to buy my first home.
Up until this point, I have been renting with friends for a number of years and have moved from property to property.
But now I find myself trying to find somewhere to buy, I can’t make my mind up – I feel like a rabbit in the headlights.
I feel in part overwhelmed by the prospect of putting all my savings towards a deposit on a home at a time when house prices are falling and mortgage rates have risen rapidly.
Sage advice: We asked three experts, Matt Thompson, Henry Pryor and Charlie Lamdin, to advise our reader on how to beat their decision paralysis
But I am also overwhelmed by having to pick a home that I will live in for the next five to 10 years.
I know the area I want to be in and type of property I want, but just haven’t seen anything yet that is quite right. There has been no love at first sight.
I have been to see about 40 properties so far, admittedly knowing that most wouldn’t end up being quite right.
I’m probably being too picky, but there is only a limited number of homes coming on the market – and most have no appeal. Prices don’t appear to be falling. Sellers appear to be holding out and only a handful of the best homes are selling.
Do you have any tips to help me get over my decision paralysis? For example, is there some form of a buying checklist?
I have also heard that I should be building relationships with agents as the best homes all sell before they hit Rightmove or Zoopla. Is this true even in a market such as this? And how should I go about doing it?
Ed Magnus of This is Money replies: Decision paralysis is when you lack the ability to decide on something out of fear of making the wrong choice.
I’m afraid it’s part life’s rich tapestry whether you like it or not – it’s a problem that impacts everyone – albeit some more than others.
We live in a world where it can feel like there is an infinite amount of the same thing – but all in slightly different shapes, sizes and guises – whether that be types of bread in a supermarket, jeans in a clothes shop, or TVs in a department store.
It’s the same thing for property – except it’s also likely to be the biggest financial decision of your life, which rather adds to the pressure.
The good news is that you know the area you want to buy in – probably rather well after 40 odd viewings.
The bad news is; there isn’t a manual to help you make that all important final decision.
Some buy with their head and others buy with their heart. You sound like you may fall into the latter camp.
That said, you are clearly concerned by falling house prices.
The latest Halifax and Nationwide house price index show values have fallen the last year by the sharpest since 2009.
Most experts agree prices will slide further from here on, but ultimately trying to time the market is pure guesswork – and some local markets behave differently.
We asked three experts for their advice: Henry Pryor, a professional buying agent, Charlie Lamdin, founder of property website BestAgent and Matt Thompson, head of sales at London estate agency Chestertons.
Advice from the buying agent?
Henry Pryor, a professional buying agent and property expert says they should stay put and continue renting
Henry Pryor replies: Oh dear, you do seem to be struggling, don’t you.
Strange though it may seem my advice to you is ‘stay put.’ Don’t move, you aren’t ready and I expect that you will find yourself full of remorse if you do.
Finding the right house is like finding the right partner. It may happen instantly or it can take a lifetime. Some never do.
Like a partner you will have to compromise. What you want probably doesn’t exist and if it did you probably couldn’t afford it.
You say you are very happy renting and many people are. I’ve been an estate agent for forty years and I rent.
There’s no shame in it and many mortgage holders today would envy your freedom.
If you’ve looked at 40 properties in one place you are getting dangerously close to irritating the local estate agents who will think you’re just a tyre-kicker.
Rather than help you to see off-market properties they are more likely to avoid alerting you to things.
An estate agent doesn’t want to be a tour guide, they want to sell their clients properties.
My advice is to make up your mind whether you really do want to buy a house in what most people agree is a falling market when interest rates are high and stock of homes for sale is down by 25 per cent.
Check what home ownership might give you that renting and saving doesn’t.
Only buy something that you could live in for at least five years otherwise continue renting.
Be much more selective about what you go and see if you decide to continue your search. Remember, estate agents aren’t tour guides there to help you find a home. They are paid to sell you one of the ones they are instructed on.
Finally, buying a home is serious and can be expensive. The word ‘mortgage’ comes from the french word for death. It was a loan until death. It isn’t for everyone and renting is not a second class choice.
Advice from the homemoving expert?
Charlie Lamdin, founder of BestAgent, believes they should keep viewing potential homes, again and again, relentlessly
Charlie Lamdin replies: If there’s any doubt, then there’s no doubt. That’s the number one rule.
You should only commit to proceeding with the purchase of a home if the thought of it fills you with excitement, and it represents a big step forward in all areas of your life, not just financially. It’s too big a decision to get wrong.
Don’t wait to time the market, just be out viewing potential homes, again and again, relentlessly. Make offers on homes you are sure you’d love to live in, but avoid bidding wars as a first time buyer.
Every viewing will teach you something whether it’s a front line insight to your market from the agent, or a feel for what’s selling and what’s not.
In a falling market, you should view homes that have asking prices outside your budget. Agents are quieter now, and more willing to show you homes they were too busy to show you a year ago.
If and when you find a home that really feels that bit more special than the others you’ve viewed, and you find yourself wanting to offer, remember the following.
First. Sleep on it.
Second. Only make your offer by email, not phone or in person. This avoids you being ‘closed’ at a higher price than you’re comfortable with by trained professional negotiators. They can’t intimidate you into a higher price by email.
Third. It’s better to offer your maximum comfortable price and not get the home, than to overpay and be burdened with a financial commitment that becomes a millstone around your neck, as has happened to so many people now caught out by rising mortgage payments.
There are no shortcuts to this process. But you can hugely improve your chances of having your offer accepted if you have a mortgage in principle, a conveyancer, proof of deposit funds and a commitment to buy your search pack immediately if the seller accepts your offer.
This demonstrates higher commitment, that you’re not afraid to embark on the process and that you’re more likely to exchange contracts sooner.
Motivated sellers are seeking certainty of sale over maximum price. This creates a great opportunity for well prepared first time buyers, because you’re chain free.
Happy home hunting.
Advice from an estate agent?
Matt Thompson, head of sales at London estate agency Chestertons, suggests extending their search radius ever so slightly
Matt Thompson replies: Buying your first home can be a daunting undertaking and you are right to be doing it at your own pace, especially if you are in no particular rush to move.
It is good to hear that you have already narrowed down the location you wish to buy in, although it does sound like this area doesn’t offer you a lot of choice which can make your search for the ‘perfect property’ more difficult.
To widen your pool of potential properties, it might be worth extending your search radius ever so slightly as you might be more likely to find the right home within your budget.
It also sounds like you are uncertain about current market conditions and have further questions about the property market.
As I can’t detect from your questions where you are looking to buy, I’m unable to offer you tailored advice and I would recommend finding and setting up a meeting with trusted estate agents in your area to give you a breakdown of the market and fully understand what you are looking for.
