For nearly three years now, anybody, especially landlords looking for signs of cheer in the residential property market would have done well to avoid the Royal Institution of Chartered Surveyors (RICS) monthly surveys. They have painted a consistent picture of a subdued existing homes’ market, with weak demand running alongside subdued supply. This stand-off, consistent with weak transactions, was taking on an appearance of permanence.
From November 2016 to May this year, the RICS survey recorded a net fall in new buyer enquiries at estate agents’ offices across the country. The balance of surveyors reporting a rise in enquiries versus those saying there had been a fall was consistently negative.
Buyers, it seemed, had plenty of reasons to hold off. So, in general, did sellers. Whether this was a chicken and egg situation – sellers did not want to put their properties onto a dull market – or whether it reflected seller concern about the high transaction costs they would face on their next purchase, notably Stamp Duty, sale instructions have also been depressed.
The pre-Brexit Window for landlords
Again, however, there is a hint of a turnaround in the latest RICS survey, with the balance of surveyors reporting a rise in instructions for the first time in a year. This also translated into better news in terms of sales agreed, again with a positive balance for the first time in 10 months.
What’s going on? After all, there appears to be more uncertainty about where the UK is heading on Brexit, not less. One explanation is that this is a lull before another storm in the autumn. Buyers and sellers, in other words, are getting in while they can, taking advantage of a window in the interminable Brexit proceedings.
I don’t think the housing market has yet factored in any possible policy changes affecting housing emerging from the Conservative leadership contest, including a possible Stamp Duty exemption for properties up to £500,000, as suggested by Boris Johnson. Time will tell whether any of the promises made during the leadership campaign see the light of day, or whether Brexit will be all-consuming, as it has been for the past three years.
Low rates for longer
The better news on the housing market from the RICS survey chimes with other data. House price growth, while weak, is still in positive territory across most of the country. Mortgage approvals have also held up. Changes in market expectations about the Bank of England and interest rates – expectations are now for a cut rather than a hike – should translate into lower mortgage rates, which will also help support housing.
What nothing is supporting at the moment, it seems, is the situation of the buy-to-let landlord. The RICS survey shows that, for the 20th month in a row, there has been a drop in the number of rental properties becoming available “on the back of changes in the tax treatment of investment properties.”
The only good news is that the supply-demand imbalance is increasing expectations for future rental growth. Five-year expectations for rental growth have increased to 3.6 per cent a year according to RICS, compared with a 2.7 per cent growth expectation for house prices annually.
Risk of a potential housing crisis
The National Landlords Association (NLA) has warned that a housing crisis is a “racing certainty” if more landlords are forced to exit the market. It is concerned with proposals which the government has been considering, which it describes as controversial plans to prevent landlords from evicting tenants who do not pay their rent. Nearly half of its members say they would quit the market, if such a measure came to pass.
Richard Lambert, chief executive of the NLA says: “Many landlords are telling us that the latest changes to the regulations affecting the private rented sector are the last straw. These are not the greedy or unscrupulous people that many would have you believe. They became landlords in order to fund their retirement, but they are being backed into a corner because the Government’s plans to change the regulations – such as the proposal to abolish Section 21 of the Housing Act – are making it harder and harder for them to generate sufficient income.”
The new prime minister has been warned. The question is whether he has been listening.