Hadley Taylor Blog
At Hadley Taylor we like to keep our clients updated on the latest local property news and opinion.
11th January 2017
What is going on in the property market?
Foxtons estate agents have just seen their share price drop due to a 40% fall in sales in the last quarter of 2016, Countrywide, who own Abbotts estate agents, have recently closed 59 offices across the country and Bovis Homes have just issued a profit warning because they built fewer new homes than expected last year.
This all sounds a bit dramatic but what’s really going on? Well first of all, London, which is where Foxtons sell houses, is an international property market and is increasingly detached from the rest of the UK property market. London has for many years relied heavily on foreign investment but the number of these overseas investors has fallen in recent months mainly due to changes in property taxes. As a consequence London will see prices falling slightly this year whereas the rest of the country will see prices rising slightly. In general there will be a marked slowdown in the rate of increase in property values this year. This means that prices will still rise for most of us but they won’t rise in the same way that they have for the past 6 years. In other words we have had the best of property price inflation for the time being. This change in tempo is due to affordability issues, uncertainty surrounding what sort of Brexit deal can be negotiated and the prospect on the horizon of higher interest rates and higher inflation.
The good news is that a slower rate of growth is actually a very good thing for the property market and for the broader economy. Many younger people need wages to rise faster than property prices in order to get on or move up the property ladder so they will be delighted at news of a slower rate of growth. Slower growth also reduces the risk of the property market over heating as it has done several times in the past with dramatic consequences.
So what does this mean for buyers and sellers? It means stability, with prices rising gently, which makes 2017 a good time to make that move with confidence.
8th December 2016
So that was 2016
This year hasn’t been an easy year in the property market. Despite selling more houses than last year I won’t have many fond memories of 2016, at least from a business stand point. The property market relies on sentiment and confidence and it falters on indecision and uncertainty. This year we have seen plenty of indecision and uncertainty and very little cause for strong sentiment and confidence. We have an entirely new government which in itself is unsettling and we have seen a series of political shocks in other parts of the world. The Brexit vote or rather the hysteria surrounding the Brexit vote has caused many sellers to hold back and this has caused under supply which is not at all helpful for anyone trying to find somewhere to live.
Changes in stamp duty on second homes and investment properties, which came into effect in April, also caused ructions at the start of the year with more transactions on this type of property than usual in the first quarter and far fewer than usual ever since.
So what does 2017 have in stall for the property market?
Thankfully next year we won’t have a general election or a referendum and as a result, much less uncertainty I hope. There will be a fair amount of gnashing of the teeth about how good a Brexit deal the government can negotiate so we will not be completely in the clear for some time. Inflation will rise thanks to a rising oil price, and interest rates will start their long awaited upward trend very soon into the New Year. Looking at the positives, we have an economy that is growing faster than any other G7 country, we have virtually full employment, the FTSE100 index continues to show incredible resilience given the political upheavals we have had, and consumer spending ends the year as high as a kite.
What this all means for the property market in 2017 is more transactions than this year and prices rising, but not as sharply as in recent years. So as we move into the New Year let’s all be glad that Norwich remains an incredibly popular place for people to move to for work or lifestyle and make next year the time to make that move with confidence.
22nd November 2016
What could the Autumn Statement hold for the UK property market?
The Autumn statement is an opportunity for the government to make some adjustments to the fiscal planning of the economy. I dare say that Philip Hammond will declare that the government intends to build thousands of new houses, but seeing as every chancellor since I can remember has said this with very little effect on the number of houses we actually build in this country, I think we can take that announcement with a pinch of salt. What the property market needs more than anything else is a reform of stamp duty. Tax is the biggest cost when we move house and the increasing cost of stamp duty has stalled the market when it comes to the availability of homes to buy.
Anyone looking for a house will know exactly what I mean. This tax has become punitive in that it punishes people for aspiring to live in a bigger house. It also discourages older people from downsizing. The way stamp duty is calculated is based more on ideology than on revenue generation. Stamp duty should be a flat tax of say 1% levied on all property transactions compared to the complex system we have in place at present. Other more enlightened countries have adopted flat taxes on income and on transactions and they have found that they actually raise more tax revenue than punitive taxes because people don’t avoid paying them nearly so much. In other words if we reduce property taxes people will move house more often and this will free up the market and create more economic activity in the long run.
9th November 2016
House prices set to keep rising but not like you think.
House prices in the UK are set to keep rising but at a much slower rate than in recent years according to property group JLL. The reason for the slowdown in house price inflation is the uncertainty over the outcome of the forthcoming Brexit negotiations. They forecast that house prices will rise by just 1% in 2017 across the Eastern region which is significantly less than the last five years. In 2018 prices should rise by 1.5% and in 2019 they should rise by 2.5%.
This change in tempo will be good news for millions of young people trying to get on the property ladder for the first time and for all those movers looking for something bigger who will find that their wages will outpace property prices for a sustained period for the first time in years.
For many sellers, who have been holding on, waiting for the market to peak, the time may have come to make their move having had the best of house price inflation in recent times.
31st October 2016
Growth in the economy proves doubters wrong but what does it mean for the property market?
Gross domestic product grew in the third quarter by 0.5% which is considerably more than economic forecasters were hoping for and also considerably more than most other developed economies. This is more evidence that the economy is proving to be incredibly resilient following the historic vote to leave the EU. Let’s not forget the legion of doom mongers who predicted a recession immediately after June’s referendum if we voted to leave. This army of learned individuals and organisations included David Cameron, George Osborne, Mark Carney, the Treasury, the IMF, TUC, CBI and many more have all been proved wrong. David Cameron and George Osborne have departed the scene and the governor of the Bank of England, Mark Carney, may follow shortly because his dour outlook simply doesn’t fit with what’s actually going on.
So what does this have to do with the property market I hear you say? Well the property market depends to a large degree on confidence and sentiment, and if the establishment and the ruling classes try to scare us to death about the state of the economy, which is what happened for the first half of this year, then the natural thing for us to do is to hold back. As a consequence many buyers, and particularly, sellers up and down the country have been delaying their plans.
Now that we know that the gloom mongering was all about spin and nothing to do with hard evidence, the good news for the property market is that we can now all get off the fence and get on with business. Property prices are rising steadily, demand from buyers moving to Norwich is strong and with interest rates at an all-time low, affordability has never been better. So whether you’re buying or selling now is the time to make your move with confidence. East Anglia has led the way in recent months as the fastest growing property market in the UK and Norwich remains a highly desirable destination for buyers relocating from other parts of the country.
24 October 2016
Should we feel so sorry for Millennials?
Millennials are people in their twenties and early thirties. They are widely considered to be less well-off and have poorer prospects than their parents, the Baby Boomers. I have written in the past about the unfairness that many young people feel when compared with older generations particularly in relation to property. However, if we take a closer look at some of the data, the lot of the Millennial might not look so bleak.
Firstly, Millennials pay less tax than their parents did. Income tax, corporation tax and many other taxes are considerably lower today than they were in the seventies, eighties and nineties and tax allowances are more generous today than they were then. As a consequence, disposable income is greater today than it was thirty years ago.
Interest rates are at an all-time low, so despite the inexorable rise in property prices, it is actually more affordable for a Millennial to buy a house today than it was for their parents when mortgage payments are calculated as a proportion of income. The only other hurdle in recent years has been the size of deposits that lenders have insisted on from first time buyers, however, this too has been relaxed with many lenders once again offering 95% or even 100% mortgages in certain circumstances.
Millennials are more likely to enjoy a comfortable retirement than their parents thanks to auto-enrolment. Employers are now legally bound to provide and contribute to work place pensions. Baby Boomers enjoy a good income in retirement today only if they worked in the public sector, if they benefitted from a final salary pension or if they had the foresight to make their own private pension arrangements. An alarming number of Baby Boomers have had to fall back on their state pension and whatever savings they may have put by.
So, despite high property prices, Millennials have never had it so good when it comes to buying their first home.