Last but not least, your agent is likely to be in ongoing contact with local homeowners and is therefore one of the first to know about any new properties being put up for sale.
It’s therefore advisable to stay in regular touch with your chosen estate agent.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
Estate agent details often include a garage in the floor plans of a property to make the living space look bigger.
Yet more than half of households with a garage rarely or never use it, according to research by lender Admiral Money.
With the average house price falling by 0.3 per cent last month, according to Halifax, one expert says that by converting a garage into living space you might boost the value of your home by an estimated £43,000.
Room with a view: Most garage conversions do not require any extra planning permission
Scott Cargill, chief executive of Admiral Money, says: ‘Few of us still use our garages to park a car, so converting one could be the perfect adjustment to add space, reinvent any wasted area and importantly, add value to your home.’
The research revealed that of the 16 per cent who have already converted their garages, two thirds have opted to install utility rooms and offices. A further quarter have created bars, gyms and even home cinemas.
‘But while converting a garage will add square footage to a home, the ultimate value of the renovation won’t be realised until it is sold, so any works undertaken will need to be given the same consideration as any other large financial purchase,’ says Cowgill.
The standard size of a UK garage is 128 sq ft, with each sq ft adding around £335 of value to the average property, according to property data company TwentyCi. That suggests a garage could add an extra £43,000 to your home’s value.
Charlie Syson, of Chestertons estate agents, says: ‘Converting your garage into habitable living space is the most valuable conversion you can do. In most cases you own the land your garage is on, it requires no planning permission and most of the time, no structural work so is a very cost-effective way to increase square footage and living area.
‘If you knock down walls to create a bigger, open-plan space, block off the garage door and add insulation, you can gain liveable space.’
Converting your garage into habitable living space is the most valuable conversion you can do
Charlie Syson of Chestertons
Syson says that while the upfront cost of a conversion could be off-putting, homeowners could increase their property value by more than £43,000 on average across the UK, according to recent figures, ‘and by up to £150,000 in some London postcodes’.
A basic garage conversion can cost as little as £6,000 for a single garage, while a full conversion is between £10,000 and £20,000.
It’s estimated only ten per cent of garage conversions require full planning permission, according to the home extension firm, Resi.
The rest come under permitted development rights. These rights ensure that as long as the works carried out are internal, and you are not trying to enlarge the existing structure, you can avoid a traditional planning application and move straight to the building regulations stage.
Falling but not crashing: Typical home now costs £285,044 vs peak of £293,992 last August
However, homeowners may need planning permission if their garage is detached from the rest of their property.
James Perris, a director at De Villiers Surveyors, says: ‘Converting an integral garage into living accommodation will almost certainly come under permitted development, but checks will still be needed with your local authority – especially if you will inevitably be changing doors or windows and your neighbours’ privacy cannot be compromised. If you are just laying down a carpet and calling it a gym then no, but if you want to create an annexe then yes, you will need to check with the local authority regarding consent.
‘This is because the local authority generally requires consent for living accommodation where any building is not attached to the main residence. You should also be mindful that garages are not generally built to the same standard as that of the main house. They are often made of a single layer of brickwork (rather than two layers as with most standard homes), so if you do get consent, some fairly significant building works will be required.’
For any full-scale conversion, homeowners will also need to follow building regulations, which cover aspects such as fire safety, sound, ventilation, drainage and waste disposal among other requirements.
To ensure your project is in line with building regulations, Resi recommends commissioning a set of technical drawings of the proposed build from an architect so the contractor has detailed instructions on meeting all legal requirements.
Resi also suggests that even if a homeowner does not need to complete a full planning application, they should still obtain a ‘lawful development certificate’.
Anyone can apply for one through their local planning authority to obtain a decision on whether an existing or proposed development is lawful for planning purposes or not.
A lawful development will prove to both the local authority and future buyers that your project was legal at the point of construction.
Liaising with an accredited architect who can help decide the best way to design your garage may add to your budget but it may save you money in the long term.
On average, professional fees for an architect range from between £1,500 to £3,000 per job depending on the complexity of the conversion.
Architect Martin Hitchcock, from Wales, advises homeowners to think about how a garage conversion will benefit them and whether they will still need to have some of it for storage space.
‘An architect can offer insight and ideas that you might not have thought of and could save you money in the long run, as your builder will have detailed drawings to work with which will help provide more accurate costs,’ he says.
‘Whether you choose to extend your kitchen, install a gym, set up a playroom or have an art studio or office, your garage can go from a place for forgotten clutter to a space that completely transforms the way you live.’
Garage conversions are also scaleable according to Charlie Syson, meaning you can not only add value but make it pay for itself.
He says: ‘Creating a self-contained ‘Granny Annexe’ and adding a kitchen unit would mean you have a potential opportunity to Airbnb or rent out the space when it’s not in use.
‘And if you don’t have the finance to convert your garage professionally then it’s best to self-convert and use the space as a teenage den or home gym – living space will nearly always add value to a property.’
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
It’s all too easy for people to consider the increasing value of their home, see the rising interest they’re earning on their savings, or the gains from their investments, and feel richer.
In nominal terms at least, that’s true. Money held in property, investments and savings by and large does tend to rise over time, though to varying degrees.
Over the last three years, the average UK home has risen in value by about 24 per cent, according to the Land Registry.
Don’t leave your cash in the bank: £1,000 cash would drop in value to £858.73 after five years, with inflation at 3%. With inflation at 10%, it would only be worth £590.40, after five years
In nominal terms that means the typical homeowner is £56,897 richer than they were merely three years ago – based on the average UK house price.
Many investors will also be feeling better off than three years ago.
The average stocks and shares Isa is up 23.61 per cent on May 2020, according to data provided by Moneyfacts and sourced from analytics firm Lipper, although it has fallen by 1.5 per cent over the past year.
Savers have also seen rates surge since the start of last year, though admittedly from rock bottom levels. A saver can now secure up to 5 per cent interest with a fixed savings account.
So far, so good. But the picture is very different when we look at what’s happening in real terms, taking into account inflation.
Inflation is the rate at which costs rise. For example, if the average pint of milk rises from 60p to 66p over 12 months, then milk inflation is 10 per cent.
The consumer prices index measures the average change in prices of core goods and services over time, including transport, food, and medical care.
|Where your money is held||Nominal growth (%)||£10k growth||Inflation adjusted growth||Real value|
|Global equity fund||25.3%||£12,534||5.2%||£10,521|
|UK equity income fund||7.7%||£10,768||-9.6%||£9,039|
|Cash earning zero interest||0%||£10,000||-16.1%||£8,394|
|UK residential property||24%||£12,404||4.1%||£10,412|
|Instant Access savings||1%||£10,102||-15.2%||£8,480|
|Credit: AJ Bell|
To do this, every month, a team of roughly 300 analysts visit 20,000 shops in 141 different locations recording around 180,000 price quotes in the process.
