Soaring inflation means that house price growth in much of the country is being wiped out, according to a leading housing market analysis.
The latest monthly market report from the Home website says that only four English regions, plus Wales, show annual growth over and above the latest RPI inflation figure of 7.7 per cent for November.
Home also warns that with RPI inflation – according to some analysts – heading for 10 per cent, “some regions are treading water while others are suffering significant price falls in real terms.”
The website cautions that with cannier buyers fixing seven year mortgage deals at as low a rate as two per cent, there are hedges against the growing inflation threat – so it is not expecting any significant impact on the number of buyers in the housing market in 2022.
Home also quantifies the large gap between supply and demand.
It says agents’ inventories over the past 12 months have dropped 41 per cent – and actually 50 per cent less than in January 2019.
Supply in London is down 33 per cent year-on-year, sales stock is down 25% and prices are already up 1.3% over the last six months, making it one of the top four performing English regions.
Monthly supply of new sales listings remains comparatively low across the UK, down 18 per cent compared to the month of December 2020. Greater London shows the greatest contraction again this month.
Scarcity is also prevalent in the rental market and Home warns that it’s getting worse – the supply of rental properties is down 24 per cent on January 2021, making further rent hikes inevitable this year.
A new survey of people who have sold their home in the past six months has given a strong backing to the performance of their estate agents – with a few exceptions.
Some 1,159 owners who moved in the past six months were questioned in early January, and asked to rate their agent from 1 (top ) to 10 (bottom).
Over 50 per cent of respondents were within the top five scores, 15% rated their estate agent’s performance during their last sale as a five – the most prominent individual score. Exactly 30 per cent gave their agent one of the top three scores.
However, at the other end of the scale, eight per cent stated that they thought their agent’s performance was terrible.
When it came to the asking price achieved, buyers reflected roughly the split seen in wider market snapshots – 47 per cent said their agent didn’t achieve the asking price agreed, but 39 per cent did get the asking price and 14 per cent said they got above asking.
When requesting feedback on areas of improvement, the respondents listed:
– More proactive during the transaction in order to speed up the process;
– Better or more frequent communication;
– Better customer service in general;
– More information on how their sale was progressing;
– A higher percentage of asking price achieved;
– Better quality of property listing and/or photos of their home;
– More help on what was needed from the agent to progress the sale.
The survey was commissioned by online agency Nested, from which a spokeswoman says: “It’s clear that sellers view the added value of an estate agent above and beyond the price they achieve and constant, clear communication and a proactive approach to selling are some of the key areas they value most.
“This is hardly surprising given the fact that it takes an average of 320 days to sell a home and the vast majority of this time is spent progressing the sale to completion once an offer is accepted, during which time it’s still susceptible to falling through.”
Owners of second homes who abuse a tax loophole by claiming their often-empty properties are holiday lets will be forced to pay under new measures announced by the government today.
The Department of Levelling Up, Housing and Communities says the changes will target people who take advantage of the system “to avoid paying their fair share” towards local services in popular destinations such as Cornwall, Devon, the Lake District, Suffolk, West Sussex and the Isles of Scilly.
Currently, owners of second homes in England can avoid paying council tax and access small business rates relief by declaring an intention to let the property out to holidaymakers.
However, concerns have been raised that many never actually let their homes and leave them empty and are therefore unfairly benefiting from the tax break.
Following a consultation, the government says it will now bring changes to the tax system, which will mean second homeowners must pay council tax if they are not genuine holiday lets.
From April 2023, second homeowners will have to prove holiday lets are being rented out for a minimum of 70 days a year to access small business rates relief, where they meet the criteria.
Holiday let owners will have to provide evidence such as the website or brochure used to advertise the property, letting details and receipts.
Properties will also have to be available to be rented out for 140 days a year to qualify for this relief.
Housing Secretary Michael Gove says: “The government backs small businesses, including responsible short-term letting, which attracts tourists and brings significant investment to local communities.
“However, we will not stand by and allow people in privileged positions to abuse the system by unfairly claiming tax relief and leaving local people counting the cost.
“The action we are taking will create a fairer system, ensuring that second homeowners are contributing their share to the local services they benefit from.”
