OCTOBER
PROPERTY MARKET UPDATE
01 NOVEMBER 2022
October has proved a lot more frightful than its usual Halloween billing, yet we’re much less spooked about the month’s conclusion than its beginning. We welcome the safe hands and stabilising influence of the UK’s new PM Rishi Sunak. And, like an exorcised ghost, we do not lament the departure of Liz Truss and her misguided Trussonomics.
Already the stabilising effect of a Sunak premiership is being felt in the UK market with economists predicting lower than expected rises in interest rates at the Bank of England, some even saying the bank may keep the current rate of 2.25% at their next meeting in early November. A rate once mooted to be as high as 6%, economists are now predicting will peak at 4%.
At the end of October, the average cost of a five-year fixed rate was 6.35% and declining already with a 0.2% reduction from the week previously with more rate reductions expected over the coming weeks as the Rishi effect kicks in. We expect banks to start being more competitive and reducing the margins they are making as currently with the base rate of 2.25% a bank charging 6.35% is making a 4.1% profit. It is worth noting that even with a base rate possibly rising to 4% next year, we still expect mortgages to be affordable and available at 5-6% as it was back in February 2004 when with a base rate of 4% the average 30-year mortgage rate was at 5.84%.
For more information on the mortgage market and rates available please join us for our webinar on the 10th November where we will be joined by our recommended mortgage partners IPFG to discuss this and more.
Lenders are still lending and we’re seeing mortgages being taken over a longer term to ensure payments are sustainable for first time buyers. The changes to Stamp Duty are expected to remain in place which is encouraging for the national housing market and especially first-time buyers in the wake of the end of the Government Help To Buy scheme.
A quick reminder, the new threshold at which stamp duty kicks in has been raised from £125,000 to £250,000, slashing the previous 2% rate whilst for a first-time buyer this has been raised even further to £425,000. In addition, first-time buyers can now claim stamp duty relief on properties up to £625,000 (up from £500,000). In effect this means a first-time buyer of a £600,000 property would now only pay £8,750 in Stamp Duty compared to £20,000 before.
Yet, for international property investors the UK market is still a more than attractive proposition than elsewhere. London buying agents RFR reported they had onboarded more new international clients in October than any other month of the year; concentrated in those nationalities with dollar-pegged currencies. They said, “compared to the last peak of the market in 2014, combining the currency falls and Savills market correction creates a discount for dollar buyers of 45%.”
WHAT TO BUY
In terms of the ‘right’ properties to invest in, tighter lending squeezes will produce a flight to quality; houses with strong eco-credentials are a recommended buy, such as those in our new scheme Sudbury Fields, launched this month.
From 2028, incoming green legislation will require all UK landlords to ensure their properties are of an EPC Rating of C and above. According to Savills 58% of UK properties are an EPC of D and below, potentially leading to an uncomfortable situation of landlords unable to rent their properties because they don’t comply to the correct environmental rating. In contrast, Sudbury Fields is ticking all the boxes, providing a long-term valuable rental asset, compliant with the environmentally responsible direction the UK lettings market is heading. Energy efficient best-in-class appliances from Samsung, EV charging provision and private parking and gardens to all of the houses cement this development’s desirability.
What’s more, investing in houses is becoming a key asset class for property investors, what Savills has termed the Single Family Rental Market, driving demand in less traditional areas. This is a trend bolstered by increased hybrid working with a three-day a week in the office now not uncommon. Contact us to receive a copy of our investment case for Sudbury.
It is interesting that all of this market uncertainty has coincided with us at the RPA Group having our busiest month of the year with overseas buyers obviously deciding that there is opportunity in entering the market at an effective discount. Whilst interest rates have risen, so have average rental prices meaning that the extra mortgage cost has been offset. Couple this with the opportunity to perhaps put more equity in as a percentage of the property price for the same amount of USD pegged currency and there is still an opportunity to get into the market as one thing is for sure – average prices will continue to rise over the longer term as they always have.
For more information on the mortgage market and rates available please join us for our webinar on the 10th November where we will be joined by our recommended mortgage partners IPFG to discuss this and more.
The RPA View
about the AUTHOR
RPA’s founder, Richard has worked in residential development investment for 20 years and oversees the general running of the business ensuring the RPA Group retains true to its founding principles. Over his career Richard has built an incredible network of international property investors and like-minded industry professionals. The RPA Group was born out of a duty of care to provide property investors with an industry-leading and integral service, one that connects investors with quality and desirable investment opportunities, whilst providing reliable and trustworthy market commentary and analysis alongside, enabling investors to make the best, most-educated decisions for them.