The UK’s CPI inflation rate has risen by 19.1 per cent since the start of 2020. Over the past 10 years inflation has risen by 31.4. per cent, while it is up 71.2 per cent over the past 20 years.
You can check how prices have changed over the years with This is Money’s inflation calculator.
Thanks to some number crunching by the investment platform AJ Bell, it is possible to see the impact that inflation has had on our cash and assets in recent times.
We look at how different groups have been affected by inflation, from savers and investors to those just keeping their money in their current account.
The headline CPI rate had been expected to dip into single figures, but stunned analysts by remaining above 10 per cent in March
Money sitting in a current account
If someone had kept £10,000 in their current account since the start of 2020, earning no interest, they would have seen the purchasing power of that cash fall to £8,394 as of March this year.
Money in a typical savings account
Those using interest-paying savings accounts won’t have fared much better since the start of 2020 either. Although rates have improved, with the average easy-access account now paying 2.1 per cent, over the last five years the typical rate has only been 0.55 per cent, according to Moneyfacts.
That’s £5.50 back per year for every £1,000 saved – certainly not enough to keep up with inflation.
AJ Bell estimates that since the start of 2020 the average easy-access saver will have seen the purchasing power of £10,000 fall to £8,480 in real terms.
Caught in a trap: Keeping an eye on inflation is key to knowing how much your savings are being eaten away
With inflation currently at 10.1 per cent in the 12 months to March and the best easy-access savings rate paying 3.71 per cent savers are essentially seeing their wealth decimated in real terms.
If the rate of inflation was 10.1 per cent this time next year, what someone can buy with £1,000 now would cost £1,101.
Stashing £1,000 in the best paying easy-access deal paying 3.71 per cent today would reduce their loss – but they would still end up worse off.
Money invested in a typical global equity fund
Investors will have likely fared much better, although a significant proportion of the gains they’ve made will still have been eroded by inflation over the past three years.
A typical investor holding £10,000 in a global equity fund would be up 25.3 per cent in nominal terms since the start of 2020, according to AJ Bell.
This means that in real terms they will be up 5.2 per cent, with that £10,000 now having the equivalent buying power of £10,521.
Money invested in a typical UK equity income fund
However, some investors may have actually lost ground. For example, a typical investor with £10,000 in a UK equity income fund will only be up 7.7 per cent in nominal terms since the start of 2020. In real terms, they’d be down 9.6 per cent.
In other words that £10,000 would have the equivalent purchasing power of £9,039 today.
The owner of an average-priced UK home
The typical homeowner should have fared better thanks to the pandemic-induced property boom. But once again, inflation means they may not have gained as much as they might think.
The average homeowner has seen their house price rise by 24 per cent since the start of 2020.
But although the typical homeowner would be roughly £57,000 richer today than they were at the start of 2020 – based on the average UK house price – were they to sell up in order to realise that gain, that £57,000 would have the same purchasing power today as £47,845 had at the start of 2020.
Taken together alongside moving fees, such as stamp duty, estate agents, lawyers, surveyors and removals firms, then it’s unlikely a typical homeowner will be walking away quite as rich as they may have thought.
Looking back over a decade shows brighter picture
With inflation reaching 40-year highs in recent months, the pain people have felt has been concentrated into an unusually short amount of time.
Inflation was at 10.1 per cent in the 12 months to March, according to the most recent figures. It means there will be few people who aren’t poorer in real terms compared to this time last year.
But looking back over the most recent decade, the impact of inflation on people’s finances will be less severe.
Over the past 10 years the average global equity fund has risen by 132.6 per cent, according to AJ Bell.
Best savings accounts at a glance
There are none that beat inflation this month, however, make sure you shop around for the best returns possible.
Easy-access: Chip – 3.71%
Limited-Access: Yorkshire BS – 3.85%
Notice account: Investec 90-day – 4.25%
One-year fixed-rate: Allica Bank– 5%
Two-year fixed-rate: DF Capital – 4.95%
Easy-access cash Isa: Cynergy Bank – 3.5%
During that time, inflation has risen by 31.4 per cent meaning that a £10,000 investment in a global equity fund will still be up 77.1 per cent in real terms compared to 10 years ago.
It’s a similar story for property. Over the past 10 years the typical UK home has risen 71.5 per cent in nominal terms.
Ignoring the impact of mortgages and leverage to keep things simple, this means someone who purchased a property for £100,000 10 years ago will have, on average, seen a 30.5 per cent rise in real terms when taking into account the rising cost of living.
A property that was worth £100,000 a decade ago will on average now be worth £171,460. However, at the same time the cost of living has also risen, meaning in real terms the property has only risen to £130,490 in real terms, according to AJ Bell.
While housing wealth and investments will have largely outpaced inflation over the last 10 years, the same cannot be said for the wealth of the typical saver.
The average easy-access savings account has returned just 0.55 per cent per year over the past 10 years, according to Moneyfacts.
Even a saver who has managed to record an average 1 per cent return over the past decade will be much poorer in real terms, based on AJ Bell’s analysis.
Over 10 years, a saver earning 1 per cent will have seen £10,000 grow to £10,525 in nominal terms.
However, adjusted for inflation, that £10,000 will have declined 15.2 per cent in value and be worth £8,480 in real terms.
|Where your money is held||Nominal growth (%)||£10k growth||Inflation adjusted gain||Real return of £10k|
|Global equity fund||132.6%||£23,264||77.1%||£17,705|
|UK equity income fund||68%||£16,801||27.9%||£12,786|
|UK residential property||71.5%||£17,146||30.5%||£13,049|
|Instant Access Cash||5.2%||£10,525||-19.9%||£8,010|
|Credit: AJ Bell|
Where is inflation going next, and how can you beat it?
There is much debate at present over future inflation. Some believe it will begin falling and soon return to normal levels – in other words the Bank of England inflationary target of 2 per cent.
The Bank of England expects inflation to fall to around 5 per cent by the end of this year. It expects it to then fall to under 2 per cent over the next two years.
However, some believe inflation will prove to be stickier, more volatile and longer lasting.
If the latter is true, inflation could wreak havoc on our finances.
For example, £1,000 of cash (earning no interest) would have dropped in value to £858.73 after five years, with real inflation at 3 per cent.
But if inflation were to remain at 10 per cent, that £1,000 would only be worth £590.40, after five years.
Heading down? The Bank of England is forecasting for inflation to fall sharply this year
Rob Burgeman, investment manager at wealth manager RBC Brewin Dolphin suggests investing for the long term is the most effective way to mitigate the effects of inflation.
