Market trends – Property
- Economic uncertainty has historically driven down house sales. 2020 saw the opposite happened with the UK house price index at 8.5%2 year on year.
- Fears of a collapse in the housing market proved unwarranted with the number of UK homes sold in 2020 dropping by just 11% to 1,047,4903 (2019: 1,176,820). With sales agreed in 2020 up 10%4 on 2019, this shortfall is likely to be recovered in Q1 2021.
- This resilience was mirrored in the rental market with the annual rental index at 1.4%5 (2019: 1.4%) and our Belvoir index currently showing rents remaining buoyant in most areas.
The current sales boom has definitely been fuelled by the Stamp Duty Land Tax (SDLT) holiday which was due to end on 31 March 2021 but was extended to 30 September 2021 in the recent budget. Whilst a slowdown is expected thereafter, this will possibly be mitigated by the anticipated return of high loan-to-value (LTV) mortgage lending in 2021 meeting the pent-up demand from first-time buyers, who were locked out of the market in 2020.
We continue to encourage and train our Belvoir franchisees who traditionally have been more geared towards lettings to expand their services to encompass property sales and financial services so that they can benefit from trends across all three markets.
- The closure of the construction industry for several months in 2020 is impacting on the current flow of new homes to the market.
- The pandemic initially drove rents down in London, partly due to an increase in supply, as many landlords switched from providing short-term accommodation to long-term lets. This is now being absorbed by the market and the expected “exodus” from the capital has not yet materialised.
- The third national lockdown has seen a reluctance by sellers to list their home7 which should soften after the lockdown ends.
- Although the supply of properties to both rent and buy is likely to be restricted in most UK regions in 2021, any upward pressure on prices and rents is likely to be neutralised by economic and wage restraints with small rises and falls reflecting local supply and demand.
The historical lack of supply versus demand has been exacerbated further in 2020 by disruption to the construction industry coupled with the boost in demand fuelled by the lockdown and the SDLT holiday. Consequently, the ongoing upwards pressure on house prices and rents will prevail. The regions with the higher rental and house price indices are territories where the Belvoir Group has a strong presence.
- At the peak, 17%8 of mortgage borrowers were taking advantage of a Covid-19-related mortgage payment holiday. By November 2020, this had fallen to less than 1.2%8, around 130,000 of mortgage borrowers.
- The various Covid-19-related financial support packages available have helped to reduce the instances of tenants defaulting on their rent.
- The withdrawal of high loan-to-value (LTV) mortgage products in 2020 impacted on FTB affordability. With those products returning in 2021, FTB will now more easily secure a mortgage for their new home.
The Government Covid-19 support has been invaluable to home owners and tenants who might have otherwise defaulted and slipped into arrears. The property market is not expected to be significantly affected when the temporary support packages end, as mortgage arrears levels remain near to the historically low levels of recent years and the anticipated rental arrears did not materialise. Our own research showed that our usual arrears rate of less than 2% did rise in 2020, but has remained less than 4%.
- The SDLT holiday has also reduced stamp duty for landlords boosting demand from BTL investors.
- The underlying growth in outstanding BTL mortgage debt in 2020 was around 4%8, broadly consistent with 2019.
- The IMLA estimates that BTL lending will continue to expand over the coming few years, forecasting growth of 5.3%8 in 2021.
- Remortgaging remains a major opportunity in the BTL lending space.
The Government’s support of FTB through 95% LTV guaranteed fixed rate five year mortgages is aimed at encouraging increased home-ownership. Whilst the recent budget did not introduce any changes to Capital Gains Tax (CGT) that might have impacted landlords, any future threat of increased CGT might encourage landlords to sell. However, there will always be a demand for good quality, well-managed rental properties, so we believe that there will continue to be a solid investment case for professional and committed landlords.
- Virtual viewings are the norm in narrowing down to a shortlist of physical viewings.
- Remote identity checks and digital signatures have been introduced and expanded, saving home movers and the industry huge amounts of time, cost and hassle.
- The industry is moving closer to a system of property passports for the rental sector which will create a logbook pulling together all regulatory and other information under a Unique Property Reference Number system.
