Welcome to NestInsights, your guide to the evolving UK property market. In this blog series, we explore the latest property news and developments that shape the sector, offering you the insights needed to navigate and thrive. Our goal is to provide a comprehensive overview that empowers you to make well-informed decisions in this dynamic market.
Table of Contents
Decline in Buy-to-Let Investments Reaches Record Low
HMRC Issues Stop Notice on Property118 Tax Avoidance Scheme
Inheritance Tax Receipts Climb to £2.1 Billion in Three Months
Surge in Rental Property Enquiries: 17 Prospects per Listing
Nationwide Advocates for Digital Transformation in Homebuying
Intense Mortgage Price Competition Amid Base Rate Cut Speculation
UK Property News Week 30
Decline in Buy-to-Let Investments Reaches Record Low
The buy-to-let investment market in the UK has reached a significant low, with the share of homes purchased by landlords hitting unprecedented levels. Recent figures reveal that only 10% of homes sold across Great Britain in the first half of 2024 were bought by landlords.
This is the lowest share recorded since 2010, a stark contrast to the 16% share observed in 2015 before various tax and regulatory changes were implemented.
Several factors contribute to this decline. High mortgage rates, political uncertainty, and the threat of new rental regulations have significantly diminished the attractiveness of buy-to-let investments. The percentage of investor purchases has been steadily decreasing, reaching a low of 9.7% in June 2024.
Regionally, the impact varies. The North East, the highest-yielding region, has seen a slight increase in landlord activity, with the share of homes bought by landlords rising from 24% in 2015 to 25% in 2024. Conversely, London, the lowest-yielding region, experienced the most substantial decline. In the capital, the share of homes bought by landlords has more than halved, dropping from 17% in 2015 to an all-time low of 8% in 2024.
In 2024, the average investor purchasing a new buy-to-let in England and Wales achieved a gross yield of 7.3%, up from 7.0% in 2023 and significantly higher than the 6.3% yield in 2015.
This translates to an additional £1,906 per year in rent on a £200,000 property purchase compared to 2015.
However, the increased costs due to higher mortgage rates and reduced tax relief have eroded post-tax profits for many higher-rate taxpayers. As a result, fewer investors are entering the market.
If current trends continue, it is estimated that by the end of 2024, private landlords will have sold 328,750 more rental homes than they have bought since 2016. This ongoing reduction in rental properties is contributing to rising rents, with the average tenant in Great Britain paying £1,347 per calendar month in June 2024, an increase of 5.8% from the previous year.
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HMRC Issues Stop Notice on Property118 Tax Avoidance Scheme
The UK tax authority, HM Revenue and Customs (HMRC), has taken decisive action against Property118, a company known for its landlord tax avoidance schemes.
As of July 2024, HMRC has issued a "stop notice" to Property118, making it a criminal offense for the company to continue promoting its tax avoidance strategies.
This stop notice marks a significant escalation in HMRC's efforts to combat tax avoidance. The notice is a direct response to the company's persistent promotion of schemes designed to help landlords minimize their tax liabilities through various legal loopholes. These schemes have been under scrutiny for some time, and the stop notice effectively criminalizes any further promotion or use of these methods by Property118.
Mark Alexander, the founder of Property118, has publicly denounced HMRC's actions, describing them as an unjustified attack on his business. Alexander argues that the stop notice has created a climate of fear and uncertainty among landlords, hindering their ability to effectively manage their properties and financial obligations. He further contends that HMRC's actions are not only unfair but also a blatant disregard for the interests of thousands of landlords who rely on Property118's services.
In response to HMRC's stop notice, Property118 has launched a campaign to raise funds for a legal challenge against the decision. Alexander has called for donations to cover legal costs and maintain essential services for landlords. He emphasizes that the battle against HMRC's stop notice is not just about protecting his business but also about defending the rights of landlords across the UK. Alexander's plea for support highlights the broader implications of HMRC's actions on the property industry.