He says: ‘Whilst interest rates on cash savings have increased, a good way to shield your investments in the long-term, from the ravages of inflation is to maintain a diversified portfolio that invests your money across a range of asset classes, including stocks and bonds.
‘Although the stock market is volatile and investing comes with risks, history shows that over long periods it tends to perform more strongly than cash
‘Cash has very little ability to grow over time – and certainly not in real, inflation adjusted terms.
‘Although the stock market is volatile and investing comes with risks, history shows that over long periods it tends to perform more strongly than cash and above the rate of inflation.
‘Although rising interest rates are typically considered negative for investments, because higher interest rates tend to negatively affect earnings and stock prices, this doesn’t alter the long-term case for investing.
‘The economy tends to go through different interest rate cycles – sometimes they are relatively low and sometimes they are relatively high – and the timing of these cycles can vary from one country to another.
‘In addition, different sectors perform differently in changing economic conditions.’
He adds: ‘Companies have the ability to pass on over time price increases in the form of higher rents or higher prices for their goods and services which, in turn, gives them an inherent element of inflation protection.
‘There is, however, a lag effect to this and, inevitably, there is a greater of volatility in owning equity types of investment.
‘Nevertheless, history has shown that few other assets can match these type of assets ability to preserve their value over time.’
The days of flipping properties could be over due to ‘unrealistic’ selling prices and the soaring costs of supplies, experts have suggested.
Building materials have been steadily rising in price for years, and 2023 is to be no exception due to inflation still wreaking havoc on the economy.
Meanwhile, demands for housing and other buildings continue to increase, making the cost of construction and hiring workers more expensive.
It means the work of a so-called ‘flipper’ – who buys and renovates homes before selling for a profit – has likely never been more difficult.
To put this to the test, we asked two property experts – Jamie York of Aspire Property and Jen Harrison of Jen Harrison Construction – to cost-up renovating an £850,000 home in London.
The doer-upper: This property on Cherington Road in Ealing, west London, was put on the market for £850,000 and needed ‘a full refurbishment’
New plastering in the doer-upper home would cost at least £9,600, property experts predicted
The task was simple: price up what it would cost to get the house into an ‘excellent condition’ so that it could sell at a decent profit.
The property in question is on Cherington Road in Ealing, west London.
It is a four-bedroom semi-detached home in need of complete refurbishment, described by estate agents as a ‘blank canvas.’ Its price was set at £850,000.
The experts were told to use a nearby five-bedroom home on the same street that had just sold for £975,000 as the goal when it came to interiors and fittings.
However Ms Harrison told MailOnline that she suspects flipping the home would not bring a great deal of profit – if any – due to a refurb costing more than £126,000.
Ms Harrison estimated that a new kitchen that was in keeping with the property and in excellent condition, much like its neighbour’s, would cost £18,000.
She costed two new bathroom suites at £13,680 and a whole new set of windows at £21,300.
Meanwhile, new electrics, wiring and lightbulbs would set the flipper back £12,000, and new heating and plumbing would cost £16,000.
Throw in £3,980 for decoration and £4,000 for a new garden and you’re getting close to £100,000.
The cost of re-turfing the garden would come in at at least £4,000
A new kitchen (shell of current one pictured) at an excellent standard would set the homeowner back by at least £18,000
Each new bathroom suite (current state of one bathroom in the doer-upper) would cost around £7,000
Re-decorating the home (bedroom or living room pictured) would set the buyer back by at least £4,000, experts say
Bringing it over the £100,000 mark would be fixing exterior walls at a cost of £18,000.
And that is before added costs like skirtings and labour, coming in at £5,280 and plastering at around £9,600.
Ms Harrison said: ‘I feel it it is not going to work if bought for the Rightmove price as it stands and is being bought for a flip.
‘Not many flippers or developers would go to Right Move to buy, and most would end up knocking the price down to make it work.
‘It would work if renovating to rent out long term which would be an investment, or as a forever home.’
She said there are also other prices to consider, such as £350 per skip used and the cost of putting up scaffolding if necessary.
It means for the home to be resold at profit, it would need to be put on the market at well above £976,000 – quite the feat considering a five-bedroom home on the same street is currently on the market at £975,000.
The back garden would cost thousands alone to sort out, experts said
It would likely cost the new owner around £13,680 to install two new bathroom suites, flipper experts said
New heating and plumbing in the home (bathroom pictured) would set the buyer back at least £16,000
New electrical wiring in the home would come to at least £12,000, one expert predicted
Jen Harrison’s costings
New kitchen: £18,000
Two new bathroom suites: £13,680
Electrics/wiring inc lighting: £12,000
New heating and plumbing: £16,000
Fixing small exterior wall: £18,000
Re-turf garden: £4,000
Skirtings and labour: £5,280
The enormity of the task is also backed up by analysis by Jamie York, who runs a popular YouTube channel that offers advice on how to invest in property, no matter your budget.
A similar property just a quarter of a mile away – a 4-bed end-of-terrace in good to excellent condition – sold for just £830,000 last May.
Meanwhile another 4-bed semi-detached in good to excellent condition is currently for sale at £900,000, also within a quarter of a mile.
Mr York agreed with Ms Harrison that it would unlikely be very profitable to do up the property and sell.
Mr York said: ‘The postcode of this property is in an area made up of people who are in full-time employment and in the 30-44 age bracket.
‘There are a range of transport links, schools and job opportunities in the area so you start to get an understanding of the property market.
‘Because of the above, the property might be worth doing up and holding to rent, as there is a strong rental demand in the area.
‘This would also potentially work if you converted the terrace to a couple of flats and then rented the properties out.’
He added: ‘From a brief look at the properties in the local area you would want to be going in with a lower offer because of the level of work needed.’
For Ms Harrison the answer is simple: ‘If the selling price was £100,000 less it would work.’
This stunning home on the same street – with an extra bedroom than the doer-upper – recently sold for £975,000
The excellent conditions inside would need to be reached by the doer-upper home if it wants to come anywhere near to scoring a profit after a refurb
The experts were told to use a nearby five-bedroom home on the same street that had just sold for £975,000 as the goal when it came to interiors and fittings
Charles Eddlestone, the co-founder and COO of property platform Agreed, told MailOnline: ‘Flipping houses has been presented as a glamorous get-rich-quick scheme for years – think Homes Under the Hammer, Renovate Don’t Relocate and the countless shows now on TV documenting celebs like Amanda Holden and Charlotte Church buying dilapidated chateaus or gorgeous mansions in the country.
‘Flipping is in, but unless you have deep pockets and can buy a home in an area that is guaranteed to sell for a pretty penny (think anywhere in London) right now it’s not worth it.’