18 October 2016
What does the post Brexit economic landscape hold for the property market?
As we move towards independence from the EU the economic landscape of the UK will change considerably. In fact quite a lot has changed already.
The pound is worth considerably less than it was on June 23rd and, although it looks like our currency has stabilised at a new level against the US dollar of about $1.23, there has been a shift in the way the economy will work from now on. A weaker pound means that our holidays abroad will be more expensive and that retired Brits living in other EU countries who draw their pension in pounds will be worse off. Most importantly, everything we import will be more expensive. This, together with a rising oil price, will result in higher inflation. Higher inflation means that the Bank of England will have to raise interest rates sometime soon and keep raising them to keep the lid on inflationary pressures in the years to come. I felt that the last BOE interest rate cut was unnecessary and now I see that many economists and columnists are saying the same thing. For many people, higher interest rates will be a good thing rather than a complete disaster. After all we have more savers in this country than borrowers and asset prices have become hugely inflated due to ultra-low rates of interest. Individuals with shares or property have become disproportionately wealthy compared to those with cash since 2008.
A weaker pound is of course also a great opportunity for us in the longer term. Many economists have felt that the pound has been over valued for some considerable time and a weaker currency will boost exports, reduce imports and, in time, significantly help to re-balance our economy.
GDP will increase less next year than it did this year but our economy is still predicted to grow faster than most other developed economies. The FTSE 100 share index has performed incredibly well since the Brexit vote so anyone with a pension fund is far wealthier today than they were on June 23rd. In recent months pensions have outperformed property by a country mile so this may change our attitude towards planning for retirement in the future.
House prices in most of England are still rising although in some parts of London prices are cooling. This rise is due almost entirely to demand rather than any other economic indicator. Although the trend is still upward for most of us, it’s very hard to see how house prices will rise faster during the next five years than they have during the last five years.
5 October 2016
Have the over 40’s been hoarding property?
Recent research by the London School of Economics confirms a view I have often shared in my columns which is that the over 40’s are hoarding property in this country. Since the financial crisis in 2008 many middle class professionals in their forties have been retaining their old home and renting them out before moving on to their new homes. This trend has caused a distinct lack of housing stock across the country and has seen a decline in property transactions ever since. Anyone looking for a family house in Norwich right now will know exactly what I mean.
These accidental landlords have unwittingly put the brakes on economic and social mobility for millions of younger people who want to relocate or take their first step onto the property ladder. The consequence of there being fewer properties on the market for sale is of course higher prices and whilst this is all fine and dandy for the property owning classes, it is a disaster for our children.
We now have a property apartheid in the UK. Older people own most of the property whilst younger generations can only aspire to property ownership and many have come to the conclusion that they will never own their own home.
In recent months the government have made various tax changes to make buy to let less attractive in an attempt to level the playing field. Stamp duty, which is the tax payable on a property purchase, is considerably higher on any residential property that is not your main residence. Tax relief on buy to let mortgages will soon be reduced which will in turn reduce rental yields still further. The other significant change is that lenders are now stricter with their lending criteria on buy to let mortgages which will bring them in line with the rules on residential mortgages.
As rental yields decline further landlords have been looking to capital growth for their returns. This is all well and good in a rising market but what if prices rise at a slower rate as they are forecast to do during the next few years? People have very short memories. They tend to air brush out the fact that only five years ago we were in negative territory in most parts of the UK and falling property prices could return if our economy took a turn for the worst in the future. This scenario would leave landlords with very meagre returns if not a loss.
Buyers are moving to Norwich in droves so if you have a property or two to spare you could do your fellow man a favour and put it up for sale. After all buy to let isn’t all it’s cracked up to be.
15 September 2016
Less than half of home movers end up buying a property they found on a portal.
Property portals, such as rightmove.co.uk and onthemarket.com, have become a key component in how we search for a new home but they are in fact less influential in the process than we are led to believe according to a recent survey by consumer organisation, Which.
Property portals would have us believe that the vast majority, if not all house hunters find their dream home using the internet. The truth is very different. In fact only 45% of buyers end up buying a property they found on a portal. This begs the question as to how they found their home if not on the internet.
The majority of buyers find their new home by traditional mechanisms. For example, 11% find their home in an estate agents window which is bad news for any agent that doesn’t have one. A further 11% are introduced to their new home because an agent telephones them or emails them about it, which is more bad news for online agents who don’t do this because they don’t believe in human intervention. If you have a for sale board outside your house this will increase your chances of selling because 10% of buyers find their new home by driving round your area looking for boards. Make sure your agent advertises in the local paper because 6% of buyers still find their new home in the local rag. The remaining 17% of buyers found their dream house using other traditional mechanisms such as word of mouth or because they have visited and talked to an estate agent.
What this survey confirms is that selling property isn’t just about the internet and that most properties are sold by property professionals using traditional methods of sale. If consumers think they are being clever by using an online agent, the truth is they are only getting their property marketed to part of the market and if they are to achieve the optimum price for their biggest asset they need to be using the whole of the market which is where the proper estate agent comes in.
With housing stock in short supply the best advice from Which was to put your laptop away, visit estate agents, get to know them and make sure they understand what you are looking for.
8 September 2016
Why does it take so long to buy a house?
Property transactions in the UK are taking longer to go through at a time when one would have thought that advances in information technology would have hastened the process.
There are several reasons why transactions take so long and all of them are more to do with human intervention, or should I say lack of it, rather than any advances we may have made in the way information is shared on the internet.
It would be easy to say that solicitors take far too long with the conveyancing process. It is true that during August and between Christmas and New Year it’s hard to find a solicitor in the office. However, solicitors are not unlike most other professions in this regard. Gone are the days when we used to enjoy Christmas Day and Boxing Day and then return to work the day after. Extended periods of absence seem to be the norm in most businesses at certain times of year. However, if you employ a good local firm of solicitors they will ensure that the absence of your designated conveyancer does not have a negative impact on the progress of your sale. Alternatives to the traditional conveyancing model are now more common, but the very last thing sellers should do is use an online conveyancing service as this is often fraught with delay and incompetence.
Buyers and sellers have a responsibility to act in a timely fashion with proof of identity protocols, terms of business, payment on account, certification, planning permissions, building regulations and answers to enquiries. Delay with any of this will delay your sale so best to get your paperwork in order before you have a buyer.
By far the biggest factor affecting the speed at which a sale can proceed is the search process. Searches are processed by the local authority. Some local authorities around the country take as little as 48 hours to turn around a search request. Norwich City Council is currently taking five weeks to do a search and this is unacceptable given that they charge £120 for a local authority search and £150 for an environmental search. One would have thought that Norwich City Council would be so over endowed with fee income that it would have been able to put in place a state of the art search service but I’m afraid that’s not the case.
So my best advice for buyers and sellers hoping for a speedy transaction is to attend to your paperwork in a timely fashion and use an estate agent and a solicitor that has been recommended to you by someone you trust who has sold their house recently.
10 August 2016
The Bank of England interest rate was reduced last week to a new record low of 0.25%.
Whilst most estate agents think this is a good thing, I feel it was an unnecessary move, given the strength of the economy and will only add to demand for housing without doing anything to increase supply.
The economy grew by 0.6% in quarter two which is more than that of any other EU nation and this was during a period when we were being bombarded by scare stories from certain parties over the consequences of Brexit. Consumer spending in July was nearly two percent higher than the previous July which, again, is surprisingly good given the circumstances and the FTSE 100 currently stands at its highest point for well over a year. In light of all these indicators it is difficult to see why Mark Carney is in such a blind panic. He was particularly pessimistic about the UK economy during the referendum campaign so maybe he’s just being consistent.
What ultra-low interest rates do is to reduce further the cost of borrowing and this will push property prices up to eye watering levels and make property ownership unaffordable for millions of young people. We will soon live in a country where most people over the age of 50 own at least one property and nobody below the age of 35 owns anything at all. Equality means that everyone has the same chances in life but when it comes to property, most young people have no chance of home ownership unless their parents cough up a considerable sum to help their offspring onto the property ladder. This may be possible in some families but often, in the absence of appropriate pension arrangements, the family house is used as a cash machine to provide for old age and so helping out the next generation with a sizeable deposit isn’t always possible.
