As we end 2023, I think I’m safe in saying that for many involved in the UK property market whether you are an estate agent, a mortgage broker, a landlord or a lender, 2023 will not be a year looked at fondly.
However, as we enter the final month of the year, is there cause for optimism or is it a false dawn? Lenders are gradually reducing rates on both residential and buy to let ranges with some making multiple reductions in a matter of weeks and we are starting to see sub 5% five-year residential fixed rates for the first time in months.
Also, estate agents are reporting a surge in stock levels with the estate agency comparison site GetAgent reporting at the end of October that they were up 128% since the start of the year.
Finally, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) was 4.7% in the 12 months to October 2023, down from 6.3% in September and from a recent peak of 9.6% in October 2022. The annual rate in October 2023 was the lowest since November 2021.
Surely there are signs for optimism then as we head into 2024?
Personally I think the Chancellor of the Exchequer missed a huge opportunity in the Autumn Statement and as I said in the trade press at the time, the reduction of the national insurance burden for many should be welcomed as a step in the right direction, especially as inflation pressures seem to be easing.
The other initiatives aimed specifically at the UK housing market were welcome, but I argue whether the measures go far enough. It’s clear to me that long term Government initiatives are needed to address housing shortages across the UK, especially in the affordable housing sector to enable more to own their first home.
The words long term are probably the key ones here, as there will likely be an election in the next 12 months, and it does feel that the current administration is almost planning for not being in government once voters have had their say. It’s clear that they think their period in shadow government could be a long one.
Alas, this makes me believe that 2024 will very much be a year of status quo, but I do believe that it could be a year that sets us up for a period of growth, if some ducks form a row.
Duck Number 1 – First Time Buyers/New Build
As reported recently by Hamptons, in 2023 first-time buyers accounted for a record 28% of transactions across Great Britain. This is despite rising interest rates making affordability tough for many, although it’s clear that help from the Bank of Mum or Dad or grandparents has driven this figure. However, this is likely to be a peak percentage for first-time buyers.
We work with a number of developers and it’s clear that current conditions and cost pressures will result in the number of new homes built over the next 18 months to be well below the numbers delivered in recent years. This means that there will be fewer homes of all types, including affordable housing.
With new build homes in short supply, their prices will remain stable and so I would expect housebuilding to form major elements of every major party’s manifesto. All will strive to get more homes built, whilst not being seen to line developer’s pockets, which is a criticism from many of help to buy.
However, market dynamics mean that we need developers to build homes, so some new scheme must be created to make more stock available, but building takes time, so any changes may not start assisting the market until 2026 onwards.
Duck Number 2 – Downsizers
I’ll refer to Hamptons again, as their figures show that the members of the Baby Boomer generation – people aged between 57 and 75 – make up 36% of all households. But they account for 56% of households that own a home, with much of their wealth tied up in this property. Since nearly all have only a tiny mortgage or own outright, they could use this equity to downsize.
We don’t make it worth their while though, as stamp duty is still charged, plus where do they move to and what do they want to buy? We all know that retirement villages and properties aren’t the answer, so how do we make developers build the types of properties that downsizers want, and do we know what they want?
Unlocking the vast wealth tied up in UK housing is a key area for any new government to focus on.
Duck Number 3 – Home Movers
People moving home is a huge contributor to the UK economy and in 2023, it is estimated that transactions will be around 1 million, down from 1.5 million in 2021.
Knight Frank and the Housebuilders Federation (HBF) calculated that for every resales housing transaction that takes place, the economy benefits by an average of £9,559.
Therefore, for every 100,000 housing transactions, there is a net impact of almost £1bn in Gross Value Added (GVA) and collectively, those 100,000 transactions either directly or indirectly support over 11,500 jobs nationwide.
Expenditure induced by property transactions, either directly or indirectly, includes more than £500m on renovations, estate agents, legal fees, household goods and removals (the latter alone contributing £72m).
We have to get people moving again to help drive the UK economy.
None of the above is unsurmountable, but it does require some joined up thinking and I would hope that all the major parties are talking to key people involved across the UK housing market. If any party can unlock the market, it may help them be in power for many, many years.
Hiten Ganatra is managing director at Visionary Finance