He added: ‘With the cost of living crisis and inflation seeing building materials skyrocket in price (by about 10.6% from this time last year) unless you’ve got the skills to do everything yourself and can get an amazingly good deal on materials, it’s really not worth flipping unless you know you can get a decent profit.’
More than a THIRD of Brits regret buying ‘money pit’ period properties due to higher running and repair costs
More than a third of Brits regret buying a ‘money pit’ period property, according to a new study.
In a St. Modwen Homes’ poll of 2,000 homeowners, 38 per cent of respondents with a Georgian, Edwardian or Victorian property wish they hadn’t purchased it, so much so that 81 per cent are thinking about a new build home next.
One in four (24 per cent) admit that as a result of having an older property they spend a lot more money trying to keep the house warm, while a fifth (18 per cent) say poor quality workmanship from previous fixes has meant they have to fork out regularly putting it right.
A sixth (16 per cent) say they have spent thousands maintaining their older property, splashing out an average of £7,234 a year on fixes and repairs they weren’t expecting. They have also spent as many as 31 hours a month doing DIY jobs.
Jo Winston, Sales & Marketing Director at St. Modwen Homes, said: ‘As the cost of living bites, it’s clear that homeowner expectations and needs are changing.
‘Whether it’s uncovering DIY mistakes from previous residents or dealing with damp, mould and draughty windows, our research has shown that many people are struggling to simply keep their period property ticking over.
‘Thankfully, the new homes coming on the market are generally cheaper to run, more energy efficient, and because of the materials used, require less maintenance – all clearly important factors to the modern homeowner, particularly in the current economic climate.’
15 REDUNDANT PROPERTY FEATURES ACCORDING TO BRITS UNDER 30:
1. Stained glass 30%
2. Highly patterned wallpaper 27%
3. Cellars 22%
4. Chandeliers 21%
5. Open fireplaces 21%
6. Fancy doorknobs 20%
7. Door latches instead of handles 19%
8. Cast iron radiators 19%
9. Period floor tiles 17%
10. Sash windows 17%
11. Porch 15%
12. Exposed beams 15%
13. Gabled roofs 14%
14. Dado rails 14%
15. Cornicing 14%
One in six (13 per cent) admit they had no idea what they were letting themselves in for when buying an older home, with a further 17 per cent confessing that while they love the aesthetic of an older home, they are just not practical.
And the survey also revealed a generational shift in what youngsters are looking for, with a quarter (25 per cent) of Brits under 30 looking for a modern, brand-new home, that requires minimal maintenance outside (17 per cent).
Stained glass (30 per cent), highly patterned wallpaper (27 per cent), cellars (22 per cent), chandeliers (21 per cent) and open fireplaces (21 per cent) were deemed old fashioned by the youngsters surveyed.
Instead, potential young buyers want a driveway (43 per cent), good insulation (42 per cent), kitchen island (38 per cent), hot water tap (37 per cent) and an en-suite bathroom (36 per cent).
Also, on the list of must-have home extras were walk-in wardrobes (33 per cent), smooth walls (31 per cent), high ceilings (30 per cent), large windows (28 per cent) and a walk-in shower room (27 per cent).
A quarter (23 per cent) say they would love a home office, while more than one in ten (14 per cent) are on the hunt for an electric car charging point.
With getting on the housing ladder being such a struggle, it’s no wonder that over half (54 per cent) of first-time buyers would consider taking advantage of buying schemes and offers from property providers to help them get on the ladder.
According to those polled, the most stressful part of buying a new home is being in a chain (42 per cent), the time it takes for the solicitors to get everything sorted (41 per cent), not knowing a completion date (35 percent) and getting a mortgage (29 per cent).
Being gazumped (29 per cent), waiting for the survey results (29 per cent) and finding out you can’t get the mortgage rate you want (24 per cent) also stress home buyers out.
Buy-to-let landlords are selling up in droves, according to new analysis, with younger property investors failing to fill the void.
The latest Government survey of landlords puts the age of the average buy-to-let investor at 59, with just 15 per cent being aged under the age of 45.
Since 2016, almost a quarter of a million more homes have been sold by landlords than have been purchased, according to research by estate agent Hamptons. This trend looks set to continue.
Home truths: Landlords are getting older and older while the number of rented properties falls
Higher mortgage rates mean the sums no longer stack up for many budding buy-to-let investors in large parts of the country.
The average two-year buy-to-let fixed rate mortgage currently stands at 5.62 per cent interest a year, according to financial experts Moneyfacts, up from 3.22 per cent a year ago.
For a landlord renewing a £200,000 interest-only mortgage, that is the difference between paying £537 a month and £937 a month.
Average UK rents rose by 9.8 per cent during that same period – from £1,078 a month to £1,184 a month, according to landlord insurance firm HomeLet. However, this still leaves the typical landlord almost £300 a month worse off than 12 months ago.
Add these higher mortgage costs to the raft of tax and regulation that have hit the sector since 2016 and there is a strong case for giving the sector a wide berth.
Investors already have to factor in a 3 per cent stamp duty surcharge when buying a second property. They can also no longer fully offset mortgage interest payments against income tax on rent – and they face higher capital gains tax bills than other investors when they sell.
We explore how investors, both new and existing, can make buy-to-let work in 2023.
Buy with bigger deposits
Higher mortgage rates mean that buy-to-let increasingly only stacks up for investors who can put down a bigger deposit, especially in lower-yielding areas.
This lowers monthly mortgage repayments and maximises income.
With a mortgage rate of 4.84 per cent, the average investor in England and Wales who puts down a 25 per cent deposit on a 6 per cent yielding buy-to-let will turn an annual profit of £1,175 as a lower-rate taxpayer, according to Hamptons. A higher rate taxpayer would make a loss of £1,392.
However, upping the deposit to 40 per cent means that both basic rate and higher rate taxpayers will be able to earn profits of £2,990 and £430 respectively during the first year.
While existing investors have had the luxury of building up equity, clearly new investors need deeper pockets to get a head start and make decent profit.
Taking an interest: As most landlords are on interest-only deals, even the smallest rate rises have a significant bearing on profitability
Having to put down a bigger deposit naturally begins to cut off geographical areas from some investors’ budgets.
For example, an investor with £25,000 with the maximum 75 per cent mortgage could only afford to buy the average home in 26 local authorities in England & Wales, once stamp duty has been taken into account, according to Hamptons.
With a £50,000 deposit and a 75 per cent mortgage , the options are expanded to 200 local authorities, albeit all outside London.
Mark Harris, chief executive of mortgage broker SPF Private Clients said: ‘Longer term buy-to-let products are available from less than 5 per cent, with the stress testing based on the pay rate, but the fees being charged by lenders can be equal to, if not more than this.