The other consequence of ultra-low rates is that it allows millions of younger mortgage holders to live in the false paradigm of cheap money. I can remember paying 17% on my mortgage in the early 1990’s and with interest rates being so low for so long we now have a whole generation who will get a great shock once rates start to rise.
I would have preferred to see interest rates stay where they were which would have allowed property prices to rise at a slower rate which, in the end, would be better for everyone.
1 August 2016
The latest house price inflation forecast
Residential property prices are set to rise by 20% during the next 5 years. That’s not just me talking, it’s the opinion of The Centre for Economics and Business Investment who made this prediction this week.
Property price inflation is going to be sluggish for the remainder of this year and next year but over the five year piece the direction of travel is up. London house prices will fall in 2017 but even in the capital prices will show an upward trend over the same five year period. The London market has been due a correction and prices have been hit in the capital particularly hard due to tax changes that came into effect in April and a drop off in the amount of foreign money being invested in the London market.
This bullish outlook rather contradicts the fear mongers’ predictions during the Brexit campaign. The underlying strength in property prices is due to short supply and continuing demand and Brexit fears will have little effect in the medium and long term.
13 July 2016
Post Brexit – onward and upward
So we have a new Prime Minister and refreshingly she didn’t go to Eton, she wasn’t in the Bullingdon Club, she doesn’t live in Notting Hill and she does have some idea of what goes on in ordinary households and businesses outside of London.
No doubt Theresa May will assemble her new cabinet and crack on with Brexit at the double but what does the future hold for the property market?
The property market relies on confidence more than any other market. Buyers and sellers have to feel secure before they make a move. Periods of uncertainty, such as the past few months, are not helpful when asking people to make decisions about their biggest financial asset. At last we have some stability in leadership and I am sure a credible plan for the future will follow but what about the other fiscal indicators?
Interest rates are at an all-time low and, contrary to George Osborne’s scare mongering before the Brexit vote, they are not likely to rise any time soon. Inflation is also very low indeed so we are not likely to see inflationary pressures for some considerable time to come either. Wage inflation is starting to rise after years of stagnation following the financial crisis of 2008. Our economy continues to grow faster than all other EU countries. Employment is at an all-time high in the UK with more people being in work than ever before. The FTSE100 index is considerably higher than it was before the vote which is great news for all our pension funds. The only financial indicator that has gone negative following Brexit is the value of the pound, however, this may prove to be a positive after all if it encourages us to be a nation of exporters instead of a nation of importers.
Plenty of people will try to talk our country down during the coming months. They will do this for political or ideological reasons. The truth is that we are moving into a period of prosperity and stability as we start to look beyond trading with an uncompetitive EU and this bodes well for the future of the property market.
Selling property for the best possible price is not a straight forward process however. Choose an agent that is experienced at selling houses just like yours and find one that has been recommended by someone you trust who has sold a property recently. Browsing on Google to find the best price for dog food is all very well but it’s no way to find someone to broker the deal on your biggest financial asset.
4 July 2016
It’s been a week since the historic referendum on our continued membership of the EU. So what has happened so far?
Whichever way you voted, I think we all have to accept that democracy has been served and now we have to get on with implementing the will of the people. That’s what we do in a democracy.
So far the world hasn’t come to an end and the sky hasn’t fallen in. The markets have responded as we would have expected. The pound has fallen in value and the FTSE100 has taken a hit but these losses are not in the same league as the shocks following the Lehman collapse in 2008. By Tuesday morning we saw a recovery both in the FTSE100 and in the value of the pound with further improvement on Wednesday. Stocks rise and fall and these corrections will be temporary. In fact a weaker pound will encourage our economy to export more and import less which is, of course, a good thing. The financial markets had been due a correction this year and events like our referendum are often used as an opportunity to reduce the value of over-priced stock. In other words, most of this correction was due to happen anyway.
Importantly, there has been no emergency budget and no run on the banks. In nearly every material way, the result of the referendum has changed nothing for the vast majority of us.
We have yet to see the longer term effects of our decision to Brexit particularly when it comes to the property market. House prices were due to change their course regardless of whether we stayed in or came out. In London house prices have been cooling since the spring due to changes in the stamp duty regime and alterations to tax relief on buy to let mortgages. This adjustment was long overdue given the over-heating of the London market. Outside of London prices have been rising slowly in most parts of the country and the decision to leave the EU will serve merely to slow this price inflation rather than reverse it. This is because our population is still rising rapidly and this causes demand for housing and this causes inflationary pressures. During the last twelve months the population of the UK has increased by a staggering 500,000 people due to a rising birth rate and high levels of immigration at a time when we are building just 140,000 new homes a year. Anyone who feels that this will result in lower house prices simply doesn’t understand the basic economics of the housing market.
The political classes have completely miss read the electorate on this historic vote and now they need to collectively grow a back bone and show some leadership. I am very optimistic that we shall see just this in the next few days.
So one week in, my advice is to keep calm and make your house move with confidence whether you are buying or selling. Interest rates have never been so low in the UK, the banks have plenty of liquidity, employment has never been so high and our economy is still showing all the signs of faster growth than all other EU countries.
2 June 2016
House Prices and the EU debate
George Osborne has said that UK house prices will fall by up to 18% before 2018 if we vote to leave the EU, ratings agency, Fitch have predicted that UK house prices will fall by up to 15% if we choose self-determination on June 23rd, and the International Monetary Fund have predicted “a sharp fall in house prices” if we Brexit.
Now just before you reach for your smelling salts, let’s put some perspective on this. First of all, every government body, corporation and financial institution on the planet has a vested interest in maintaining the new world order that the EU is but a small part, so they will say and do anything to keep us signed up, no matter how many lies they have to tell in the process.
What these august bodies don’t understand is that UK house prices are driven by supply and demand. Prices go up because demand goes up and demand goes up because the population continues to rise. Even if we were to Brexit on June 23rd it would take decades to bring our population levels to a more sensible level and hence, at least for the time being, house prices will continue to rise. Our rising population is like a super tanker on the high seas and turning it round will take a very long time, in or out of the EU.
There are of course other factors that influence house prices such as wage inflation, interest rates and the health of the economy but none of these factors will have nearly as much effect on house prices as our eye watering levels of population growth.
The government, the IMF and all the other vested interest organisations trying to scare us all to death at the moment over the EU debate should also consider the unthinkable, which is that millions of people in this country would actually like to see house prices come down. Most young people below the age of thirty five who aspire to property ownership would dearly love to see house prices come down to a more affordable level and, indeed, it would be much better for society in general if they did just that.
So on June 23rd vote to stay or vote to go, but don’t let the fear of a property price crash dictate how you help shape the future of our country.
4 May 2016
What does the outcome of the EU referendum mean for the property market?
When it comes to property, the English are renowned for sitting on the fence the moment there is uncertainty in the air and with the in/out EU referendum still 7 weeks away many buyers and sellers are waiting for the outcome before making a move.
But what will actually change on June 24th? Not much really and any changes will take months if not years to make any impact on the economy and the property market so no need to sit on the fence at all.
Let’s look at the possible outcomes. If we vote to stay in the EU, which is marginally the most probable outcome at the moment, not much will change at all. Our economy will stay on track to grow slightly faster than our EU neighbours, interest rates will remain at their record low for some time to come and immigration will continue to rise at eye watering levels with 75 million Turks already planning their new life in first world cities like London. However, this inexorable rise in immigration is putting enormous pressure on housing with the effect that house prices are rising much faster than wage inflation. For many this is a good thing. Some folk feel wealthier because their house is worth more each year. In fact some households compensate for lack of wage growth by re-mortgaging every few years and using their house as a magic cash machine to afford spending on holidays and new cars. For most of us, however, rising house prices spell disaster for future generations trying to get on the property ladder. How can it ever be a good thing that our children will have to find half a million pounds to be able to buy a studio flat in Norwich in 20 years time?
