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Writer's pictureMaverick P.

UK Property News Week 18

Updated: Jun 23

Welcome to NestInsights, where we investigate the currents shaping the UK property market. Our focus extends across a spectrum of issues and developments that are pivotal to understanding the dynamics at play within the property sector.


This week, we explore various key issues including the notable rise in the value of smaller homes as reported by Halifax, Mayor Sadiq Khan's advocacy for enhanced leaseholder rights, a historic downturn in buy-to-let property purchases, significant mortgage rate increases by major lenders, a peak in mortgage approvals, and Conservative MPs' potential rebellion against government leasehold legislation


Our goal is to offer a comprehensive overview that informs and empowers our audience to make informed decisions in a dynamic market.


Table of Contents


  • Halifax Reports Accelerated Price Growth in Smaller Homes

  • Mayor Sadiq Khan Advocates for Leaseholders' Rights to Withhold Service Charges

  • Historic Low in Buy-to-Let Property Purchases

  • Significant Mortgage Rate Increases by Major Lenders

  • Mortgage Approvals Reach 18-Month Peak: Industry Insights

  • Conservative MPs Consider Defying Government Over Leasehold Legislation

UK Property News Week 18


Aerial view of London showing the Thames, London Eye, and city skyline

Halifax Reports Accelerated Price Growth in Smaller Homes


In a notable shift within the UK's housing market, recent data from Halifax's House Price Index indicates that smaller homes, specifically flats and terraced houses, are experiencing the fastest growth in value.


As of February 2024, the average price of a flat increased by an impressive 2.7% year-on-year, reaching £163,016.

This growth rate surpasses that of semi-detached and detached homes, highlighting a significant trend where affordability pressures and changing consumer preferences are visibly impacting the property landscape.


This trend is particularly pronounced in certain regions, with Scotland witnessing the strongest growth in flat prices at 5.9%. Conversely, Yorkshire and the Humber saw a decline in flat prices by 2.9%, though it recorded the largest increase in detached house prices at 5.0%. These regional variations underscore the diverse dynamics at play across the UK housing market.


The increase in prices for smaller properties can be attributed to several factors. Firstly, the economic pressures of high borrowing costs and the broader cost-of-living crisis have compelled many homebuyers, especially first-time buyers, to adjust their expectations towards more financially manageable properties. This shift is reflected in the growing demand for smaller homes, which now account for a significant proportion of home purchases backed by mortgages.


Furthermore, Halifax suggests that the property price increases for smaller homes early in the year have begun to close the growth gap that had previously favored larger properties over the last four years. This change indicates a potential long-term recalibration of property values across the UK, aligning more closely with the economic realities facing today's buyers.


Industry experts, including Amanda Bryden of Halifax Mortgages, point out that as interest rates stabilize, the market is witnessing a strategic shift where buyers are prioritizing smaller, more affordable properties as a way to cope with higher borrowing costs.




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Mayor Sadiq Khan Advocates for Leaseholders' Rights to Withhold Service Charges


In a decisive push against what he describes as the "everyday extortion" of leaseholders by some landlords and freeholders, London Mayor Sadiq Khan has publicly advocated for the enhancement of leaseholder rights, specifically the ability to withhold service charges that are unjustified.


This advocacy comes amid the broader discussions on leasehold reforms in the UK, where the complexities and potential abuses of the leasehold system have come under increasing scrutiny.


Mayor Khan's proposal seeks to empower leaseholders with the right to challenge and withhold excessive service charges—a significant shift aimed at protecting consumers from financial exploitation. Under his proposed changes, any significant increases in service charges would require clear justification, documented in a statement of accounts, before they could be enforced. This move is intended not only to bring transparency but also to provide leaseholders with substantial legal backing to dispute unfair charges.


Furthermore, the Mayor is pushing for greater powers to be granted to the housing ombudsman to oversee and regulate the increase and level of service charges. By making it easier and more affordable for leaseholders to take legal action against their landlords, Khan aims to address what he views as a significant power imbalance.


These developments resonate deeply within a city where housing and the rights of tenants and leaseholders have increasingly become a focal point of political and public debate. As Khan faces an election, his campaign positions housing reform as a cornerstone of his agenda, reflecting the urgency and importance of housing issues in London.



Historic Low in Buy-to-Let Property Purchases


The UK's buy-to-let property market has experienced a historic downturn, as evidenced by recent data from Paragon Bank, which reveals a significant decrease in buy-to-let property purchases, particularly in Southern England.


Over the past several years, this trend has been pronounced, with the proportion of buy-to-let properties purchased using a buy-to-let mortgage dropping from 52% in 2015 to a mere 35% in 2023.

This downturn marks a continued decline following the introduction of the stamp duty surcharge for additional properties in 2016 .


Regions like the South East, Greater London, and the South West have seen particularly steep declines.


This trend has been somewhat counterbalanced by a rise in buy-to-let purchases in the North West, where the proportion grew from 9% in 2015 to 14% in 2023, showcasing a geographical shift in investment focus.

The decline in the Southern regions can be attributed to several factors, most notably the stamp duty surcharge which disproportionately impacted areas with above-average house prices. This surcharge has made it significantly more costly to invest in these areas, deterring potential landlords and investors.


