London Property

BTL Bill Pressure, Foreign Buyers Drive Prices, Repossessions Rise – 23rd May Property Bulletin

BTL Bill Pressure, Foreign Buyers Drive Prices, Repossessions Rise – 23rd May Property Bulletin

Blog Post No. 162

BTL Bill Pressure, Foreign Buyers Drive Prices, Repossessions Rise – 23rd May Property Bulletin


The buy to let market is under further pressure with announcement of new rental bill

The Conservative Party is facing accusations of betraying buy-to-let landlords in an attempt to appeal to younger voters. The Renters’ Reform Bill, which aims to be a vote-winner among the Generation Rent demographic, is causing concern among landlords who feel they are being made scapegoats for failed housing policies. The legislation, which includes the scrapping of Section 21 (no-fault evictions), is seen by landlords as a tactic to address the government’s failure to meet housing building targets. Landlords argue that the bill will drive many of them to sell their properties, leading to a potential housing crisis and reduced rental housing supply. The removal of Section 21 means landlords will have to rely on small claims courts, which are already facing significant delays, to regain control of their properties. Landlords express fears of financial losses and difficulties in evicting problematic tenants. Some landlords, who have traditionally supported the Conservative Party, are vowing not to vote for them again. Critics argue that the government should focus on increasing housing supply instead of targeting landlords. The issue of housing has been ranked as the third most important concern for voters, and the Labour Party has pledged to bring back housing targets and increase home ownership. Rental arrears are already on the rise, and the pressure on landlords has led some to exit the rental market.Some predictions expect close to 40% of landlords to leave the buy to let market

Foreign Property Buyers Drive House Prices Up by 17% in the UK

In a recent study conducted by Filipa Sa, an economist and lecturer at King’s College London, it has been revealed that foreign property buyers have significantly impacted house prices in the United Kingdom, causing them to surge by 17% over the past two decades.

Had it not been for overseas buyers, the average house price in England and Wales would have been £44,000 lower in 2019, standing at £221,000 instead of £265,000. The research highlights the substantial influence of foreign buyers on the housing market, particularly in areas with limited housebuilding.

Between 1999 and 2017, there was a notable boom in the number of properties sold to foreign buyers, but this trend witnessed a decline following the onset of Brexit and the global pandemic. However, experts predict that the resurgence of overseas buyers will help mitigate the expected house price falls this year.

According to Ms Sa, foreign investment not only adds to the existing housing demand within the UK but also interacts with the limited supply of available housing units. Insufficient housebuilding to match the demand has resulted in escalating prices over time.

As net migration is projected to reach record levels of up to one million in 2023, the demand from foreign buyers is anticipated to rise even further. The Centre for Policy Studies, a prominent think tank, supports this forecast, indicating a positive correlation between net migration and the demand for property from overseas investors.

The concentration of foreign buyers is primarily observed in specific regions such as Kensington and Chelsea, Westminster in London, and Salford and Rochdale. In these areas, foreign buyers accounted for a substantial percentage of sales, ranging from 7% to 9%. Ms Sa’s research did not include sales made directly to foreign buyers who opted not to purchase properties through a company. Many overseas buyers prefer this route to take advantage of potential tax benefits and maintain privacy, although recent changes require disclosing the ultimate owner of these companies.

Data obtained from the Land Registry through letting agents Benham and Reeves indicates that buyers from the 50 most common foreign nations currently own 187,275 properties in England and Wales, marking a 4% increase compared to the previous year. Notably, buyers from Hong Kong hold the largest proportion of these properties, with 24,759 homes in their possession. This trend aligns with the growing number of migrants from Hong Kong relocating to the UK.

To address the influence of foreign buyers, the UK government introduced a 2% stamp duty surcharge on property purchases by non-UK residents in 2021. Looking ahead, the Labour Party has proposed the possibility of further increasing this surcharge if they win the next general election, suggesting a heightened focus on regulating foreign investment in the housing market.