If we vote to leave the EU, then all manner of dreadful things will happen to us according to the Remain campaign. EU countries will apparently stop buying our products and services despite the fact that we buy far more from the EU than it buys from us. Our football teams will no longer be able to recruit the best players from Europe. International finance houses will leave London and base themselves in sleepy little Frankfurt. British ex-patriots living in EU countries will have to sell up and come home to rainy old Blighty. Our interest rates may rise faster than they would have done had we stayed in. Some of these outcomes are just fantasy and conjecture on the part of the Remain campaign whilst some are more realistic. Slightly higher interest rates are probably the most realistic of these outcomes but for millions of pensioners and savers this would actually be good news. As for the property market, slightly higher lending rates and more control over immigration will mean that house prices will rise at a slower rate than they would have done had we stayed in.
The EU referendum means different things to different people so the issues are fascinating and the outcome will be historic. Some people will vote according to which outcome is best for them, whilst others will vote according to which outcome is best for Britain but very few people will be thinking about the prospects for the property market on June 23rd.
7 April 2016
How are we doing with the housing crisis?
We are now building fewer new homes in the UK than at any time during the past three years, at a time when demand is still very high which leads me to believe that we are entering new territory with the housing market.
Demand has been stimulated by ultra-low interest rates, population growth, due mainly to mass immigration, and government incentives such as help to buy, right to buy and first time buyer ISAS.
House builders haven’t reacted in quite the way the government wanted them to. In fact house builders are struggling to build any more than 140,000 new homes every year which is way below the government’s target.
It’s all very well for David Cameron and George Osborne to stand up at party conferences and declare that we are going to build 300,000 houses a year. The fact is that the government isn’t a house builder and house builders only build new houses if they are confident that they can sell them all at the right margin. If they don’t have that confidence they are very happy to leave plots undeveloped and add them to their land bank because the land will simply increase in value with very little effort on their part. As we say in property, land continues to appreciate because they don’t make it any more.
House builders raise a another good reason for the lack of new home starts, which is that there simply aren’t enough skilled tradesmen to build more than 140,000 new homes each year.
So what are the possible solutions to the housing crisis?
The government could become a house builder. Very unlikely to happen under the Tories but could happen under Labour. This would take a Labour win at the next general election which is also unlikely and the development would be funded by adding to the national debt which is not desirable.
We could force house builders to get on and build instead of sitting on their land. I’m sure if they were threatened with compulsory purchase if they left land undeveloped for too long they would soon be on site or would sell the land on to someone with the resources to build on the site. This sounds a bit draconian and again not something the Tories would want to impose.
We could dampen demand by applying a proper immigration policy. This would continue to be impossible were we to stay in the EU but quite possible if we vote to leave so watch this space for a few months.
We could train more tradesmen. This would take time and would mean a culture change in our education system. Twenty years ago plenty of young men were more than happy to train to be plasterers, carpenters or brick layers. They were more or less guaranteed work at very good wages. Today young people are encouraged to go to university to get qualified for professions that either don’t exist or won’t exist in the near future. It’s no longer fashionable to go to a technical college and learn a trade.
Lastly, we could utilise the 900,000 empty properties around the country presently owned by central and local government. These properties, if renovated, could sort out the housing crisis for the next decade.
17 March 2016
What does yesterday’s budget mean for the property market?
In recent months George Osborne has made some significant changes in stamp
duty and tax relief and how it effects the property market. In yesterday’s
budget, however, he resisted the temptation to meddle further.
What we did see was a reduction in capital gains tax from 28% to 20% for
higher rate tax payers and from 18% to 10% for basic rate tax payers.
Landlords selling residential properties will, however, have to pay the
old rate and so will not benefit from the reduction.
The ISA limit was raised to £20,000 and a new lifetime ISA was introduced
which will allow savers under the age of 40 to save up to £4000 per annum
with the government contributing up to £1000 per annum. This will
encourage people to save for a deposit to buy their first home and for
retirement and this can only be a good thing for the property market. This
type of measure will go some way to shifting wealth from one generation to
another to balance out the benefits the over 40’s have enjoyed from past
property price inflation.
In the autumn statement George Osborne announced a 3% surcharge on all
second homes and buy to let properties. Some campaigners had been hoping
for certain exemptions particularly for larger investors buying multiple
properties but yesterday’s budget confirmed that there would be no such
exemptions so the 3% surcharge applies to all second properties purchased
by private individuals. There will, however, be an extended 36 month
period during which time people buying one property before selling their
existing home can claim back the 3% tax.
George Osborne yesterday down-graded his growth forecast so although our
economy will grow faster than any other developed economy for the next few
years, it won’t grow as fast as previously hoped and this inevitably will
have some effect on the confidence in markets and in particular the
The EU referendum result will change the game for the economy and for
property depending on the outcome and depending on who you believe with
regards to the consequences of and in or out result. George Osborne
couldn’t help mentioning the referendum in his speech and there is no
doubt that things could change for all of us in the summer.
8 March 2016
Why using an online agent is more costly than you might think
We are being bombarded at the moment by TV advertising telling us that sellers can save thousands of pounds by using online estate agents rather than a traditional full service agent. Online agents have been around as long as the internet but most have come and gone having bitten the dust long ago because their business model just doesn’t work. There are, however, some new players in the market with deep pockets for lots of TV advertising who are trying to tell us that there is such a thing as a free lunch. Online agents charge as little as £700 but once you read the small print about extra charges for accompanied viewings, a for sale board, photography, floor plans and energy performance certificates this can soon increase to about £1500. This might still sound like quite a good deal until you realise that you have to pay up front and not upon completion once the property is actually sold. In other words the online agent wants between £700 and £1500 to advertise your property and then they couldn’t care less whether it sells or not. A proper estate agent may want you to pay a little more but you only pay the fee when the property is sold.
The average fee charged by a traditional full service agent on the average priced UK property is £2500 so there is not a huge difference in cost between the two types of agent. Online agents like to make out on their websites that we charge much more than this but, in the immortal words of Mandy Rice-Davies, they would say that wouldn’t they. The real difference between an online agent and a proper agent is that £1500 doesn’t actually buy you any expertise whereas if you use a traditional agent, particularly a member firm of the Norwich and District Association of Estate Agents you will be buying a great deal of expertise for your money.
It is expertise and not the latest app gizmo that drives the very best price when selling property. So if a proper agent can negotiate an extra £2000 for your property over and above what you might achieve using a virtual agent then the smart money is to use a proper agent every time.
7 March 2016
The Norwich and District Association of Estate Agents has a new chairman
Tim Stephens has done an outstanding job as chairman of the Norwich and District Association of Estate Agents for the last three years but having done his bit he felt it was time to step aside and let someone else take the reins. During that period the association has added several new members to its ranks and we have seen the further development of our training and networking activities.
Having been the secretary of the association for five years it seemed a natural progression for me to move into the role of chairman and it comes at a time when there are many changes on the horizon for the property market.
Will property prices continue their inexorable rise or will global head winds, the EU referendum and recent changes to property taxes and tax relief on buy to let mortgages start to affect the market? There will continue to be big changes in the property portal market with rightmove.co.uk and Zoopla.com battling it out with new arrival onthemarket.com for dominance of this critical shop window for estate agents. Whichever portal comes out on top will become the site of choice for all potential buyers.
We have also seen changing estate agency business models in recent years and this will continue as the internet allows agents to work in all sorts of different ways. Essentially all agents are now online agents but some offer full service and traditional expertise and some don’t.
My advice to sellers when choosing an agent is always the same. Choose the agent that has been recommended to you by someone you trust. Having said that sellers would be well advised to choose a member of the Norwich and District and rest assured that they have found an agent that is properly accredited and well regarded and scrutinised by their peers. Not all agents are the same so speak to one of our members and find out for yourself what makes us different.