A wealth tax on overseas owners of UK homes could raise £5 billion a year to help local people buy their first properties at reduced rates, a former estate agency chief has suggested.
Kevin Hollinrake – a former chairman of Hunters estate agency chain prior to its acquisition by The Property Franchise Group – is now Conservative MP for Thirsk and Malden.
He told a debate in the House of Commons that the government had to strike a balance between personal freedom to buy homes wherever an individual wanted, with the broader freedom of local people to afford homes in their own areas.
One suggestion he had was to increase taxes on non-resident purchases of additional homes, whether holiday properties or buy to lets or occasional residences.
He told MPs: “I do not think there is any argument for not taxing those people pretty heavily if they own property in the UK and are non-resident.
“We already have a two per cent surcharge, on top of the per cent surcharge, for overseas owners. These people are having a profound effect on some house prices in urban areas as well as rural areas.
“I think 28 per cent of properties sold above £2m are bought by overseas owners. Around 20 per cent of all properties in London—and probably a decent quantity in York and other cities—are owned by overseas residents. I do not see a reason why we would not seek to tax those people even more heavily than with a 100 per cent increase in council tax.”
Hollinrake went on to say that a one per cent wealth tax on UK properties —bought by non-UK residents – would raise up to £5 billion a year.
“There would still be an incentive for those people to invest their money in the UK, which I am not against, but the reality is that this would make it a fair and level playing field. They would still benefit from the very high house price growth.
“As we have heard today, house prices have been rising by around 10%, so it still makes sense for people to invest, but such a tax would mean that we could take a little bit out of the money they are making every year from house price inflation and put it elsewhere.”
The former agency chief said the revenue from such a property-related wealth tax could go into the government’s First Homes programme, which offers new-build discounted properties to local first time buyers.
Eligible homebuyers could get a mortgage worth seven times their salary for the first time in over a decade.
The new product from online mortgage lender Habito comes after the Bank of England separately announced plans to relax lending rules in December.
To qualify for Habito’s higher loan-to-income loan, applicants must have a basic salary of £75,000 or more per year.
Alternatively, one applicant in a joint application can borrow up to seven times their salary if they are qualified, practising and registered in one of 14 listed professions and earn a minimum of £25,000. Buyers must also have a 10 per cent deposit, and only one applicant in a joint application can borrow up to seven times their salary
The professions eligible for the mortgage are: police, firefighters, nursing, paramedics, doctors, accountants, barristers, teachers, engineers, lawyers, dentists, architects, surveyors and vets. Habito says this is because these professions offer a reasonable prediction of future earnings, job security and employability.
How much can I borrow for a mortgage?
Since the interest rate stress test was introduced in 2014 to make sure borrowers could afford to service their mortgage if interest rates rise, most lenders will only offer a maximum loan-to-income ratio of 4.5 times earnings. This has put buying a home even further out of reach for many buyers, especially in London where the average property costs 11.7 times the average salary.
Habito’s new lending rules could increase the amount a solo buyer earning £75,000 could afford to pay for a home by more than £200,000.
If their borrowing was capped at 4.5 times their income they could borrow £337,500. With a 10 per cent deposit this would get them a home worth £371,250. Borrowing seven times their income would offer £525,000. Adding the 10 per cent deposit would buy a home worth £577,500.
For joint applicants where one works in the specified professional fields and earns £25,000 and the other applicant also earns £25,000, their borrowing would be capped at 4.5 times combined salary, or £225,000. With the Habito One mortgage they could potentially get seven times one salary and five times the other, meaning they could borrow £300,000.
Is a higher LTI mortgage risky?
The online mortgage broker announced the enhanced lending criteria on its full-term fixed rate Habito One mortgage, which allows buyers to borrow at rates starting from 2.99 per cent for the entire term of their mortgage.
Borrowers on a fixed-rate mortgage usually need to remortgage after a certain period of time, often two, five or ten years, or else find themselves slipping onto their lenders standard variable rate, which can be expensive.
Habito says it is able to offer the higher loan-to-income mortgages because the interest rate on the loan is guaranteed for the entire length of the loan, reducing the risk of the borrower not being able to afford payments in future.