The stop notice against Property118 is part of a broader strategy by HMRC to crack down on tax avoidance schemes. This move is indicative of the government's commitment to ensuring fair tax practices and closing loopholes that allow for significant tax evasion. By targeting high-profile cases such as Property118, HMRC aims to deter similar practices and reinforce the integrity of the UK's tax system.
Inheritance Tax Receipts Climb to £2.1 Billion in Three Months
In the first quarter of the 2024/25 tax year, HM Revenue and Customs (HMRC) reported a remarkable increase in inheritance tax receipts, reaching £2.1 billion from April to June 2024.
This figure represents an £83 million increase compared to the same period in the previous tax year, reflecting a continuing upward trend over the past two decades.
In the last full tax year, inheritance tax brought in a total of £7.499 billion.
This significant rise in inheritance tax receipts has kept the issue at the forefront of political debate. The Labour Party has committed not to increase most other major sources of tax revenue, including Income Tax, National Insurance, or VAT.
However, the potential for an inheritance tax raid on investments has raised concerns among analysts, who warn that such a move could trigger a stock market sell-off.
Rachel Reeves, the Chancellor, faces pressure to abolish inheritance tax relief for shares in fast-growing companies, a measure projected to raise an additional £1.6 billion annually for the Treasury.
This pressure stems from the need to fund Labour's pledges, including their commitment to crack down on tax avoidance by large businesses and the wealthy, which was a key part of their manifesto.
Despite the potential financial benefits of increasing inheritance tax, it remains a controversial topic among the public.
A recent survey of Wealth Club clients indicated that 42% would choose to cut inheritance tax if given the option to reduce any one tax.
Nicholas Hyett, an investment manager at Wealth Club, highlighted that inheritance tax continues to be a "political hot potato," given the government's need to meet spending commitments without increasing other ringfenced taxes.
Inheritance tax is currently charged on estates valued above £325,000, or £500,000 if a primary residence is passed on to direct descendants. Couples can combine their allowances, allowing them to leave up to £1 million tax-free. As the government looks to raise additional revenue, potential reforms to inheritance tax could target non-dom rules and various reliefs, which if mishandled, could adversely affect family-owned businesses and small companies reliant on investments.
Surge in Rental Property Enquiries: 17 Prospects per Listing
The rental market in the UK is experiencing significant pressure as the number of prospective tenants continues to far exceed the supply of available properties. Recent data from Rightmove highlights that each rental property now receives an average of 17 enquiries, demonstrating the intense demand for rental housing across the country.
This figure, although down from the 26 enquiries per property seen in 2023, is still more than double the 8 enquiries recorded in 2019.
The high demand is driving rental prices upwards, with average advertised rents outside London reaching a new quarterly record of £1,314 per calendar month (pcm), reflecting a 7% increase from last year’s £1,231 pcm.
In London, the rental market is also heating up, albeit at a slower rate. Average rents in the capital have risen to a new record of £2,661 pcm, a 4% increase from £2,567 pcm last year. Despite the overall supply of rental properties improving by 14% from the previous year, the number of available rental homes remains 20% below pre-pandemic levels. This imbalance is continuing to push up rental values.
Tenant demand has decreased by 16% compared to last year, yet it remains significantly higher than in 2019, with 22% more tenants looking to move.
Rightmove suggests that around 120,000 more rental properties are needed to bring rental price growth back to pre-pandemic levels of 2-3% annually.
The government's recent efforts to improve the rental market for tenants have shown some early positive signs, but more support is needed for landlords to invest in quality rental homes. This support could come in the form of tax incentives or assistance with making properties more energy-efficient. Rightmove’s Tim Bannister emphasizes that a balanced approach is crucial to ensure a healthier supply-demand balance in the rental market.
Nationwide Advocates for Digital Transformation in Homebuying
Nationwide Building Society has recently joined forces with the Open Property Data Association (OPDA) to champion the digital transformation of the homebuying process. This collaboration aims to streamline the property transaction experience by digitizing and sharing property information across the housing market, a significant step given that currently, less than 1% of property information is available digitally.
The primary goal of this initiative is to reduce the time between having an offer accepted on a home and the exchange of contracts.