10 February 2016
Why using online conveyancing services always ends in tears
In recent years we have seen an increase in buyers and sellers using online conveyancing services. The reason people choose this type of legal service is, of course, to save money but any estate agent will tell you that if there is a delay in a property chain it is usually with the property being handled by an online conveyancer.
Online conveyancing services are usually introduced to buyers and sellers by corporate estate agents as part of their in house service platform. Essentially the corporate agents want to sell you the house, the legal services and financial services to maximise their profit on the deal. Consumers should shop around for legal services and finance and not feel pressured into buying the corporate agent’s offering just because they happen to be buying a property through that agent.
Online conveyancing services usually operate from a call centre located on a business park in Milton Keynes or somewhere equally forgettable. The organisation in question will offer a “team approach” which in practice means that no one individual has responsibility for your case. They will sell you a “seamless service” that you can track with some app gizmo which means they would rather send you online to find out what’s going on with your sale than speak to you in person. The structure of these businesses is such that there are lots of administrators at the bottom of the pyramid and very few suitably qualified individuals at the top so the process at the outset seems quite efficient but the action at the business end of the transaction is often delayed until your file gets to the top of the pile.
There is a distinct lack of expertise offered by these services because of course one has to pay for expertise so consumers should seek the best value service rather than the cheapest service.
Whilst consumers can save a couple of hundred pounds by using these services, in the long run it is always best to use a proper solicitor in the high street and keep it local because local knowledge will be a factor in the complexities of the house sale at some point or another. Use a local firm of solicitors that has been recommended to you by someone you trust. If you get it wrong your sale could be delayed and in the worst case scenario your sale might even fall through.
House purchase is often the biggest financial decision any of us will ever make so best to get proper legal advice when taking the plunge.
14 January 2016
What does 2016 hold for the property market?
I’m often asked at this time of year what my predictions are for the market. Whilst I don’t have a crystal ball here are some indicators for the year ahead.
First of all I think it’s a sure bet that interest rates will rise in the first quarter. This shouldn’t be a surprise to anyone because the Governor of the Bank of England and the Chancellor of the Exchequer have been preparing us for this long overdue event for some time now. When the first rate rise does come we shouldn’t be too worried either because each increase will be very modest and increments over the next few years will be slow to arrive. Most mortgage holders are tied into fixed rate deals so this should also allow a bit of breathing space for home owners.
Buy to let will cease to be the cash cow that it has become in recent years due to changes in tax relief on buy to let mortgage interest and a
Property prices in the UK will continue to rise but not at the same rate as they did in 2015 and 2014. Some commentators are predicting a house price crash but I think that they are being a little dramatic. There is no doubt that the UK economy and the housing market will be adversely affected by global head winds such as falling oil and commodity prices, a rapid slowdown in the Chinese economy and other developing nations and the dreadful state of most of the Eurozone economies. However, it is hard to see how property prices can fall on this small island when we go on increasing our population by such an alarming rate each year. The forces of supply and demand are long established and always trump other economic drivers in the market.
I predict that there will be more housing stock available to buy, which will be a huge relief to anyone trying to find a home. 2015 saw fewer property transactions across the country than at any time since the 1970’s.
So if you are looking to sell or buy there’s never been a better time to make a move. Prices are stable, interest rates will remain low, Norfolk is becoming more and more popular as a great place to live and work, and spring is just around the corner.
10 December 2015
Hadley Taylor announces sponsorship deal with Norfolk Cricket Board under 13’s team for 2016 season
Hadley Taylor has sponsored numerous locally based youth sports over the years and next year we are very pleased to be supporting the Norfolk Cricket Board under 13’s team.
Youth cricket in Norfolk is very well supported already by the Norfolk Cricket Board, however, our sponsorship will allow the team to be involved in more fixtures against first class counties and will ensure a suitably qualified coach is present during training sessions and matches.
The squad of 14 very talented boys, most of whom have played together for several years already, will be building on a very successful 2015 season which saw them winning the majority of their matches.
During the season we will be following the team’s progress on our website and on the company’s Facebook page.
27 November 2015
Autumn Statement Latest
The 3% stamp duty surcharge on buy to let properties announced in the autumn statement on Wednesday will have a significant effect on the property market. Many would be buy to let landlords will think very hard before entering the market given the added acquisition costs on any purchase from April next year.
This change is not altogether a bad thing though. After all, no other country has a buy to let culture amongst the middle classes to nearly the same degree as the UK. In France and Germany the vast majority of people who own a property, have just the one property, and they live in it, and put their savings and investments into other vehicles such as stocks, shares and pensions. Fewer properties being sold to landlords means more properties being sold to first time buyers and this can only be a good thing.
What we will see between now and April is a buying frenzy as landlords seek to complete on purchases before the new rules take effect.
26 November 2015
What effect will rising interest rates have on the property market?
The Bank of England base rate has been at its historically low level of 0.5% since March 2009. In 2016 most economists predict that the bank will raise rates, but what effect will this have on the property market?
I believe that house prices will continue to rise in 2016 because demand will remain strong due to population growth, however, a rate rise will mean that house prices will rise just that little bit slower than they would have otherwise. This slight slowdown in the rate of increase is actually a very good thing if we are to avoid another house price crash similar to the one we saw in 2009.
For the vast majority of mortgage holders, a rate rise is nothing to worry about because most borrowers are now locked into fixed rate deals that will insulate them for the time being. Even those on variable or tracker products will not feel the heat because rate rises over the next few years will be modest and slow to arrive. The truth is that our fragile economy simply can’t withstand big rapid jumps in interest rates.
Savers will be pleased to see a return to better savings rates and this will encourage those thinking of downsizing to make the move and put some of their assets into savings rather than property.
Some buy to let landlords will start to consider off-loading properties as their margins are squeezed by higher interest payments and less favourable tax relief rules which will also take affect next year. This will free up more two and three bedroom properties for first time buyers.
We can also expect to see more families upsizing to bigger homes next year because although the cost of borrowing will increase, so too will wage inflation. This is due to the skills shortage that the country is facing, resulting in employers paying higher wages to retain good staff. So after several years of near zero wage inflation for the majority of workers we will see more optimism and confidence in the market generally.
12 November 2015
What will it take to put the brakes on the runaway property market?
According to property consultants, Jones Lang LaSalle, property prices in the Eastern region are set to rise faster than prices in London during the next five years. This may be good news for some home owners but it will be bad news for anyone trying to get onto the property ladder for the first time. It also begs the question, is it desirable to make owning a property an unattainable dream for the next generation?
The fact of the matter is that as long as we go on increasing our population at such an alarming rate, property prices will continue to rise inexorably. One solution is to build more houses but even if we meet the government’s target and built 200,000 homes every year for the next ten years we would not satisfy demand. In reality we are building about 140,000 homes each year due to lack of suitable building land and the reluctance of developers to build on the one million plots they already have permission for.
So how do we put the brakes on ever increasing house prices? If we can’t build more homes and we can’t stem the flow of immigration, what other options are there? The Conservative government have made a small step towards taking the heat out of the market by changing the rules about how tax relief is calculated on the interest payments on buy to let mortgages. From next year there will be less profit to be had on buy to let properties where the landlord has a mortgage and is also a higher rate tax payer. This will serve to reduce the demand in the buy to let sector of the market and free up some properties for first time buyers. This measure will only go some way, however, towards solving the problem.
The next plan on the drawing board might well be to apply the same regulation and strict lending criteria to buy to let mortgages as are applied to residential mortgages. At the moment it is far easier to get a buy to let mortgage on an investment property than it is to get a residential mortgage to buy a house to live in. If the same rules were applied to all mortgages it would reduce the number of people moving into property as an investment and this would serve to reduce demand. Watch out for this one sometime soon.
Labour favour rent controls which would have the same effect of reducing demand, although they won’t get a chance of introducing rent controls until at least 2020 assuming the electorate have an appetite for Corbynomics. Rent controls are nothing new of course. They were tried in the 1970’s and resulted in a decline in the standard of private sector rented accommodation.