Repossessions on the rise

Landlords are grappling with a significant increase in property repossessions, with a surge of 28% in buy-to-let repossessions during the first quarter of 2023, reaching a total of 410 properties – the highest level since the beginning of the pandemic. Furthermore, the number of buy-to-let landlords falling behind on mortgage payments rose by 16% to 7,030. The residential repossessions of defaulting homeowners also saw a substantial rise, increasing by 50% in the same period. Lenders reclaimed 750 properties from homeowners facing financial difficulties, marking the sharpest quarterly increase since early 2020. The Financial Conduct Authority has warned that the number of financially strained mortgages may reach 356,000 by June 2024, a significant increase from 45,000 in June 2023.

Ageing Baby boomers and how their property wealth will hit the market

The property market in the UK is facing a potential hit due to the demographic shift caused by the aging baby boomer generation. As older homeowners are unwilling to downsize, a significant portion of the country’s homes are concentrated in the hands of older individuals who are approaching the end of their lives. This is expected to result in a surge of supply in the housing market as these properties are released for sale upon the passing of the baby boomers.

According to BuiltPlace analysts, several hundred thousand properties will enter the market each year as baby boomers pass away, accounting for approximately one-fifth of annual sales. This trend, which is already starting, is expected to have a significant impact on the market in the next five to ten years.

The baby boomer generation is both large in size and has a higher homeownership rate compared to other cohorts. In the US, between 2026 and 2036, an estimated 13.1 million to 14.6 million owner-occupiers will stop owning homes. The UK has seen a similar concentration of homeownership among older age groups, with the share of homes owned by people over 75 increasing from 13.3% to 18.1% between 2008 and 2020.

Furthermore, older generations are more likely to own multiple properties, including buy-to-let investments and holiday homes. A significant portion of buy-to-let properties and holiday homes are owned by individuals aged 55 and above. The retirement of landlords and the mortality of holiday home owners will lead to a substantial increase in property supply in the coming years.

While the growing reluctance of older homeowners to downsize has delayed the impact thus far, it may result in a more pronounced effect in the long run. Instead of gradually moving down the housing ladder, older homeowners are waiting until they are forced to sell, potentially leading to a sudden influx of supply. This, combined with high interest rates, is expected to bring down house prices.

The COVID-19 pandemic has further amplified this trend, with a drop in life expectancy and long-term health implications. The potential bunching of more deaths per year than expected could exacerbate the impact of the demographic shift on the housing market.

Despite the potential decline in prices, the wealth accumulated by the baby boomer generation through property ownership will be inherited by younger generations, which may provide some individuals with increased purchasing power. However, this flow of capital is likely to be uneven.

Overall, the property market in the UK is facing a significant rebalancing as the baby boomer generation passes away, leading to increased supply and potentially lower house prices. Property ownership may shift away from buy-to-let investors towards first-time buyers, reversing the structural boost to house prices that has been driven by investor demand in recent years.

Outdoor spaces demand a 12% premium

London’s flat market continues to thrive, and gardens have become a top priority for buyers in the city. A recent analysis by property experts Knight Frank reveals that two-thirds of buyers now consider a garden or outdoor space more important than they did a year ago. In fact, when asked about the factors influencing their buying decisions, a garden, outdoor space, or access to land was deemed the single most important attribute by 65% of those surveyed.

The increasing demand for properties with gardens has significantly impacted prices. Flats in London with private gardens now command an asking price that is 12% higher compared to those without outdoor space. To put it into perspective, data from OnTheMarket shows that the average price of a two-bedroom flat with a private garden in the 12 months leading up to March 2023 was £598,075, whereas flats without outdoor space had an average price of £533,991.

Knight Frank’s senior research analyst, Chris Druce, highlights the resurgence of the central London flat market, attributing it in part to the return of international investors who are now free from Covid travel restrictions. Druce also notes that the experience of lockdowns during the pandemic has amplified the desire for outdoor spaces among buyers.

However, despite the high demand, properties with gardens in the city remain scarce. According to the Office for National Statistics, one in five households in London does not have access to a private or shared garden, which is the highest percentage in any region in the UK. This scarcity further contributes to the premium placed on properties with outdoor spaces in the bustling metropolis.

As the London flat market continues to boom, gardens have emerged as a key feature that buyers prioritize when searching for their dream home. The appeal of outdoor space, especially after the confinement of lockdowns, has significantly influenced buying decisions and driven up prices. With the limited availability of properties with gardens in the city, buyers are willing to pay a premium to secure their own private green oasis amidst the urban landscape. 

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