Covid-19 has been a catalyst for increased adoption of technology across the property sector, from agents to lenders through to removal companies, with advances accelerating by two to five years. The “prop tech” industry continues to challenge the current inefficiencies in the home moving process. The Belvoir Group is investing in technology to stay ahead of the competition. Our franchisees are migrating onto a new technology platform which will transform the sales and lettings process for home movers as well as improve efficiencies for our franchise network. This is aimed at giving a first-class online customer experience, whilst continuing to benefit from the advantage of offering a personal service delivered from fully staffed local offices.
- Keeping up with emergency legislation changes during Covid-19 has been extremely difficult for tenants, landlords and agents due to changes made at such short notice.
- The ban on bailiff evictions, apart from in a set of specific serious circumstances, was extended until at least 31 May 2021 across the UK.
- The requirement for landlords to provide 6-month notice periods to tenants before they evict was also extended until at least 31 May.
The requirement to have an Electrical Installation Condition Report (EICR) for existing tenancies became effective from 1 April 2021.
Belvoir has well tried and tested systems in place to ensure all franchise owners, landlords and tenants are kept up to speed with the latest rules and regulations. However, in some cases we have been given less than 24 hours’ notice of changes and these have tested our processes to the limit. It is testament to the team at the Belvoir Group and the franchisees and their staff that we have been able to implement so many changes, on top of working from home, while maintaining our own high standards of conduct during this time.
During Covid-19 the rules and regulations to let a property changed dramatically, especially a landlord’s right to evict a tenant. At the start of lockdown a Section 21 notice (in England and Wales) could still be issued, but landlords had to give three, not two, months’ notice. By August 2020, the notice period was increased to six months (bringing England and Welsh notice periods in line with Scotland). Some exceptions applied, for example if there are issues such as anti-social behaviour and domestic abuse in England, if rent arrears have accumulated in excess of six months, tenants could be evicted more quickly. With the backlog of court cases from the first lockdown, it can now take up to twelve months to evict a tenant.
At Belvoir we track via our quarterly survey the percentage of offices carrying out an eviction. Over the last five years, our survey shows that in most quarters, from those that responded, 90% of offices carry out no evictions or only one per quarter. This is because of strong referencing and good tenant management. We have also supported our landlords with the continuation of rent guarantee insurance when many pulled out of the market due to a change in the law.
Market trends – Financial services
During lockdown house purchase lending fell to below 50% and remortgaging to 82% of 2019 levels in April and May8.
- The subsequent house sales rebound saw house purchase mortgage approvals up 72%8 on their 2019 level in November pointing to a strong lending for the start of 2021.
- Remortgaging continued to be below the level seen in 2019 throughout H2.
During the first lockdown in April to May 2020, our financial services revenue dropped by just 13% with the loss of revenue from new mortgage products being mitigated by switching focus to remortgages and income protection products. However, the recovery in the property sales market in H2 provided a significant boost to the mortgage market, resulting in record levels of commission from mortgages in Q4.
- Gross and net lending are expected to increase in 2021 exceeding levels from as far back as 2008.
- 90% LTV products have returned to the market in 2021 and the increased competition may cause rates to fall.
- The Government’s announcement of a new mortgage guarantee scheme will boost the availability of 95% LTV mortgage products for FTB.
- Mortgage lending rates remain low with most forecasters expecting base rates to remain at 0.1% for 2021.
The SDLT holiday and the pent-up demand from people wanting to get out of their lockdown homes is having a knock-on effect on our mortgage business with new mortgages written up 23% in January 2021. With the SDLT holiday now extended to September, even though at a reduced rate from July, we expect continued strong demand for new mortgages for much of the year.
- The Government’s 95% LTV full term fixed rate mortgage scheme is aimed at turning “generation rent” into “generation buy”.
- Pent-up demand is likely to help drive transactions from FTB with competitive 90% and 95% lending products being reintroduced.
- FTB demand is relatively affected by the SDLT holiday as they are exempt stamp duty on house purchases up to £300,000 (in England).
- New rules for Shared Ownership and Help to Buy should not impact on FTB activity.
FTBs are the life blood of the housing market. Many were locked out in 2020 because of the withdrawal of high LTV mortgage products reducing FTBs to 23%10 in December (December 2019: 29%). The return of lenders to the 90% market in Q1 2021 has helped to unlock some of the pent-up demand. The Government has committed to creating a “generation buy” through its 95% LTV guaranteed mortgage scheme which will do much to unlock home ownership to FTB and will improve new, long-term business for the mortgage industry.