By having a single, standardized version of property data that can be accessed by all parties involved—lenders, estate agents, and solicitors—the process becomes more efficient. This not only speeds up transactions but also helps in reducing fraud and preventing transaction failures.
Henry Jordan, Nationwide’s Director of Home, emphasized the importance of this initiative, stating:
At Nationwide, we are totally committed to improving the end-to-end house buying and homeownership journey. Our joining OPDA is a major part of this commitment as standardisation of data is vital for achieving improvements".
The OPDA, founded last June, aims to ensure that every entity in the mortgage and property chain has access to the same digital, standardized, and trusted property information. The association has already delivered its framework for property data standards, making free and shareable data tools available across the industry.
Rob Stevens, Nationwide’s Head of Property Risk, echoed this sentiment, stating:
We wholeheartedly support OPDA’s mission to change the way people buy and sell houses by implementing open data standards, improving technology and security standards, and encouraging transparent data sharing across the mortgage and wider property sector. Accurate and trusted data about a property is vital to giving people confidence in the market".
The call for the government to digitize the entire homebuying and selling process within three years is a bold step towards transforming the property market. Maria Harris, Chair of OPDA, highlighted the significance of Nationwide’s membership, stating that it marks a milestone in their mission to radically transform the homebuying process for the better. This initiative is set to boost the message around the importance of open data standards in digitizing property transactions.
Intense Mortgage Price Competition Amid Base Rate Cut Speculation
The UK mortgage market is currently experiencing intense price competition among lenders, driven by speculation of a potential base rate cut by the Bank of England. Recent weeks have seen significant rate reductions from several major lenders as they position themselves ahead of the anticipated decision.
Nationwide Building Society has reintroduced sub-4% fixed-rate mortgages, slashing rates by up to 0.25% across its two-, three-, and five-year fixed-rate products.
Following Nationwide's lead, Barclays and TSB have also lowered their fixed-rate deals, with Barclays cutting rates by up to 0.1% and TSB reducing selected fixed rates by up to 0.2%.
The competition has further intensified as other lenders, including Skipton Building Society, Mpowered Mortgages, and Atom Bank, have also reduced their borrowing rates. These rate cuts are seen as a strategic move to attract borrowers amidst growing confidence that the Bank of England will lower the base rate.
A recent Reuters poll of economists revealed that over 80% of respondents expect the monetary policy committee to vote in favor of a rate cut, potentially bringing down the base rate from its current 15-year high of 5.25%.
Nick Mendes, a mortgage broker at John Charcol, noted the benefits of these reductions for borrowers, stating:
The rate reductions we’ve seen this week are great news for borrowers and reflect strong market competition and confidence that there will soon be a reduction to the Bank of England base rate. These latest reductions will provide significant savings for those looking to secure a mortgage or remortgage, making it an opportune time to consider locking in a fixed rate.
This mortgage price war comes in the wake of 14 consecutive base rate hikes over the past two years, which have significantly increased mortgage costs for many homeowners. The Institute of Fiscal Studies recently reported that as many as 320,000 UK adults have been pushed into poverty due to rising mortgage expenses.
Conclusion
The UK property market is currently undergoing significant changes, with several key trends and regulatory actions shaping its landscape. The decline in buy-to-let investments has reached a record low, driven by high mortgage rates and regulatory changes that have made these investments less attractive. HMRC's stop notice against Property118 highlights the government's efforts to address tax avoidance schemes.
Inheritance tax receipts have climbed to £2.1 billion in just three months, indicating the growing value of estates and ongoing political debates about tax reforms. The rental market remains highly competitive, with each property receiving an average of 17 enquiries, which continues to drive up rental prices despite an increase in available properties.
Nationwide Building Society is pushing for digital transformation in the homebuying process, aiming to streamline transactions and reduce fraud through better data sharing. At the same time, the mortgage market is seeing intense competition among lenders, who are cutting rates in anticipation of a potential base rate reduction by the Bank of England, offering potential savings for borrowers.
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