Daniel Hegarty, founder and CEO of Habito, said: “Longer, fixed-rate mortgages mean that customers are completely protected against any threat of fluctuating interest rates, in a way that shorter fixes of two or five years mortgage deals don’t allow for.
“As a lender that considers every applicant’s case individually, we’re confident that with suitable criteria in place, in the right circumstances, eligible customers can safely and securely boost their borrowing to buy the home that truly suits their needs and their life plans.”
Full-term fixed rate mortgages are not common in the UK but are already popular in other countries including France, Denmark and the US.
This is partly because British buyers worry about hefty early repayment charges to get out of a mortgage during the fixed period, for example if they need to sell their home.
Will I be able to get a mortgage at seven times my salary?
Some mortgage brokers expressed doubts about how many buyers would actually be offered mortgages at seven times income.
Mark Harris, chief executive of mortgage broker SPF Private Clients said: “With current regulations restricting each lender to 15 per cent of applications at over 4.5 times loan-to-income, one wonders whether lenders can get the volume of borrowing to truly make a difference.
‘While seven times income sounds high, will borrowers be able to get to that level once existing affordability rules are enacted? Even at lower loan-to-values, borrowers do not always hit the theoretical LTI caps.
“For those with one of the professional vocations listed, existing lenders already offer enhanced LTIs, so it is worth shopping around to find the best deal.”
Habito said that due to longterm fixes not being subject to the same regulations as short term fixes, the lender has no percentage cap on the volume of lending it can do at seven times.
Colin Payne of Chapelgate Private Finance pointed out that key workers pay significant pension contributions each month, making larger mortgage repayments out of their take-home pay potentially unaffordable.
He said: “The irony is it adds fuel to the fire in terms of house prices making that ‘forever home’ more unaffordable for many. It feels like a headline to increase enquiries and then offer alternative lending options, a ‘sprat to catch a mackerel’, and that cannot be the best outcome for buyers.”
Campaigners are calling for plans to charge landlords up to £10k to be scrapped
Plans are for all new rental homes to have an energy rating of C or above
Campaigners are urging the Government to scrap proposals to make landlords pay up to £10,000 to improve the energy efficiency of their rental homes.
The National Residential Landlords Association suggested that landlords could not reasonably be expected to pick up the tab in the way that the Government is suggesting for stringent new rules affecting buy-to-let properties.
In an official statement, NRLA said that the plans were based on the ‘misguided assumption that all landlords are property tycoons with deep pockets’.
In a consultation that closed in January, the Government proposed that from 2025 where a new tenancy agreement is signed, the property will need to have an Energy Performance Certificate rating of C or above.
From 2028, all rental properties will need to meet the new standard, even where it is not a new tenancy agreement.
The Government has suggested that, in meeting these targets, landlords should be expected to pay up to £10,000 to make the necessary improvements.
However, the NRLA said that this imposed cap fails to accept the realities of different property and rental values across the country.
It follows research from NRLA that showed private landlords making an average net income from property of less than £4,500 a year. (Scroll down for more information about how this figure was calculated.)
The National Residential Landlords Association is calling on the amount that landlords should be expected to contribute to be linked to average market rents in any given area – known as broad rental market areas – as calculated by the Valuation Office Agency.
Under the NRLA’s proposals, this would mean the amount a landlord would need to contribute would gradually taper from £5,000 to £10,000, taking into account different rental values – and by implication, property values – across the country.
VAT and council tax reductions
Alongside this, the NRLA is calling for a package of fiscal measures to support property investment.
It said these should include the development of a decarbonisation tax allowance, where VAT would no longer apply to energy efficiency and low carbon work.
And it said council tax should not be charged where energy improvements are being made to rental properties when they are empty.
Ben Beadle, of the National Residential Landlords Association, said: ‘We all want to see as many energy efficient rental properties in the sector as possible.
‘Besides being good for tenants, improvements made to rental properties ensure they become more attractive to prospective tenants when being marketed by landlords and agents.’
However, he added: ‘The Government’s proposals for the sector are not good enough.