Richard Rowntree, Managing Director of Mortgages at Paragon Bank, emphasized that the introduction of these financial barriers has majorly influenced investment decisions, particularly affecting the Southern markets where property prices are typically higher.


Despite these challenges, the demand for rental properties is expected to increase, driven by population growth and the evolving demographics of the UK. The forecasted population increase of 9.9% by 2036 underscores the need for a more robust and responsive private rental sector to accommodate the rising demand.


Marina with moored boats in front of residential buildings in Canary Wharf, London

Significant Mortgage Rate Increases by Major Lenders


Recent developments in the UK's mortgage sector have seen significant rate increases by major lenders, affecting both prospective homebuyers and those looking to remortgage. Barclays, HSBC, NatWest, Accord, Leeds Building Society, and Nationwide are among those that have announced rate hikes.


These adjustments reflect a broader economic sentiment suggesting a "higher for longer" scenario for interest rates, driven by changes in the Bank of England's policy outlook and market-driven Sonia swap rates.


The immediate consequence of these rate hikes is a direct impact on the affordability of mortgages for consumers.


With the average two-year fixed mortgage rate rising to 5.82% and the five-year rate adjusting to 5.40%, potential buyers face increased monthly payments, which could dampen the housing market's growth.

This scenario places additional financial pressure on households already coping with a high cost of living.


These rate increases come at a time when the market was expecting up to seven base rate cuts this year; however, revised expectations now forecast only two or three cuts, with the first reduction potentially occurring as late as August.


This has placed upward pressure on mortgage rates, making the financial landscape challenging for homebuyers and investors.


Moreover, the rise in rates by building societies and banks is a response to recent economic data and speculations that further bank rate reductions may be delayed. As lenders adjust their offerings in response to these financial market dynamics, the competitive landscape could see more banks following suit, escalating the financial burden on borrowers.


This tightening of credit conditions could potentially slow the momentum in property purchases and could lead to a cooling off in the overheated parts of the housing market. Financial experts suggest that this could be a bumpy period for the housing market, as adjustments to the new rate levels settle in.


Mortgage Approvals Reach 18-Month Peak: Industry Insights


UK mortgage approvals have surged to an 18-month high, as reported by the Bank of England. March saw a total of 61,300 home loan approvals, marking the highest level since the disruption caused by Liz Truss's mini-budget in 2022.


This upward trend in mortgage approvals suggests a robust recovery in the housing market, invigorated by eased financing conditions and an increase in property transactions.


The rise in approvals coincides with significant monetary movements.


Not only did the amount borrowed for property acquisitions jump to £20.1 billion in March, but non-seasonally adjusted property transactions also rose to 86,980.

This overall increase can be attributed to a more favorable lending environment, reflecting a growing confidence among consumers despite the economic challenges posed by fluctuating interest rates and ongoing political uncertainties.


Industry experts have weighed in on these developments. Danny Belton, from the Mortgage Advice Bureau, noted that the increase in mortgage approvals, particularly around the Easter period and amidst inflation concerns, signifies a strong market that is defying earlier expectations of a cooldown. He highlights the particular strength in first-time buyer activity, suggesting a promising outlook for the spring and summer months.



Conservative MPs Consider Defying Government Over Leasehold Legislation


In a bold stand against their own party’s stance, more than 30 Conservative MPs have expressed their discontent with the government’s approach to leasehold reform. Addressing a letter to Chancellor Jeremy Hunt, these MPs are urging a radical change to abolish ground rents for leasehold properties, contrary to the existing policy which allows freeholders to impose unregulated charges.


This intra-party rebellion highlights significant tensions within the Conservative ranks over housing policies that many feel fall short of their 2019 manifesto commitments . The proposed leasehold reforms initially aimed to eliminate ground rents entirely, aligning with the party's earlier promise to transition towards a "peppercorn" model where such fees would be nominal or nonexistent.


However, the government's recent adjustments have capped annual ground rents at £250, a move that has been perceived as a dilution of more ambitious reform plans.

This cap is part of a series of legislative compromises that reflect ongoing resistance within the Treasury and concerns over potential impacts on investment portfolios that significantly include ground-rent incomes.


This internal conflict within the Conservative Party is emblematic of a broader struggle to balance investor interests with housing affordability and equity. The MPs' letter points to a fundamental ideological drive within the party to enhance property ownership rights, which they argue should include the eradication of the leasehold system deemed by many as outdated and exploitative.

This stance resonates particularly strongly in England where nearly 20% of homes are leaseholds, underscoring the widespread implications of any legislative reform.


Traditional red telephone booth with the modern skyscraper, the Shard, in the background in London


Conclusion


The market is adapting to a new norm, prioritizing affordability due to changing consumer preferences and economic pressures.


Simultaneously, developments in legislation and finance, such as leasehold reforms and adjustments in mortgage rates, are prompting a widespread reevaluation of property ownership and investment strategies.


The push from Conservative MPs for more radical reforms reflects a growing call for substantial policy changes to better meet public and market demands.


Additionally, a historic low in buy-to-let property purchases indicates a change in investor sentiment, likely leading to new investment strategies, especially in areas impacted by high stamp duty and other financial obstacles.

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