Welcome to the August 2018 edition of Property Trends the monthly bulletin that focusses on property trends for residential property investors, landlords and tenants.
This month we look at:
- BTL landlords leaving the market – is that all good news for first time buyers?
- Would it be a good idea for government to give FTBs a loan for their deposit?
- House prices rose in July – where could they be heading?
CAREFUL WHAT YOU WISH FOR!
The UK government’s crackdown on BTL landlords could have unintended consequences.
Buy to let landlords in retreat
There is little doubt that the buy to let sector is on the retreat. Greater taxation of rents along with stamp duty hikes and greater regulation have made BTL increasingly unattractive for the average landlord.
More and more BTL landlords are selling up and looking at other forms of investment.
In many circles BTL landlords have never been popular, and there are not too many tears being shed at the news that they are packing their bags and leaving the sector in a hurry.
“Great news” many will shout, “more properties for first time buyers!”
There is also the expectation that with less people chasing after properties, prices should fall – although that argument is not without its flaws.
Government may also be pleased. They wanted to “take the heat out of the BTL market” and the indicators are that they have done so with distinction.
Those celebrating the retreat of the BTL investor should think twice before doing so.
It is very much a case of “careful what you wish for.”
The Royal Institution of Chartered Surveyors (RICS) reported that letting agents recorded a fall in rental properties for the twenty-first month in a row in July.
With fewer rental properties, demand is outstripping supply and rents are set to rise – by 15% over the next 5 years.
There is little doubt that it was right for government to level the playing field – giving first time buyers a fairer chance to buy properties ahead of investor landlords who, unlike residential owners, benefited from mortgage interest relief when buying.
But as with most policies, the problem is not with the idea but with the implementation.
If BTL landlords are pushed out too fast and too soon, the unintended consequence could be sharp rent rises and an even worse housing situation overall.
With house prices being unaffordable in so many areas, many would be first time buyers simply do not have the deposit to buy. It may be years before they can benefit from the availability of more properties on the market.
The government’s actions will damage not help their position. With the number of BTL landlords declining, they may end up finding it harder to find places to rent and are likely to face higher rents – as warned by RICS.
High rents will increase their essential expenditure, making it even harder for them to save a deposit.
There is also the point that not every renter wants to be a homeowner.
Driving out BTL landlords without anyone to take their place could seriously mess things up for the very renters the government is falling over itself to woo.
The answer all too many politicians have to the housing crisis is to give BTL landlords a good kicking.
In the real world however, things may not be that simple.
What do you think will be the outcome of reducing the number of BTL landlords? Pease leave your comments below at the foot of this page.
Rebel Property Coach
HOUSE DEPOSIT LOAN ON THE RADAR
Is it a good idea for government to provide deposits for young buyers?
The big idea
The Housing and Finance Institute published a report last month setting out a number of measures to increase homeownership by one million by 2035.
The eye catching proposal is that government should provide young people with loans for a house deposit in a similar way to how student loans are provided.
It is proposed that the loans are repaid once a certain level of salary is reached.
The report, written in conjunction with housing association Radian, argues that a good and stable home provided by homeownership improves the following social indicators:
- Economic well-being
- Children educational performance.
What’s good about the idea?
With millennial first time buyers in particular finding it difficult to become homeowners due to growing unaffordability, any practical initiative to boost homeownership must be taken seriously.
There has been a big fall in the number of first time buyers since the mid-nineties. In 2016 654,000 first time buyers became homeowners – down from 922,000 in 1995.
Securing a deposit is one of the biggest hurdles to homeownership; anything to ease the process of finding a deposit can only help.
If the repayment threshold is not set too low and the rate of interest is fair, both the homeowner and the tax payer can benefit from the arrangement.
What’s not so good about the idea?
If the would be FTB already has an outstanding student loan, asking them to also take on a loan for a house deposit could amount to off-putting excessive financial burden.
If there was to be a sustained period of house price falls, borrowers could be left with the double whammy of negative equity as well as the debt of their deposit loan.
There are already several government initiatives for FTBs – notably the equity loan scheme, the help to buy ISA and stamp duty relief. The cost of another initiative, especially one which seems likely to be expensive, may be financially prohibitive.
