The Residential Expert - February 2023
With the property sector finally beginning to wake up after the festive fallow period, it’s time to dissect all the recent news with former Propertymark CEO, Mark Hayward. What are his thoughts on the current state of the market, landlords’ preparedness for the upcoming EPC rule changes, and the cross-party committee’s response to the Renters Reform Bill white paper? Find out in February's edition of The Residential Expert.
The property sector is finally beginning to wake up after the festive fallow period. So it’s time to dissect all the news with former Propertymark CEO, Mark Hayward.
On today’s agenda are the current state of the market, landlords’ preparedness for the upcoming EPC rule changes, and the cross-party committee’s response to the Renters Reform Bill white paper. Are you sitting comfortably? Good. Let’s dive in…
JMI: Hello, Mark. Let’s kick things off with property prices. We’ve seen loads of headlines about prices falling but it’s not all doom and gloom. In fact, some reports have claimed that new instructions are actually up. What do you make of it all?
Mark: There have certainly been mixed messages. But that’s probably because it’s a different situation in different areas. However, I am hearing that more properties are coming to market, which is much needed. What’s more, sellers’ expectations remain high despite the fact that lots of properties are being reduced in price.
Therefore, I certainly don’t think it’s all doom and gloom out there. People still have to move, whatever the market’s doing, and perhaps we shouldn’t get too worried about asking prices and focus on actual prices achieved, which obviously takes a while to filter through.
It’s also a good sign that we’re beginning to see some more attractive fixed-rate mortgages on offer. And I think that will continue even though the Bank of England edged the base rate up again a few days ago.
Overall, therefore, I’m optimistic that we’re beginning to see a better balance between supply and demand and hopefully the return of ‘normal’ market conditions - although there’s probably no such thing as completely ‘normal’.
JMI: The economic news is looking a bit more positive too, with the Bank of England suggesting that inflation may have peaked. Meanwhile, the Telegraph is reporting that older buyers, who can afford larger deposits and weather interest rate rises, are propping up prices in some localities…
Mark: Yes, that makes sense. Older people are often downsizing too, so they might not have a mortgage to pay and should have capital to put down. If they see a property they want in an area they want - perhaps because it has certain amenities or it’s close to friends and family - then they’ll proceed. Some areas always command a premium regardless of the market.
Things are a lot trickier, of course, for first-time buyers. Interest rates are higher than they were this time last year so affordability is a problem. There’s low wage inflation to consider, too. But renting, of course, is also really expensive…
JMI: Yes, let’s spend some time talking about the rental market now. We’re still seeing record rents and landlords leaving the sector. Where do you think all this is heading?
Mark: Well, it could get to a point where tenants simply can’t afford to rent, especially if the remaining landlords put rents up to cover their own increasing expenses. What we need are more available properties on the market.
What can the government do? I’d like to see a less punishing tax regime for landlords - for example, they could bring back mortgage relief. This might encourage landlords to stay the course. However, at least there’s now some awareness, both in government and at the Bank of England, that the private rented sector needs looking at.
JMI: Let’s not forget, of course, that landlords will also need to upgrade their properties to EPC grade C by 2025. That’s only 26 months away. What’s more, a report in The Negotiator this week suggests that they’re not at all prepared…
Mark: It’s a worrying situation. Landlords are probably putting it off as there are more immediate things to worry about. The trouble is that a lot of the UK’s older housing stock isn’t just below grade C; it will struggle to ever reach grade C. This is especially true in areas like the northwest and northeast where there are a lot of Victorian and Edwardian homes. Landlords might decide to sell up as it isn’t worth trying to meet the new regulations.
JMI: Could see a cliff-edge-type scenario with landlords feverishly selling their properties immediately before the deadline?
Mark: Possibly. The government might even be forced to extend this deadline. But there are the practicalities to consider, too. How will these new rules be enforced? Is the government going to knock on doors and visit every single letting agent in the country to make sure their properties comply?
The other question, of course, is whether there are enough affordable tradesmen out there to actually improve all these homes? And with potential fines of up to £30,000 for breaking the new rules, I can see plenty of landlords simply exiting the sector.
JMI: The Renters Reform Bill remains in the background, too. And we’ve just had the cross-party Levelling Up Committee’s response to the white paper, which was written after consulting with the sector. Overall, it was quite positive so let’s start with things that got the thumbs up, including the abolition of section 21.
Mark: Yes, it looks like section 21 is a goner, which should provide some clarity moving forward. Now everyone can focus on other elements of the Bill. For example, the report was also keen on the idea of housing courts, which should free up county courts and lead to faster rulings. There was also positive feedback about the end of fixed-term contracts, although sensibly this won’t apply to student lets. There were also encouraging noises about the Decent Homes Standard.
JMI: Amongst these positives there were a few negatives, though…
Mark: And perhaps we shouldn’t be surprised what these were. For example, there was pushback on the proposal to prevent landlords from banning tenants on benefits. This is a tricky one because tenants receive their benefits in arrears but have to pay rent in advance. This puts them in a difficult position because landlords obviously prefer tenants that can pay promptly from the start.
There was also pushback on the proposal to prevent landlords from banning pets. Landlords obviously want the ability to exclude pets if they like. And I can understand that. I think the problem here is blanket bans in general. Every situation is different so there needs to be some flexibility.
JMI: A number of the proposals, of course, received a positive response but the committee suggested extra conditions. Let’s talk about those…
Mark: Sure. One of the most notable addresses the issue of tenants giving two months’ notice to leave a home. The feedback was, “fine, but they shouldn’t be allowed to do this in the first four months of a tenancy”; therefore all tenancies will last for at least six months to give both tenant and landlord some certainty.
Another important one concerns the beefing up of section 8. The report agrees this should happen but says we need more detail. It’s the same with the proposed property portal, especially when it comes to policing it. Nobody quite yet knows how the system will work.
Overall, however, I’m encouraged that the government is obviously listening to the sector. What’s more, they actually seem to be acting on this feedback.
JMI: Finally, we wanted to ask you a broader question to end today’s discussion. We talk a lot about longstanding problems in these chats. Will these ever get solved? What might the sector look like in 20 years’ time?
Mark: Something’s got to change because we can’t have housing costs going up and up indefinitely. It could end with a shift towards generational housing, where several generations all live together like they do in some European countries.
The big problem, of course, is that we’ve got an under-supply of homes, an aging housing stock, plus the majority of new homes in this country are built by public listed companies, which are predominantly motivated by profit.
One solution could be a nationalised building company to build hundreds of thousands of new affordable homes. However, it would still take generations to build up the stock to cater for everyone’s needs. Indeed, 20 years probably isn’t enough to solve all the issues. So many things need looking at. There’s land to consider, as well.
What would really help, in my view, would be the depoliticising of these problems. Then we could have a really good, honest, thorough debate about the future and come up with some practical solutions that work.
JMI: We hear you, Mark. Let’s reconvene next month and see if there have been any developments.
Mark: Sounds good. See you in March.
To watch the full video version of this episode, click the link below.
https://youtu.be/tA61dWOwm4M