‘They rely on a misguided assumption that landlords have unlimited sums of money and fail to accept the realities of different property and rental values across the country.
‘Ministers need a smarter approach with a proper financial package if they are to ensure their ambitious objectives are to be met.’
David Reed, of Richmond estate agents Antony Roberts, said: ‘We all want to see improvements to energy efficiency but If these proposals come to fruition, there’ll be a rush of landlords with property in vast swathes of suburbs – where older, less efficient properties make up a greater proportion of the stock – selling rather than incurring what could be considerable costs in retaining an investment in property.
‘With yields so low, returns barely meet costs as they are, especially as the latter have grown significantly in recent years either directly (Tenant Fees Act and electrical regulations) or indirectly (unable to offset mortgage interest).
‘Tenants love charming period conversion flats in good commuter territory and seldom is efficiency/an EPC rating at the forefront of the search criteria, whereas location and provision of attractive accommodation win hands down. There are simply not enough newer, in theory more efficient, properties being constructed to meet tenant demand.
‘The private rental sector vitally needs a healthy supply of good property and landlords who own one or maybe two rental properties make up a large sector of the market. Many are already disgruntled by recent changes and longer-term plans are under question. If they leave, the effect on tenants will be hard felt – a further restriction of supply giving more upward pressure on rental and lack of choice.
‘Hopefully consideration will be given to where there is no easy-fix or realistic programme of improvement to achieve grade C status or better.’
How much do landlords make?
Private landlords make an average net income from property of less than £4,500 a year, according to the The National Residential Landlords Association.
Here is how the NRLA reached that figure…
The English Private Landlord survey said that the average – median – gross rental income for a landlord before tax and other deductions is £15,000.
Average costs for landlords would be:
– Repair and replacement of furnishings – based on the previous tax exemption for 10% of annual rent (£1,500)
– Cost of a gas safety certificate (average £80 required annually – checkatrade average)
– Electrical safety check (average £265 performed every 5 years. £53 annually – checkatrade average)
– Interest-only mortgage for the average UK property (£250,000) with a 20% deposit (cheapest available £6,096 annual)
– Insurance (£531.15 for building and contents insurance from Hamilton Fraser using average floor space for PRS property https://www.statista.com/statistics/292206/average-floor-area-size-of-dwellings-in-england-by-tenure/)
– Agency fees (£1200 based on 8% agency fees)
The NRLA based its calculation on an average landlord of a house let to a couple with an interest-only mortgage, and assumed that tenants move annually.
Total gross rental income – £15,000
Repair and replacement costs – £1,500
Tenancy management costs – £726.15 (includes average cost of insurance, gas safety certificates, 1/5 of the EICR cost, deposit protection and tenant referencing)
Agency fees – £1,200
Total deductions before tax and mortgage costs – £11,573.85
Amount that can be taxed – £2,314.77 (£11,573.85 x 0.20)
Tax after mortgage interest relief accounted for – £1,095.57 (£2,314.77 – (£6,096.00 mortgage costs x 0.20)
Remaining balance after Tax – £10,478.28 (£11,573.85 – £1,095.57)
Mortgage costs – £6,096.00 (based on cheapest available 80% Loan to Value mortgage on the average property in the UK of £250,000)
Remaining balance after all average costs deducted – £4,382.28 (£10,478.28 – £6,096.00)
The Bank of England has raised interest rates for the first time in more than three years, in response to surging price rises.
Most analysts believe the increase – to 0.25 per cent from 0.1 per cent- will make negligible difference to the housing market.
The decision by the Bank of England will add just over £15 to the typical monthly repayment for a tracker mortgage customer. A standard variable rate mortgage-holder is likely to pay nearly £10 extra a month.
Around 50 per cent of all homes are owned outright anyway, with no mortgage owed on them, and of the rest around three quarters have fixed rate mortgage deals, meaning their repayments won’t change until their current deal ends.
The remaining two million owners are on standard variable rate mortgages or tracker mortgages so their repayments will go up as individual mortgage lenders increase their rates in response to the Bank of England announcement.