Higher interest rates would serve to dampen demand and therefore slow price inflation. However, interest rates have been manipulated to the floor for six years by the Bank of England and when they rise in the spring they will increase at an incredibly slow rate to reach a new normal of about 2.5% in three or four years’ time.
So for the time being at least we can expect to see a steady rise in property prices across the country and particularly in places like Norfolk.
23 October 2015
What are buyers really looking for?
Over the years I think I’ve heard it all from buyers. I have been asked for houses with “five acres for my horses”, houses with wine cellars, single storey dwellings “but not a bungalow” and “a flat but not just on one level”.
We’re all different so there are many different things on buyers’ wish lists but here are my top five.
Number one on my list is always location. Canny buyers know that their lifestyle will be dictated more by the location of their new home than any other factor. All buyers need to be near something whether that be good schools, bus routes, doctors surgeries, shops, employment, airports or railway stations. Leafy mature neighbourhoods with a sense of community are preferred by most of our buyers.
Number two on my list is the accommodation a property provides. On the continent buyers are quite wisely focussed on the square meterage of a property but here in the UK we are obsessed with the number of bedrooms a house has. Either way size matters to most buyers. Kitchen/diners, utility rooms and family rooms are popular as is the need for two bathrooms in family houses.
Third on my list is outside space. Most buyers want to be able to park off the road although this is a point that some buyers have to compromise on if they want a beautiful Victorian house in the Golden Triangle. Garages are on most buyers’ wish lists but not an essential item and having the right sized garden is key – not too big and not too small.
Next comes the period of the property. Some buyers are open-minded about the style of architecture as long as the house is in the right location and offers the right accommodation. Some buyers are wedded to the idea of living with all the period bells and whistles and some buyers have had enough of all the bells and whistles falling off and want something more easy to maintain.
Last on my list is the condition and finish of the property. This one is last because the state you find a house in is the easiest thing to change. If a house is in the wrong part of town, no amount of granite work surfaces and high pressure multiple directional shower heads are going to put it in the right part of town. In fact it’s often the best policy to buy the ugliest house in the best road you can find.
13 October 2015
To downsize or not to downsize
Up and down the country there is a growing reluctance to downsize from large family houses to smaller and more manageable properties. Large family houses are not coming on the market for sale for just this reason. Many would be sellers would like to downsize but increasingly they say it’s not worth it financially. Downsizing does mean one has to live in a smaller property and this is hard to accept for some people who have filled their homes with furniture and personal effects over many years.
Having accepted this reality some downsizers realize that there will be very little cash left over once they have made the move. The cost of moving for some is so high that they would rather stay put. On closer inspection, however, this objection doesn’t stack up. Stamp duty is by far the biggest expense when buying a property. Thanks to changes in stamp duty announced in December it is, for most of us with the exception of the very wealthy, now very much cheaper to buy a house than it was last year so cost should not be such a stumbling block for downsizers. Some campaigners have been calling on the Government to abolish stamp duty altogether but, in this still precarious financial landscape, I can’t see this happening in a hurry.
The cost of renovations seems to be another objection for downsizers. This doesn’t really stack up either. Downsizers seem to want all mod cons in the property they intend to move to despite the fact that they were perfectly happy to live with 20 year old kitchens and bathrooms in the family house they intend to sell to someone else.
Most downsizers don’t just want a smaller property. They often want their “last move” home to be conveniently located for local shops, doctor’s surgeries and bus routes. In other words they want a smaller property in a more desirable location. In a world where location is a key factor, this equates to a smaller property than the one they have for not a lot less money.
My advice to downsizers is to make the move for lifestyle reasons rather than financial reasons because one can’t put a price on quality of life. Many downsizers who have made the move often tell me afterwards that they wished they’d done it sooner.
7 October 2015
Too few houses to choose from.
In recent months estate agents up and down the country have been scratching their heads and wondering why there are so few houses to sell. So are they right to be concerned and is this a temporary blip or a new trend?
According to property portal rightmove.co.uk, there are just 66 properties available for sale in NR4. For those readers who don’t spend their lives analysing neighbourhoods by their postcode like some of us, NR4 is a large suburban area of Norwich which includes neighbourhoods such as Eaton, Keswick and Cringleford. Two years ago righmove.co.uk would have thrown up about 180 properties for sale in this postcode so it is certainly the case that something is going on. More concerning is that of those 66 properties, only 15 are four bedroom family houses in a price range between £300,000 and £600,000.
If we look at another popular Norwich postcode, NR2 for example, rightmove.co.uk has listed only 67 properties for sale. Again two years ago this would have been more like 180 properties for sale. Of these 67 properties a mere 13 are four bedroom homes in a price range between £300,000 and £600,000.
Other parts of the country are struggling in just the same way. I recently did a property search on rightmove.co.uk in my father’s postcode in a popular part of the south coast conurbation. Here there were only ten properties with four bedrooms in the same price range.
So what is going on? The fact is that people aren’t moving as often as they used to. Despite record numbers of mortgage applications in recent months the number of property transactions has steadily reduced in recent years. New mortgages are, on the whole, being taken out by people staying put and taking advantage of ultra-low interest rates rather than by those moving on. Consequently most property coming to the market for sale today is due to divorce, death or relocation. One remedy to the problem would be higher interest rates which would provide more incentive to move amongst downsizers. However, the Bank of England seems very reluctant to raise interest rates and will take its lead from policy makers in the US who are even more on the fence over rates than we are. Wage inflation would also be a remedy for the stagnation in the number of transaction by providing the extra income needed by those wanting to up-size. However, with average earnings flat lining, due to the constant flow of cheap labour to these shores, this would seem unlikely in the short term too.
Market conditions will of course change. Interest rates and average earnings will eventually rise. In the short term the good news for sellers is that if they do decide to sell there won’t be much competition for their property and they should achieve a very good price on the open market. So why not take the plunge and test the market?
1 October 2015
Should you ever pay an estate agent up-front?
Traditionally estate agents have always expected to be paid once they’ve done the job of selling your house. However, in recent years some estate agents have introduced a raft of payments they want sellers to make up-front before a buyer has even been found.
For example, some estate agents want up-front payment for photographs, floor plans, newspaper advertising, for sale boards, sales particulars or for accompanied viewings. Frankly all of these services should be part of an estate agent’s standard offering so ask the agent what’s included and what’s not when they come round to value your house. Some corporate estate agents even expect sellers to pay a registration charge when the property is listed. Quite what this is for, apart from adding to the bottom line, I don’t know. The rule of thumb is that the cost of marketing should fall on the estate agent and they then get paid for all their work on completion day once the job is done.
Online agents invariably want payment up-front and this is how they manage to offer what appears to be a cheaper service. Whilst online agents may well charge less than a proper estate agent, when using this type of service sellers are effectively only paying for online advertising which is very different to appointing an agent to sell ones house. Once the online agent has your money safely in their bank account they will list your property but they really couldn’t care less whether the house sells or not whereas a proper estate agent will go all out to secure a buyer and of course, his fee.
Sellers are best advised only to use an estate agent on a no sale, no fee basis. There are plenty of us who still work just like this and most of us are members of the Norwich and District Association of Estate Agents.
23 September 2015
How does a proper estate agent compete with an online agent?
I am often asked how we compete with online agents. The simple answer is that we’ve been competing with the online business model ever since the internet started so it’s nothing new and the way we compete is to offer the seller a more comprehensive service and a better financial outcome than an online agent. The truth is we charge more than an online service but of course we have a lot more to offer. A recent case proves my point.
Last week we were instructed to sell a house in the Golden Triangle. My fee for selling the house was £2000 plus VAT and the online agent quoted a fee of £800 plus VAT. We felt we could start at a guide price some £25,000 higher than the online agent. After five viewings we had three offers over the guide price and eventually agreed a sale at £4000 more than the guide price or £29,000 more than the online agent had valued the property at. So the cost of selling through Hadley Taylor was £2400 and the cost of selling through an online agent was £29,960. Needless to say, the seller felt they had made the right decision instructing a proper estate agent.