‘For example, a 5 per cent arrangement fee (on the total mortgage amount) is not unheard of, and we’ve even seen a 7 per cent fee.
‘To improve the situation, borrowers may wish to consider putting down a bigger deposit if this is a possibility.’
Tipping point: Investors have weathered several tax and regulatory changes in recent years and now face the challenge of higher interest rates
While buying with a larger deposit will of course help to reduce the mortgage costs it also limits the potential return on investment.
This is because buying with a mortgage can maximise returns from house price gains – although it can equally go the other way if house prices fall.
For example, instead of buying one property for £100,000 outright with cash, they could instead buy four properties for £100,000 using a £25,000 deposit and mortgage to fund each purchase – ignoring stamp duty and other costs for simplicity.
This would let an investor get four times the rental income and four times the capital growth, albeit with the commitment of four sets of mortgage payments and extra costs.
Rob Dix, co-founder of the property forum Property Hub, said: ‘While buying with a larger deposit can work, it also reduces your return on investment. It’s a work-around, but not really a solution.’
Hunt for higher yields
Higher interest rates mean buy-to-let investors will need to focus on yield more than ever before.
In turn, this suggests the next generation of buy-to-let investors will need to be more selective about the areas they target.
This may mean abandoning more expensive low-yielding locations in favour of more affordable higher-yielding parts of the country.
Higher interest rates mean investors need to focus on yield more than ever before.
In London, where the average yield is the lowest in the country at 5 per cent, a landlord will now need to put down a deposit of at least 37 per cent to avoid making a loss during their first year, according to Hamptons.
Last year, the minimum 25 per cent buy-to-let deposit would have been profitable.
Hamptons estimates that the typical London investor will therefore need an extra £67,650 to avoid seeing their costs outweigh their rental return.
Rental yield: Investors in lower yielding parts of the country will be better off paying down their debt. But in higher yielding areas, investors can still profit from growing their portfolios
By contrast, in the North East, the highest-yielding region at 8.6 per cent a year, an investor could theoretically borrow over 100 per cent of a property’s value and still turn a profit.
However, experts warn that investors should avoid becoming overly obsessed by yield. Instead they should target areas that also have strong capital growth prospects.
Rob Dix says: ‘Focusing on properties with higher yields can work, but you need to be careful not to target properties that are too high yielding, as they may have limited capital growth potential.
‘You could actually cost yourself money by going too far in that direction.’
Buy using a limited company
One way to limit the damage of higher mortgage costs is to buy via a limited company rather than under an individual name.
Previously, a landlord with mortgage interest payments of £400 a month on a property rented out for £1,000 a month would only pay tax on £600 of that income.
Now landlords receive a tax credit, based on 20 per cent of their mortgage interest payments. This is less generous for higher-rate taxpayers, who previously received the 40 per cent tax relief on mortgage payments.
A higher rate taxpaying landlord with mortgage interest payments of £400 a month on a property rented out for £1,000 a month now pays tax on the full £1,000, albeit with a 20 per cent rate on the £400 that is being used towards the mortgage.
Landlords who own buy-to-let properties in their own name rather than via a company now pay tax on their entire rental income, rather than their profit after mortgage interest is paid.
Buying within a limited company allows investors to offset all of their mortgage interest against the rental income before paying tax.
This means that whilst individual landlords are effectively taxed on turnover, company landlords are taxed on profit.
Landlords who own buy-to-let properties in their own name rather than via a company now pay tax on their entire rental income, rather than their profit after mortgage interest is paid.
Ultimately, whether there is an advantage to be had or not depends on a landlord’s individual circumstances.
There are also disadvantages, such as higher mortgage costs and the potential for being double taxed if needing to rely on the rental income.
More regulation on the horizon: There is an expectation that landlords may be required to upgrade their properties to an EPC of C rating by 2028 in order to let them out.
Find out whether setting up a limited company for your buy-to-let is a good option here.
Rob Dix said: ‘Using a limited company can offer tax benefits. However, the decision to structure your portfolio this way should not be purely led by a headline tax saving.
‘It’s important to think carefully about where the portfolio fits into your life, and whether you want to take rents out as earnings.’
Carl Howard, chief executive of Andrews estate agents, said: ‘The investment case is stronger where the landlord can act like a business, letting more properties with efficiency savings.
‘On the ground we are also seeing more large-scale professional landlords coming to market, working within the build to rent space and backed by larger corporate entities.’
Take a long-term approach
While conditions do not currently look great for landlords, most invest with a long-term view.
This is not only important when considering house price growth but also rental income.
Rents tend to rise broadly in line with inflation over the long term. In recent years rents have surged, which will be helping to alleviate some of the pain felt by landlords.
Long haul: Most landlords will not be put off by downturns in the rental sector
Rob Dix says: ‘It’s worth noting that although interest rates have gone up quickly, so have rents.
‘If rents continue to rise and property prices stay the same, yields will naturally come back into balance.
‘We are currently at a point where we are likely to see rents continuing to rise, and mortgage rates are probably about as high as they’re going to get.
‘If you make an investment that works now, it’ll work even better in the future.’
An alternative option is to pursue a different strategy such as targeting houses of multiple occupation (HMOs) or holiday lets.
Converting properties into HMOs is an increasingly popular option for investors and landlords, although there are often permits and additional costs to factor in.
Marylen Edwards, head of buy-to-let lending at lender MT Finance, said: ‘Not only can HMOs help to increase a landlord’s rental income but any new rental properties will also help to ease some of the pressure from a market which is suffering an acute lack of supply.
‘While planning permission may not be needed to convert a house or flat into an HMO, landlords should always check with their local authority before embarking on a project or purchasing an asset.
‘Clarity should also be sought on the type of licence that would be required if applicable.’
Converting an existing buy-to-let property to a holiday let could also be an option.
Appetite for UK-based holidays remains resilient despite rising living cost pressures. UK holiday let bookings were up 16 per cent over the Easter weekend compared to 2022, according to rental agency Sykes Holiday Cottages.
Edwards added: ‘Another option to consider is investing in a holiday let.
‘However, potential buyers would do well to do as much research as possible before committing to any property.
‘They need to consider the area and if any usage restrictions are in place, what type of buy-to-let mortgage they would need and what rental income they can expect. This will help them to make a more informed decision.’
As a person trying to rent at the moment, I’m finding the competition for every property near-on impossible. In the area I’m looking, as soon as a flat lands on Rightmove or Zoopla, someone else has already snapped it up.
I’ve been reading that increasing numbers of buy-to-let landlords have been selling up meaning there are fewer homes for renters, which is causing rents to rise.
