june PROPERTY MARKET UPDATE

30 June 2022

Traditionally, the UK housing market experiences a summer easing after the popular buying months of spring, however, new industry regulations announced this month affecting landlords, a continued (now five-month) consecutive house price rise and a buoyant rental market means there is much to analyse in this month’s RPA Market Report.

Market overview

If you’re reading any of the housing market news emanating from the UK at the moment, you’ll know that the market has continued to grow with prices rising over the first 6 months of the year. You will also have probably read opinions on whether the market is heading for a ‘cooling’ or worse with rising interest rates cited as evidence by some commentators of a potential market downturn.

Looking to history, however, JLL reported that the four UK housing market price reductions since the Second World War have all been preceded by a spike in unemployment, leading homeowners to sell homes they could no longer afford to keep. Presently, the labour market couldn’t be more different. The UK has a strong jobs market with low unemployment, and encouraging home ownership remains one of the central tenants of UK government policy.

We also draw attention to the continued shortage of housing supply and low unemployment that together mitigate against any cooling off. Although UK residents are experiencing rises in their cost of living, this is not felt equally amongst the population. According to the recent English Housing Survey published by the UK Government, ‘Comfortable Renters’ account for 44% of the Private Rental Sector; that’s 1.94 million households, and largely the tenant demographic of RPA’s UK property investors.

House prices hit a record high in May, a 0.35% rise, for the fifth consecutive month. Citing inflation, Rightmove adjusted its end-of-year growth down to 5% from 9.7%. UK economic forecasting group, EY Item Club are more positive at 8%, with more incremental growth of 1.8% and 1.2% for 2023 and 2024 respectively.

UK average rents were up 10.6% in May 2021, with May 2022 showing a 1.1% increase in April 2022 and again providing evidence once more that the UK’s housing market’s traditional position as a hedge against inflationary pressures will be maintained.

Interestingly London is showing the highest average rental growth, driven in part by the return of those who moved out during the pandemic.

The RPA View

As always, RPA is always here to answer any questions and we encourage our UK property investors that due diligence and care more than ever is key to successful property investment.  Developments that are well located will stand the test of time and easily benefit from the buoyant rental market whilst providing long-term growth thanks so supply chain shortages.

What of the “biggest shake-up of the rented sector for 30 years”?

Early June saw the publication of the government white paper, ‘A Fairer Private Rented Sector’, which will become the Renters’ Rights Bill. Described as ‘radical’, the white paper is aimed to address the 21% of the private rented sector who ‘currently live in unfit homes.’ Whereas we doubt very much that this legislation is aimed at RPA clients (!), UK landlords are affected by its proposals. Presently, the white paper details only the recommendations – whether or not they are ‘watered down’ before being ‘passed into law’ remains to be seen. The paper:

• Outlaw’s agents and landlords refusing to rent to families and individuals on benefits.

• Gives tenants the right to request pets, whereby a landlord cannot ‘unreasonably refuse.’ Landlords will be able to require pet insurance so that any damage inflicted to the property is covered.

• Establishes tenancies as ‘periodic’, or what are known as ‘rolling contracts.’ This means they are automatically reviewed at the end of an agreed period to avoid tenants leaving sub-standard rented accommodation early and remaining liable for rent.

• Rental increases will require double the present notice period.

• Outlaws ‘Section 21’ ‘No Fault’ eviction process.

• Empowers local councils to deal with bad landlords.

• Establishes the creation of a new private renters Ombudsman to mediate disputes, and can award up to £25,000 in compensation on behalf of renters.

• Establishes protections for landlords against anti-social tenants enabling them to more easily regain control of their property.

• Creation of a one-stop shop property portal for UK landlords, detailing all necessary legislation.

We agree entirely with Ian Fletcher, director of policy at the British Property Federation who said, “Good landlords know that reform can be win-win, protecting and enhancing renters’ rights but also encouraging residents to feel at home, increasing the time they stay and ultimately benefiting tenants and investors.”

NEW UK PROPERTY INVEStment opportunities

Please stay tuned for new launches in Reading, Manchester and Birmingham over the next few weeks.