Cory Askew, head of sales at Chestertons, says: “We expect the Bank of England’s decision to increase the interest rate to 0.25% to have very limited impact on property buyers and existing homeowners. Further indicating that buyer demand remains strong, is the fact that we have seen no seasonal slowdown this year.”
Simon Gammon of Knight Frank adds: “By raising the base rate it’s clear that the Bank of England believes the economy will shrug off most of the effects of Omicron. Getting a grip on rising inflation appears to be the number one priority.
“Mortgage rates on the high street have been edging upwards during recent weeks in anticipation of this moment and it’s clear the lenders believe there could be at least one more hike in the base rate next year.”
“This rate rise may not be significant but it is a clear statement of intent” says Vanessa Hale, head of insights and residential research at Strutt & Parker.
“The rise has been a long time coming, and with inflation now at decade high levels, there really is little alternative. The rate rise has been priced in to mortgages, and with fixed mortgages making up around 80% of the current market, the housing sector is unlikely to be impacted too dramatically.
“The reality is that demand for housing continues to outstrip supply which will sustain prices for 2022. But with the cost of living continuing to rise, this could have an impact on the housing market for the medium term.”
Eleanor Bateman, policy officer at Propertymark, comments: “The increase in base rate to 0.25 per cent is a small and necessary step and one that most had anticipated for some time.
“Mortgage rates have been creeping up over the past few months, and while those on variable rates will see payments increase, the cost of borrowing remains low relative to historic levels.
“Though, traditionally, the winter months see a decline in activity, our housing market report shows sustained demand with average sales agreed maintained to the end of October.
“With indications that lifestyle factors are continuing to prompt many into making a move, we do not expect the announcement to have a significant, negative impact on the market.”
Around a quarter of mortgage lenders currently have ‘green’ products promoting improved EPCs – and the vast majority of the rest say similar mortgages are on their way.
The Mortgage Advice Bureau tested 64 major lenders – some 25 per cent currently offer green or net zero mortgages, and of the others 88 per cent say they have plans to do so.
MAB also sought to uncover how many consumers are being offered green mortgages. Of those who have either bought a property or remortgaged in the past 18 months, just 14 per cent had been offered a green mortgage product.
Research amongst borrowers has found that 69 per cent of respondents have not heard of a green mortgage, despite it potentially reducing monthly mortgage payments based on how eco-friendly their property might be.
When asked if they would pay more for a green mortgage, knowing they would be helping with sustainability and the environment, nearly two in five (38 per cent) said they would.
Two in five said they would not pay more for a green mortgage, even knowing it would help the environment. Delving into the reasons why, 24 per cent said they can’t afford to pay any more, 20 per cent don’t want to have to pay any more for their mortgage, and 12 per cent said they already pay enough.
A further 16 per cent said they shouldn’t have to pay more to help the environment and 13 per cent said they don’t know how it will help.
Ben Thompson, deputy chief executive officer at Mortgage Advice Bureau, comments: “Green mortgages are a well-intended product, but they’re only scratching the surface in terms of helping to make the housing market more energy efficient. Existing borrowers, homeowners, and landlords who have properties below a C rating are encouraged to invest their own money to make their homes more efficient and less polluting. However, grants and incentives being offered by government is comparable to a drop in the ocean.
“Retrofitting a property could cost thousands of pounds which most homeowners may not have at hand to call upon. They’re therefore reliant on potentially borrowing against their property, which is where issues bubble to the surface.
“We welcome recent moves by lenders to look more favourably upon borrowers’ affordability based on them buying more energy efficient homes. This makes good sense and we’d like to see more of this positive action.
“However, we need combined industry thinking and innovation to work out how best and who best can influence those properties not meeting A, B, or C ratings to make sure the challenge is being properly tackled. Only then will the real benefits start to be felt.”
The Scrooges at Threadneedle Street are preparing to deliver an unwelcome Christmas present for millions of borrowers and wannabe home buyers: the first Bank of England interest rate rise for more than three years and only the third since July 2007.
The nudge on the interest rate tiller is likely to be tiny, probably only 0.15 per cent, lifting Bank Rate from an all-time low of 0.1 per cent to a still remarkably skinny 0.25 per cent.
But what will it mean for mortgage holders and those looking to take out new home loans?