So why did the online agent get it so terribly wrong? First of all an online agent can never hope to replicate the years of experience, local knowledge and expertise of a property professional. Some heavily advertised online services offer what they call a “local property expert” who visits the property and provides a valuation. In reality this poor sole is probably covering the whole county if not the whole region, they are on commission only and in an ideal world would be working for a proper estate agent on a salary if they could. Little wonder then that in this case they got it very wrong. So before you take a huge risk by talking to an online agent, talk to a proper one. We charge less than you might think, we’ll do the whole job and not just part of it, and we’ll provide you with a better financial outcome at the end of the process.
How important is school catchment when choosing a new home?
Education in Norfolk is a bit of a lottery depending on where you live. There are some very good state schools in Norfolk, some very average state schools and I’m afraid to say, some very poor state schools. The number of school places available is not yet a problem in Norfolk but in other parts of the country this is just as big an issue as educational standards.
Not surprisingly then, school catchment is a major factor when measuring the desirability of a certain neighbourhood. Savvy buyers with young children always ask us to talk to them only about houses in certain school catchments and they will often not deviate from their plan even if a beautiful house comes on to the market ever so slightly on the wrong side of the tracks. They will even take this approach if the child is below school age because they are planning ahead. Elderly sellers who are selling the family home and wishing to downsize often don’t appreciate the importance of school catchment. This is because, in their day, when they were looking for a school for their children they no doubt found that standards in schools were very much the same across the board and school places were not in short supply as they are today.
Some buyers have already made the decision to circumnavigate the state sector altogether and will have committed to independent schooling. These buyers will also want to live in close proximity to their chosen school so location, as ever, is key.
An agent’s insight into this and a raft of other critical factors in a property search is invaluable and this is what sets a good agent apart from an online agent or an internet tool.
How has the Norfolk property market fared during the past ten years?
East Anglia has fared better than any other region outside London, with the exception of the South East, with growth of 24% since the second quarter of 2005. Nationwide property is 23% more expensive than it was ten years ago so East Anglia has outperformed the national average. London, of course, has seen the strongest growth with 78% price inflation whilst if you had bought a property in the North of England ten years ago it would be worth about the same today. The downturn in property prices in 2009 hit regions such as Scotland, Wales and Northern Ireland the hardest but these regions have recovered in varying degrees.
There are many contributing factors in this steady rise in property prices across the region. The local economy is, broadly speaking, in good shape with huge investments having been made in the off shore supply industry, the tech sector and by companies like Aviva who have recently re-confirmed their commitment to Norfolk. Other factors such as Premiership football in Norwich, the dualing of the A11, the expansion of the UEA and the Norfolk and Norwich Hospital and improved rail links to London have also played their part in the region’s prosperity.
Looking ahead I can’t see any reason why property prices shouldn’t continue to rise due to ever increasing demand created by an expanding population. Having said that, some years will see more growth than others, for example the last twelve months have seen approximately half the growth in property prices as the previous twelve months and with interest rates set to rise soon the days of double digit growth may be over at least for the time being.
Why are there so few houses on the market?
According to RICS, there are fewer houses on the market for sale in the UK than at any time since their records began in 1978. This fact is certainly reflected locally as we see plenty of demand but very little supply in the property sector. But why is this happening?
There are lots of factors which taken together are creating a real headache for anyone looking for a property to buy at the moment.
The three key reasons for the property shortage are demographics, low wage inflation and low interest rates.
We are all living longer which is great news in many ways but it does mean that elderly people are staying in their own homes and living well into their eighties and nineties which is a radical change in only a few short decades. The NHS is quite rightly doing its best to keep elderly people in their own homes because this is less costly for the state than keeping them in hospital or putting them into care. These properties are taking many years longer to come onto the market than they would have done even just ten years ago.
Secondly wage inflation has been so low for seven years that few people have been able to afford to trade up on the property ladder. Instead these would be sellers have been staying put and renovating or extending their homes rather than put them up for sale.
The third reason is historically low interest rates for the past six years. This has forced the middle classes into property as an investment rather than putting their money into savings and pensions which on the whole have performed less well over the same period. In other words the middle classes have been buying up property investments but not selling them.
The good news for buyers is that two of these factors are about to change. Whilst the effects on the property market made by changing demographics are set to continue it is clear that we are going to see a change in the direction of travel on wage inflation and interest rates.
Wage inflation is now rising faster than at any time since 2007 so, although it will take a while for the effects of this to trickle down, we should see more people wanting to trade up and the first thing they will need to do is to sell up.
Interest rates will start to rise during the next six to nine months and this will change the game for millions of buy to let investors who rely on ultra-low interest rates in order to make a profit. Many of these investors will bail out of buy to let and instead find more attractive alternative savings products on the high street and online. This will free up smaller two and three bedroom properties for first time buyers.
Property prices are set to keep on steadily rising as we try to cram more and more people onto these small islands but the change in behaviour we have seen during the last few years is about to shift again to what I believe is a better position on the pendulum curve.
Is it desirable to make owning a home unaffordable for our grandchildren?
In his budget yesterday George Osborne announced a special ISA product for first time buyers saving for the deposit on their first home. While we should welcome any initiative to encourage people to save for the future I think this policy rather misses the point because during the time it takes these first time buyers to save their deposit with the governments help, property prices will have increased way more than they would have saved.
The government should announce some supply side policies instead of focussing on stimulating demand. The government’s help to buy scheme, for example, has had a good take up but it has only served to stimulate demand. The manipulation of interest rates to their historical low level has saved millions of mortgage holders and small businesses from oblivion but when it comes to house prices it has also served to stimulated demand. Over population has been a policy favoured by both Labour and the Conservatives but it has only served to stimulated demand. Higher demand results in higher house prices.
What we need is either a radical re-think about how many people we can cram on to this small island or we need to build more houses. My perfect scenario would be a bit of both. Reduce the rate of population growth and build more homes.
New homes must be built in close proximity to jobs, shops, amenities and schools so this rules out green field development. Out of town green field development which is favoured by both developers and local authorities is a disaster for the environment and for social cohesion and is completely unnecessary given the quantity of brown field land currently available. The government, the MOD and local authorities up and down the country already own enough unused brown field land for a million new homes. So in his budget speech yesterday I would have preferred George Osborne to have announced that he proposed to force councils to turn their brown field sites into new homes.
Here in Norwich thankfully property is still very affordable compared to some other parts of the country. One bedroom flats start at around £80,000 and two bedroom houses can be purchased from around £140,000.
What issues should an incoming government deal with in the property sector after the next election?
Any incoming government always has plenty of big ideas but rarely do these impact the property market in a positive way.
However, here are some issues that need addressing in the property market just in case any party leader is reading.
The biggest problem with the UK property market is that housing stock is in short supply. We need to build more houses but these need to be near jobs and schools and not on out of town housing estates. Brown field sites should be used before any green field development is permitted and there is enough redundant brown field land to build about a million new homes. Of course a frank and honest discussion about how many people we think we can fit on to our small island would be a good idea first, but no doubt the obsession with overpopulation will continue in the pursuit of economic growth.
The activities of buy to let landlords are leaving younger buyers with less and less choice when buying their first home. Labour may favour rent controls to solve this problem but this has been tried before and resulted in declining standards in the rental sector. We could see a future government take away the tax relief landlords enjoy on their mortgage payments or reduce housing benefit in order to slow down the phenomenon of the amateur landlord.
Estate agency is highly regulated but licencing is not mandatory. Most good agents want mandatory licencing. A licencing scheme already exists within the National Association of Estate Agents but very few agents meet the strict criteria. Hadley Taylor is one of very few licenced agents practicing in Norwich. It wouldn’t take much effort to make this scheme mandatory for all agents and this would be a step forward.