But I don’t understand how this makes any sense. If landlords are selling up, surely these homes are either being purchased by new landlords or by first-time buyers and therefore should be taking some of the demand out of the rental market?
The demand supply conundrum: Landlords are selling while demand from renters is growing – wo where are all these properties going?
Ed Magnus of This is Money replies: It has been widely reported that buy-to-let landlords have been gradually exiting the market for some time now.
Since 2016, almost a quarter of a million more homes have been sold by landlords than have been purchased, according to research by estate agent Hamptons, largely driven by investors sellling up due to tax hikes and increasing regulation.
The English Housing Survey suggests a more dramatic fall in the number homes across the private rental market.
Between 2018 and 2021 it estimates that the number of privately rented homes fell from 4.8 million to 4.3 million.
There is now a chronic imbalance between the supply of homes to rent and the level of demand from renters.
The latest English Housing Survey estimates that roughly 500,000 homes may have been lost from the private rented market since 2018.
Demand from renters is currently 78 per cent above what is normal, according to Zoopla, while it says the total supply of rental homes is 37 per cent below normal.
This is echoed in the latest market report by Propertymark, which is the UK’s leading membership body for letting agents.
Propertymark says that the supply of properties cannot match rising demand with an average of 11 prospective tenants registering for every available property at present.
With competition increasingly fierce between renters, rents have been rising at quite a pace in recent years.
Over the past 12 months alone, average rents rose by 10.2 per cent, according to the latest HomeLet Rental Index.
The index is based on around one million references processed each year on behalf of letting agents. It estimates that the average rent for a new tenancy in the UK now stands at £1,175 per month.
Perhaps unsurprisingly, rental affordability for a single earner is at its worst for over a decade, according to Zoopla’s analysis.
The situation looks set to get worse this year, with more landlords planning to sell.
One in three landlords are planning to cut the size of their portfolio this year, according to a poll by the National Residential Landlords Association, which marks the highest level of planned disinvestment seen in more than six years.
Just 9 per cent of landlords said they plan to increase the size of their portfolio over the next 12 months, down from 14 per cent who said the same the year before.
However, the question remains, if so many landlords are exiting, why are first-time buyers, who might otherwise be renters, not prospering and and countering this demand and supply imbalance.
To answer this question, we spoke to Chris Norris, policy director at the National Residential Landlords Association, Nathan Emerson, chief executive of letting and estate agent body, Propertymark, and Henry Pryor, a professional buying agent and renowned property expert.
|Year||Number of landlord purchases||Number of landlord sales||Net gain/loss|
|Source: Hamptons & HMRC|
Why is there a lack of rental homes?
Nathan Emerson says: The landscape for those who rent out homes has and is changing significantly. There is new legislation and with it new costs. This is as well as tax changes and interest rate rises.
Because of this, a lot of landlords have sold properties but not as many new investors are coming into the market.
This leaves the market with a deficit which is actually most widely felt by tenants. The English Housing Survey noted a loss of 500,000 homes from the private rented market since 2018.
If all of those properties were single occupancy that’s 500,000 tenants that are being displaced, but of course we know a lot of those households would have been couples or families so the number would be comfortably double.
Homeowner properties are more likely to be under-occupied
Chris Norris says: It’s a complicated picture. Of course, if a property moves from the private rental sector into owner-occupation it will meet the demand of the household making the purchase and creating a home.
Properties leaving the private rental sector leave a gap where the overwhelming majority of new households tend to form
The issue with properties leaving the private rental sector is not that they disappear from the housing mix altogether, rather that they leave a gap in the housing sector where the overwhelming majority of new households tend to form.
Additionally, properties in the private rental sector are far more likely to be occupied by more than one household.
By contrast owner-occupiers are far more likely to be made up of one household, or even under-occupied properties.
This means that there can be a net reduction in available dwellings when stock transfers from the private rental sector to owner-occupation.
According to the most recent English Housing Survey, over half (53 per cent) of homeowner properties were classed as being under-occupied compared to 15 per cent of private rented properties.
Homes in the private rental sector are far more likely to be occupied by more than one household.
Some landlord sales become short-term lets
Chris Norris says: It is worth noting that not all properties sold by landlords are sold to owner-occupiers.
Increasingly in recent years, as it has become more difficult to break even as a residential landlord, properties have been sold on to short-term accommodation providers, who offer holiday lets or serviced apartments rather than long=term homes to rent.
Equally, many multi-dwelling properties, or lower value homes, in high demand areas have been sold for development.
Properties have been sold on to short-term accommodation providers who offer holiday lets or serviced apartments rather than long term homes
This removes relatively affordable properties from the market in exchange for larger single dwellings or premium homes.
Finally, logical as it is, the questions assume that first, there are sufficient first-time buyers able and willing to buy the properties entering the market; and second, that the properties are of a type suitable for first time buyers.
In many markets, it is the older and larger stock which is proving unviable.
This is less likely to be appealing to owner-occupiers and also removes a larger number of potential units at the affordable end of the private rented sector from circulation.
In these cases, there is no real addition made to the number of properties suitable for first-time-buyers and at the same time there is a reduction in the number of dwellings available at the lower cost end of the rental market.
Henry Pryor adds: The problem is that whilst there will be buyers for any home that is sold by a landlord they are very rarely the sort of people who would be renting it currently, so whilst someone is lucky enough to get a home to buy it will reduce the stock of homes to rent and keep the demand unchanged.
That is part of what is driving rents up at present and likely to drive them even further if more landlords sell up.
Some of the homes they sell will be bought by other investors, who will rent them out, but they will pay slightly less for the properties which is why we expect house prices to fall slightly from where they are today. That’s what markets do.
Buy-to-let properties have been sold on to short-term accommodation providers who offer holiday lets or serviced apartments rather than long term homes to rent.
Nathan Emerson adds: When professionals in our industry talk about landlords selling up, our concerns are often counteracted by statements that those properties can now be bought by first time buyers.
But what about the 500,000 tenants?
This statement assumes all of those will be in a position to buy, pass affordability and to be approved by lenders.
The rental market is not just full of would-be first-time buyer
Whilst renting is a stop gap for some, the rental market is not just full of would-be first-time buyers.
In reality, the social housing market is under immense pressure and many low income families rely on the private rented sector instead.
It’s very important to remember that not everyone has the means or even the desire to own a property.
Many of those tenants displaced from a landlord sale may find themselves being placed on an ever growing waiting list for social housing, not being granted a mortgage.
To assume that all tenants are able to become purchasers overnight over simplifies the issue to a dangerous degree, and to be ignorant of the service provided by the rented sector is a huge risk to those who rely on it for a place they call home.
Best mortgage rates and how to find them
Mortgage rates have risen substantially as the Bank of England’s base rate has climbed rapidly.