Will it see the light of day?
There is no evidence as yet that this policy proposal has the backing of any of the political parties.
In the last couple of years, the main political parties seem to be scrapping for the vote of renters rather than first time buyers.
The policy priority at the moment seems to be longer tenancies and tighter regulation of the private rental sector to improve the standard of housing and stamp out unfair and greedy practices by letting agents.
The rebel angle
As the “the friend of the first time buyer”, my instinct is to like this policy idea.
However by proposing further borrowing on top of a student loan, it does seem a high risk initiative which would crash and burn in the event of a serious house price downturn.
Detailed research is needed into the likely cost-effectiveness of the initiative.
Further funding for home ownership needs to learn the lessons of the help to buy equity loan scheme, where there is ample evidence that the scheme has disproportionately helped high earners onto the property ladder at the expense of lower earners more in need of the assistance.
There also needs to be an in depth debate about the justification for ongoing government financial help for first time buyers – as opposed to renters and non-benefiting taxpayers in general.
There is a strong case for saying government assistance for home ownership may be the back-to-front way to go about things. Such a strategy may simply artificially inflate prices, prop up the profits of developers and favour wealthier buyers.
Perhaps the best thing government can do is to focus on providing greater funds for house building by both the public and private sectors and to make it easier for new homes to be built by easing planning restrictions in those parts of the country where it is most necessary, not where it is easiest to do politically.
In its 2017 autumn budget, the government pledged around £44 billion over 5 years to tackle the country’s “dysfunctional” housing sector and unveiled an ambitious looking housing package.
The obvious question is whether the funding is anywhere near enough given the scale of the challenge.
Do you think a deposit loan from the government is a great idea or one of the craziest things you have ever heard? Pease leave your comments below at the foot of this page.
Rebel Property Coach
WHERE NEXT FOR HOUSE PRICES?
House prices went up in July 2018 according to Nationwide figures.
The rise in house prices by 0.6% in July means that house prices have increased by 2.5% on average over the last year.
The 2.5% growth represented a rise on June’s annual growth rate of 2%.
The upswing was a surprise to most experts.
However, Nationwide still expects prices to rise by only 1% by the end of the year.
It is believed that prices have risen on the back of a shortage of sellers.
Weak market overall
The house sales sector is generally considered to be in a weak condition across the country as a whole.
Challenges to the market include:
- Uncertainty of Brexit
- Slow sales
- Fewer sellers
- Cautious buyers
- Price falls in parts of London
- Marked fall of confidence in the buy-to-let sector
- Negative impact of the July 2018 base rate rise of 0.25%.
It remains to be seen whether other house price indices, such as Halifax’s, support Nationwide’s figures.
According to Halifax, the annual growth rate in June was 1.8% and prices increased by 0.3% during the month.
Rest of the year
The picture across the country remains mixed – with places like Manchester and Liverpool experiencing healthy growth and London and the South East showing signs of price falls.
The evidence seems to suggest the rest of the year is likely to be “more of the same” – with those areas growing continuing to do so, and those declining experiencing further price falls.
Supporters of the “18 year property cycle” see the stagnation or falls in parts of the country as evidence of the arrival of the “mid-cycle wobble”, when prices fall significantly but there is no full scale crash.
Most experts expect property prices to keep on climbing in the country as a whole. The general consensus seems to be overall growth of around 2% this year and 2-3% next year.
If you are a first time buyer hoping for a major price fall into negative territory enabling you to grab a bargain and leap onto the property ladder, there are no real indications that could happen except in London.
Further, even in London, the picture is mixed – with some boroughs experiencing price increases whilst others are experiencing decreases.
The message for first time buyers is clear. Trying to “time the market”, to pick the ideal time to buy, is invariably doomed to failure.
If you are an aspiring first time buyer, the sooner you can buy the better. Buying early should be your goal, not trying to predict the future of property prices.
Where do you see property prices heading in your part of the world – and are they going in the right direction from where you stand? Please leave your comments below.
Rebel Property Coach
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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.
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