Welcome to the first issue of Property Trends. It is a bulletin I intend to publish regularly.
It will deal with the residential property trends which seem most prevalent or important in terms of the key variables which concern property investors everywhere – things such as house prices, growth, strategies, adding value, profitability, returns, finance, mortgages, regulation and taxation.
A key part of identifying trends is keeping abreast of changes in legislation and regulations, some of which are not announced from the rooftops and can easily go under the radar.
The point of identifying and considering trends is to give property investors early notice of both threats and opportunities – enabling them to make the most informed choices going forward.
Rebel Property Coach
WILL HOUSE PRICES FALL THIS YEAR?
We are a little way into 2018 and so far there are no clear signs as to how the market will do.
According to Nationwide figures house prices rose by 0.6% in January and fell by 0.3% in February.
Across the UK as a whole, house prices increased in 2017:
- 6% – according to Nationwide
- 7% – according to Halifax.
Here are some notable predictions for 2018:
- Rightmove 1% increase
- Nationwide 1-1.5% increase
- Savills 1% increase
- JLL1% increase.
Personally I think prices will fall nationwide by around 2%.
It goes without saying that countrywide predictions will mask regional variations. The general consensus is that London prices will again do worse than many other areas.
There are good reasons for believing that cities like Manchester, Liverpool and Birmingham will continue to outperform London.
It seems likely that the cooling of London prices in 2017 is indicative of what is to come for the better performing areas.
The ripple effect still holds good, and the decline in London prices in 2017 may spread to other areas this year or next.
We are possibly at or near the ‘mid-cycle wobble’ point of the ‘18 year property cycle’ championed by some property analysts. According to one version of the theory, after a mid-cycle wobble prices increase again before crashing at or near the 18 year mark.
The number of regions with negative growth seems likely to increase in 2018.
Downside factors include inflation, the risk of higher interest rates, and high levels of consumer debt. It often seems that these and other risks tend to be underplayed by the financial establishment.
The biggest risk could be a collapse in share values. The market correction in February of this year is surely a warning of things to come.
Although a stock market collapse is unlikely to have an immediate impact on property prices, it would damage confidence and the long-term impact is likely to be negative.
However, none of this is necessarily cause for serious anxiety. Property, like many investments, is about time in the market rather than timing the market.
Those investors playing the long game – having bought wisely and having good rental incomes and healthy reserves – should be able to ride out any fall in prices, even if steep.
In 2008 when house prices fell by 14.9%, they rebounded sharply – actually increasing by 4.4% in 2009. In real terms, prices have almost doubled in many parts of the country (but by no means all) since the collapse in 2008.
As at Oct 2017 the average UK house price was nearly £224,000 – some £34,000 more than its 2007 peak before the 2007-8 credit crunch.
What are your expectations for 2018? Are you optimistic or pessimistic? Let me know at: email@example.com
THOUGHT FOR THE MONTH
‘Deciding to do something is not the same as doing it’
PROPERTY DIARY 2018
Here are some key matters those in the residential letting sector should be aware of in 2018:
Energy Performance certificates
From 1st April 2018 landlords (residential and commercial) must not renew a tenancy or grant a new tenancy where the EPC rating is below E, unless the landlord gets an exemption.
From 1st April 2020 a residential landlord must not continue to let a building which has an EPC rating below E unless the landlord gets an exemption. In the case of commercial property, the compliance date is 1st April 2023.
Breach by a landlord can lead to a penalty of £5,000 to £150,000
Year 2 of the restriction of mortgage interest relief
This year, we will be into the second year of the phased reduction of mortgage interest relief for BTL landlords owning property in an individual capacity. There will be further upward pressure on their tax bill as a greater share of their profit becomes taxable.
Such landlords, if they have not yet done so, would be well advised to seek expert advice as to whether it would be beneficial to hold their properties in a limited company structure – which retains the tax benefit of full deduction of mortgage interest.
Limited company mortgages
Expect the number and affordability of BTL mortgages to limited companies to improve further in 2018. In November of last year, one of the big high street lenders Nationwide (through its BTL arm TMW) began a pilot to lend to limited companies.
As more and more BTL investors are operating through limited companies, other major players can be expected to join TMW, increasing competition and reducing the cost of corporate mortgages, both in terms of interest and fees.
Extension of HMO licensing
From 1st October 2018 the definition of a HMO will be widened to cover any property occupied by five or more people forming two or more households.
The new definition will apply to many two-storey student houses which previously were not affected.
The owners of all affected properties will need to prove that they are ‘fit and proper’ to hold a licence and the properties will need to meet strict minimum requirements aimed at improving overall standards and safety of lettings.
If you own a property to which the new rules may apply, it is obviously sensible to plan now for the likely financial expense of compliance.
Ban on leasehold houses
The government has decided to ban the controversial practice of selling new houses as leaseholds – often with rapidly escalating ground rents. The practice caused public outcry when exposed by the media as little more than a device to add additional income streams for developers and builders.
It is expected that home buyers will no longer be obliged to pay a ground rent.
The changes will require legislation, and that seems likely later this year.
Ban on letting agent fees
The government has made it clear that it intends to ban letting agent fees (payable by tenants when looking for a property to rent). It is, however, not clear when the ban will be brought in. The current signs are that it will take place next year rather than this year.
DISCLAIMER: This bulletin, which is provided for information purposes only, is fully intended to be accurate but no representation as to its accuracy is intended. It does not provide legal or any other advice to be relied upon. All liability to all persons acting or not acting on anything in this bulletin is disclaimed. NOTE: Where you require advice to rely on in any matter, it is best practice to consult and retain a suitably qualified expert in the relevant field.