For the majority that already have mortgages on fixed deals — probably around two thirds of the total and 90 per cent of new borrowers — very little in the short term at least. Their products are locked in to the rates they took them out at until the fixed term expires.
For the minority on variable and tracker rates their borrowings costs will rise in line with the Bank of England rate.
So a borrower with a tracker rate of say, 1.5 per cent, is likely to see that go up to 1.65 per cent.
For a borrower with a £250,000 repayment mortgage that will mean an increase in monthly bills from £999.86 to £1,017.56. Not crippling, but not welcome either on top of all the other rising costs of living such as gas bills.
Will mortgage interest rates rise soon?
The fixed rates available in the market to first time buyers, movers or remortgagers are unlikely to go up on the day of the announcement from the Bank of England’s Monetary Policy Committee next month or possibly in December.
They are linked to the swap rates at which banks and building societies can borrow in the City’s wholesale markets and have already been creeping up, albeit from remarkable lows, over recent days in anticipation of the Old Lady’s move.
What’s the cheapest mortgage deal I can get now?
Although sub-one per cent fixed rate deals are still available to borrowers with deposits of 40 per cent or more, they are steadily drying up.
Over the past fortnight they have fallen from 131 to 116 — mainly two-year fixes — according to data from Moneyfacts with more being withdrawn virtually every day.
The increases are still small. One of the biggest high street players Barclays, for example, raised its two years fixed rate this week from 0.86 per cent to 0.91 per cent.
Its five-year fix for borrowers with a 25 per cent deposit went up from 1.21 per cent to 1.31 per cent. At the very bottom of the market five year fixed rates were available below one per cent earlier in the year.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “If you are one of the lucky ones who got a five year fix at below one per cent that is probably as low as it’s going to get — but they are still historically low rates.”
The market remain incredibly competitive with lenders sitting on vast lakes of cheap money that they struggle to know what to do with.
Mr Harris said lenders were caught in a game of bluff, reluctant to be the first to raise rates and lose market share, or be the last and get squeezed on their profit margin.
What are the best mortgage deals for first-time buyers?
Ray Boulger, senior technical manager at broker John Charcol, pointed out that at the other end of the loan to value spectrum some rates are even falling, good news for London first time buyers struggling to clamber onto the ladder at a time when prices are rising again.
For example Newcastle Building Society announced this week that it is reducing its rate on two year fixes for borrowers with only a five per cent deposit by 0.3 per cent to 2.79 per cent, while its five year fixed rate has gone down by 0.29 per cent to 3.19 per cent.
Should I lock in a cheap mortgage now?
When the puff of white smoke finally emerges from the metaphorical chimneys of the Bank of England next month or December, it will come as no shock to the City, the mortgage markets or borrowers.
A rise has been on the cards ever since it was clear that inflation will remain stubbornly above its two per cent target well into next year.
The more interesting questions are how far and how quickly will rates rise.
Next month’s increase may only add a few tens of pounds to typical mortgage bills, but further steps will see that accumulate to significant and painful sums.
If ever there was a time to lock into rates that remain lower than almost any point in the history of lending it is now.
Research by price comparison service MoneySuperMarket has itemised the additional fees incurred by people moving home.
This year’s 12 per cent rise in the cost of moving home follows an eight per cent rise in 2020, when costs jumped from £3,417 to £3,688.
Now the average cost is £4,116 excluding the cost of the property and mortgage.
After agency fees, legal services and stamp duty, additional charges – mostly for removals, cleaning and storage – now average £748.
MoneySuperMarket’s findings uncover significant cost differences between cities. Aberdeen is the most expensive location, with additional moving costs of £1,020.
The five most common additional costs are buying new furniture, purchasing new household items such as bedding and kitchen utensils, paying for post to be re-directed, changing utility providers, and removals.
Jo Thornhill, money expert at MoneySuperMarket, comments: “The cost of moving house is … an issue that has come into sharp focus over the past 18 months with the housing market booming in response to government incentives like the stamp duty holiday.
“What is less well known are those additional costs of moving that can add a significant amount to your bill, over and above items like stamp duty, legal and estate agency fees.”
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