So what is onthemarket.com all about?
Some readers may have heard of onthmarket.com but most will still be in the dark about a brand new property portal which went live on January 26th.
The new portal is owned by estate agents and will compete head on with the existing market leaders, Rightmove and Zoopla. Just under 5000 estate agency offices up and down the country have signed up for the new portal and they can’t all be wrong. The new portal will either revolutionise where we look for our next home or it will end up being third choice and out of the running.
So why do we need a new property portal? The answer to this question is why should we allow any corporation to hold a monopoly position in any market for longer than is healthy for that market? Onthemarket.com will introduce some much needed competition into a rather predictable two horse race.
Rightmove is the first place people go to look for property, but that was not always the case and it may not be the case in the future. Let’s look at other examples of monopolies that have come and gone.
Most young people will never have heard of Friends Reunited but at one time this was the only social network for those wanting to keep in touch with old friends. Now Facebook is top of the pile when it comes to social networks with more users than there were humans on the planet just 200 years ago. I would wager, however, that Facebook will also lose its position as number one within a decade.
RBS was the world’s most dynamic and fastest growing bank in 2007 but times have changed, the bank had to be bailed out by the tax payer in 2008 and we all know what happened to “Fred the Shred”.
Microsoft executives probably never thought that their corporation would lose their pre-eminence as a leader in the field of computer technology but then Google came along. In 2007 Nokia manufactured 50% of the world’s mobile phones but then Apple invented the smart phone. Tescos have ruled the roost in the UK grocery sector for many years but the last 12 months has seen their market share and share price plummet as we increasingly change our shopping habits. Aldi is now the most progressive and fastest growing player in the grocery sector globally.
The point here is that everything changes and the portal market is no different from any other market. We still use Rightmove in our business today to market our clients’ properties because it is still number one, but that won’t necessarily be the case in five years’ time. Onthemarket is the new Aldi.
How to survive the property market in election year
My advice to buyers and sellers this year is to ignore the fact that it is an election year. Traditionally we are all a little reticent in election years but in fact once we have cast our vote there is nothing we can do individually to alter the outcome of a general election so we might as well get on with our business as usual. This year the positives far out-weight the negatives with wages rising more quickly than inflation, interest rates at an all-time low, more people being in work than ever before and an economy growing faster than any other economy in Europe. House prices are forecast to rise by 3% nationwide in 2015 and interest rates will rise but only after the election.
The much welcomed and long overdue reforms of stamp duty will make it cheaper for the vast majority of people to buy a house this year so we can expect more buyers and sellers to enter the market.
Some investors might be thinking about taking advantage of the recent changes in pension rules that allow them to determine how they spend their pension pot at the age of 55. Buying a buy to let property with part of one’s pension pot might be a wise move as long as it doesn’t incur any tax liability which means that it would have to be a sizeable pension pot to start with. This rules out most of the over 55’s because the average Brit has a pension pot of about £30,000.
The outcome of the election will be a hung parliament with either the Conservatives or Labour winning the most seats by a very narrow margin. The Liberals will want to cling onto power and fall into line behind whichever party wins the most votes to form another coalition government.
The flavour of government in May will dictate how buyers and sellers will fare over the next few years. Labour favour taxes on assets such as property whereas the Tories favour taxes on income and purchases. So expect mansion taxes, higher council taxes, higher stamp duty and capital gains tax on your primary residence if Labour come out on top. Labour might also fancy rent controls which will completely alter the business plans of thousands of buy to let landlords.
So my advice in election year is to keep calm and carry on.
“Britain’s Property Boom”
I watched a Chanel 4 program last week titled “Britain’s Property Boom”. I watched this documentary not because I thought it would be informative but because I knew it would be intensely irritating, and it certainly lived up to my expectations.
The program was a sequence of sob stories about Londoners struggling to get a foot on the property ladder in the capital in the face of rapidly rising prices and competition from overseas buyers. The problem I had with the program was that this is old news. The program was obviously made in the summer. I would say the issues raised in the piece were 4 or 5 months out of date which means that things have moved on. The fact of the matter is that the London market started to cool in the second quarter of this year and by the time this program was made buyer activity in the capital was falling like a stone. This is typical of the rather lazy approach property journalists tend to adopt when talking about the UK housing market.
This sort of journalism is unhelpful and misleading because it talks about a market that has passed, in an international city with little relevance to the rest of the country. It is true that foreign money has raised prices in the capital to eye watering levels but this is temporary. There is a limit to how much bent Russian and Chinese money can be laundered in one city. Most of the property purchased by overseas buyers in recent years is empty, it’s not lived in by the owner and nor is it let. Ghost towns are being created in London. Whole streets and tower blocks are quiet and still with no vibe or sense of community whatsoever. This is not a good thing for London at all. This is, however, just a phase and it will pass. When these properties are eventually let or sold on prices and rents will fall because supply and demand will have its way in the end.
There is much hysteria about the UK property market at present. Many estate agents are looking forward to filling their boots when pension rules change in April. Under the new rules the over 55’s will soon be able to plunder their pension pots and many of them, it is thought, will invest in a buy-to-let property. The truth is that some folk may choose to do this but most of them will be exposing themselves to a considerable tax liability in the process, so smarter investors will think twice before taking the plunge.
With the much welcomed changes to stamp duty announced in the autumn statement last week, 2015 is shaping up to be a better year for us than this year has been because more buyers and sellers will enter the market in the knowledge that the government will take less of their hard earned cash out of each purchase. In 2015 prices will rise at a lower rate than they have done this year due to the increase in supply, lack of wage inflation, poor economic growth in the Eurozone and the uncertainty that a General Election always brings.
What is the truth about the property market if you strip away the spin and the hype?
London distorts the UK property market more so than any other capital city distorts its host county. When it comes to international property markets London is the capital of the World whereas New York is just New York and Paris is just Paris. London can no longer be compared with any other part of the country when it comes to property prices.
Nearly all property journalists live in London whereas most real people live outside of London and also have their money invested in property outside of London. Consequently, most commentators are obsessed with the London market and the Russians and Chinese buyers that sustain it. So what’s really going on in other parts of the country such as Norfolk?
Generally speaking property prices in Norfolk have returned to where they were in 2007. In some parts of the country they have now exceeded the previous peak and in other parts of the country they still lag behind where they were in those heady days. Estate Agents don’t actually care whether prices are falling, rising or level. What we do care about is how many deals are in the market right now because agents only get paid on transactions.
First, it’s worth pointing out that this year the Land Registry will record about 70% of the number of transactions that we had at the last peak of activity in 2007. No other market could sustain such a marked reduction in traffic as we have seen in the property market in recent years and it will be some time before transactions return to peak levels. In fact some commentators say that transactions will never return to peak levels because the market has changed and this is because sellers have changed.
Sellers either need to borrow more or to be earning more in order to move up market to a bigger or better property. Lenders are, quite rightly, applying proper lending rules today instead of dishing out monopoly money as they did just a few years ago, so most folk can’t borrow more, even if their circumstances have improved. Wage inflation is a thing of the past for most people at the moment so as a consequence many sellers are staying put.
Another key factor in the mix is of course tax. Thanks to the progressive and insidious nature of stamp duty, tax is now a major hindrance to the property market. Faced with the prospect of finding £20,000 to pay the tax on a family house in Norwich it’s not surprising that many sellers decide to stay put.
Downsizers are also thin on the ground because ultra-low interest rates mean that they don’t have to downsize for economic reasons as they have done in the past. Many sellers will put off downsizing until interest rate rises start to bite at some point in the furture.
The market in Norfolk is therefore sustained by relocation, death and divorce and whilst these three factors are constant, we lack the aspirational seller moving up market, the downsizers and the folk just moving because they fancy a change, all of which we have seen in the past.
The good news is that buyers still find plenty of good reasons to move to prosperous cities like Norwich to work, to raise children, to invest or to retire to. So if you have a house to sell you will do very well in a market currently starved of good housing stock.