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November 2022 Market Comment

November 2022 Market Comment

Date Posted: 07/12/22

The last few weeks have seen perhaps the most incredible political troubles that we can recall. Troubles that destabilised the markets and added to the economic issues that we are already facing.

Rishi Sunak, the new Prime Minister, is working to restore confidence in the Government and bring greater stability to the financial markets.

Since December 2021 interest rates have been rising significantly and in response at the end of September mortgage lenders withdrew many fixed rate products and raised the costs of borrowing in anticipation of further rises in the base rate.

Inflation is still a major issue and running at c10% per annum but many lenders had, ahead of the most recent Bank of England announcement on 3rd November, reined back their mortgage rates in anticipation. This is clearly positive and, with the reduction of stamp duty tax, is hoped to slow the decline in both sales and house prices that had been forecast by many.

Stamp duty no longer applies on properties up to £250,000 and first time buyers are exempt up to £425,000. This £425,000 exemption can be applied on properties up to £625.000.

Estate agents expect fewer sales to fall-through over the next few months. Active buyers very much want to keep hold of their current mortgage offers and complete on purchases rather than risk re-applying at higher interest rates. Over time higher interest rates will become the norm and bring new pressures for most, including those homeowners coming off fixed-rate mortgages. However, we should remember that interest rates are still below the thirty-year average.

Turning to the Lettings market, the media often quote that the Government is looking to stop landlords from being able to regain possession of tenanted properties. However, the change it intends to make under section 21 (commonly called No Blame Evictions) is only one part of the story.

There are several other grounds for a landlord to gain repossession of a tenanted property. Any professional landlord or letting agent should be able to navigate the existing legislation to reach a similar outcome as available under the section 21 notice. In addition, Government guidelines detail that the Section 8 notices covering these existing grounds will be strengthened due to these changes.

As such, as long as a tenanted property is professionally managed and the landlord has a genuine requirement to regain possession, landlords should have ample scope to regain possession of properties when they need to do so responsibly.

It is also reassuring to see that the lettings market remains strong, with rents increasing as demand greatly exceeds supply. The average UK landlord has increased the size of their portfolio and also seen an 18% increase in estimated total rental income, says Ocasa, a specialist rental platform.

The average professional landlord now owns an average of 8 properties. As a result, Ocasa says the average buy-to-let investment portfolio is now returning an annual rental income to the tune of £63,917 – an 18% increase on 2021.

It’s great to see that, despite the UK Government’s proposed changes to residential letting, the buy-to-let sector has continued to prosper, a testament to the resilience and consistency of bricks and mortar as an investment vehicle.

The Government will be setting out its new fiscal policies on November 17th. They will look to encourage investment and growth but need to curb both inflation (particularly in food and energy costs) and demonstrate a clear plan to repay the billions of pounds of debt building up. In response to energy price increases energy subsidies have been implemented over the coming six months. With property energy efficiency key a better EPC rating is now more valuable than ever when a property comes to market.

Another driver that helps maximise the value of property, either for sale or rent, is the OfSted rating of local primary and secondary schools. A recent report showed that an “Outstanding” rating could add as much as 10% to property prices for sale and 5% to rental values within the catchment area.

With continued “hybrid” working, the need for office space at home has increased. The Chartered Management Institute reports that 80% of businesses have introduced some form of “hybrid” working. This is a trend that accelerated during the Covid pandemic and now looks set to be established as the norm for many workers.

In conclusion, as we move towards the end of the year, we remain cautiously optimistic. There is no doubt that the market is adjusting and transactional volumes are likely to decrease but the market is certainly not collapsing. If the Government can restore confidence when it announces its fiscal plans then we may be able to stave off a recession and we can start looking forward to a brighter future.

Putterills remain your local trusted property experts, so to receive the best advice on every aspect of selling, buying, or renting your next home please call your nearest office and we will be happy to discuss your moving plans in more detail.

The Putterills Directors