If you are looking to buy your first home, move or remortgage, or are a buy-to-let landlord, it’s important to get good independent mortgage advice from a broker who can help you find the best deal.
To help our readers find the best mortgage, This is Money has partnered with independent fee-free broker L&C.
Our mortgage calculator powered by L&C can let you filter deals to see which ones suit your home’s value and level of deposit.
You can also compare different mortgage fixed rate lengths, from two-year fixes, to five-year fixes and ten-year fixes, with monthly and total costs shown.
Use the tool at the link below to compare the best deals, factoring in both fees and rates. You can also start an application online in your own time and save it as you go along.
Home buyer demand plummeted 50% at end of 2022, says Zoopla… while those who did buy sought smaller homes to keep mortgage costs down
- House prices grew 6.5% over 2022, says Zoopla, following stagnant final months
- Buyer demand in January is down 23% on the five-year average
- The difference between sellers’ asking and achieved price is now around 4%
A stagnant final three months of 2022 slowed house price growth to 6.5 per cent for the year, according to Zoopla, as demand for properties plummeted 50 per cent from October to the end of December.
It marked a slowdown compared to the 8.3 per cent growth recorded in 2021, according to the property portal, as higher mortgage rates impacted buyers’ decisions.
Buyer demand in January this year is down 23 per cent compared to the five-year average, it added.
Slowing: House price inflation stalled at the end of 2022 dragging down the figure for the year
Its data suggested that buyers are negotiating harder on price, with the difference between sellers’ asking and achieved price now around 4 per cent.
Zoopla warns that if the gap between asking and sale price continues to widen, sellers will feel under pressure to further reduce their asking prices, exacerbating the downward trend.
The research tallies with figures from the Bank of England that show demand for new mortgages fell by 75 per cent at the end of 2022, as homeowners were hit by increased interest rates and the rising cost of living.
Regionally, Zoopla said demand and sales remained strong in the North East of England, Scotland and Wales where homes are priced below the national average.
Market conditions remain weaker in the South East, South West and the East Midlands, where prices are higher or have grown rapidly over the last two years, adding to affordability pressures.
Richard Donnell, executive director of research at Zoopla said, ‘The start to 2023 will be more of a slow burn than in recent years. A portion of households hoping to move in the coming year will be waiting to see whether house prices start to fall more quickly in Q1, as well as how much further mortgage rates are likely to fall back.
‘Mortgage rates for new business are now generally below 5 per cent and look set to remain in the 4 to 5 per cent range in 2023. This is a much better prospect than the 6 per cent to 6.5 per cent levels at the end of last year but buyers will remain cautious in the next few weeks.’
Small is beautiful: Demand for smaller properties has increased as buyers look to move back to cities and aim to find the best value for their money
The number of homes for sale has also increased, according to Zoopla.
There are now an average of 23 homes for sale per estate agent, up from a low of just 14 homes in early 2022. However, the level remains 6 per cent below the five year average.
And data from Nationwide suggests first-time buyer homes are the least affordable they have been since 2008, as the average mortgage payments now eat up 39 per cent of salaries.
Activity in the housing market stalled in late 2022, but has picked up since the start of 2023
At the same time buyers are opting for smaller properties with 27 per cent of new buyers looking for one and two bed flats, a 22 per cent increase from a year ago. However, three-bed homes remain the most in demand property across the country.
The difference in pricing between flats and houses is stark in many areas, supporting this shift in demand as buyers at the start of the property ladder look for better value for money.
Outside London, the average 2-bed flat is listed for sale on Zoopla at £196,000, which is almost £100,000 cheaper than an average 3-bed home (£293,000). One-bed flats are £150,000 cheaper.
Foxtons warns of ‘challenging’ months ahead as inflation and interest rate hikes weaken property transactions
- The firm said its annual turnover for 2022 are set to exceed market forecasts
- Foxtons boss: ‘The economic outlook for the year ahead remains uncertain’
- Mortgage rates escalated in the aftermath of a controversial ‘mini-budget’
Foxtons has warned of a ‘more challenging’ trading environment in the months ahead, as it reported a strong market-beating performance for 2022.
The estate agency told investors on Thursday that rising interest rates, inflation, and harsher economic conditions would lead to a more ‘subdued’ sales market in the first half of this year.
Britain’s property sector has slowed since mortgage rates spriralled in the aftermath of the controversial autumn ‘mini-budget,’ which caused chaos across the markets.
Outlook: Foxtons said that rising interest rates, inflation, and harsher economic conditions would lead to a more ‘subdued’ sales market in the first half of this year
According to the banking group Halifax, the estimated number of first-time buyers fell by 11 per cent last year, while average house prices have declined for the last four consecutive calendar months.
However, Foxtons said its annual turnover and adjusted operating profit for 2022 are set to exceed market forecasts, with the former increasing by around 11 per cent to £140million thanks to growth in its lettings, sales and financial services divisions.
The London-focused firm attributed much of the earnings boost to the divestment of the loss-making sales portfolio of Douglas & Gordon, having only acquired it the previous year.
It held onto and integrated D&G’s rental arm and spent £10.6million purchasing two estate agents – IMM Properties and Stones Residential- with around 2,500 tenancies three months later, in line with a strategy to buy up lettings businesses.
Foxtons said lettings revenues are anticipated to remain resilient going forwards despite the broader economic backdrop.
Rents in England’s capital have soared to record levels amid surging mortgage costs, skyrocketing energy bills, and a return of office workers and students after Covid-19 restrictions were relaxed.
Prices have also been pushed up by a slump in the availability of rental properties as landlords exited the market following the introduction of new taxes, such as stamp duty changes on buy-to-let homes, and changes to tenancy regulations.
‘Much has been achieved in a short period, and it is great to see some of the team’s hard work reflected in the 2022 results,’ said Guy Gittins, who became Foxton’s chief executive last September.
‘The economic outlook for the year ahead remains uncertain, but we have a growing portfolio of non-cyclical revenues, and a refreshed operational strategy to rebuild Foxtons’ estate agency DNA and return the business to its position as London’s go-to estate agency.’
Gittins succeeded Nick Budden, who faced a major shareholder rebellion in 2021 over his compensation package after the company received almost £7million in publicly-funded furlough payments and business rates relief.
Foxtons also raised £22million from investors during the early stages of the Covid-19 pandemic when lockdown restrictions led to a collapse in property transactions.
Sales rebounded significantly after the first national lockdown ended as Britons sought more spacious homes, and demand for mortgages was spurred by low interest rates and the introduction of a temporary stamp duty holiday.
Foxtons Group shares were 0.7 per cent lower at 37.75p on late Thursday afternoon, yet they have still expanded by around a quarter so far this year.