The Residential Expert – March 2023
The Chancellor has just promised us a bloomin’ marvellous economic future, but was there enough in the budget to get the property sector growing? Find out what former CEO of Propertymark and industry guru Mark Hayward thinks in our latest Residential Expert.
It’s March. The daffodils are out, the magnolias are beginning to flower, and most importantly of all, the Chancellor has just promised us a bloomin’ marvellous economic future. But was there enough in the budget to get the property sector growing? We ask former CEO of Propertymark and Just Move In’s Residential Expert, Mark Hayward, what he thinks.
JMI: The Chancellor painted a predictably positive picture in his budget statement. But are you feeling equally positive, Mark?
Mark: Well, it’s great news that we’re projected to avoid a recession. The inflation rate is predicted to ease, too. So that’s very positive news. Interest rates will probably come down in the not-too-distant future, as well. It’s also significant that it’s still more expensive to rent than to buy despite the recent rises in interest rates. So, yes, there is some positivity floating around. However, if we’re being honest, the budget didn’t announce anything new that’s helpful for the property sector itself.
JMI: Yes, there wasn’t anything particularly meaty in there. But first, let’s discuss how the budget might impact the cost of living crisis, which obviously affects tenants, landlords and homeowners. The new childcare allowances, for example, should definitely help people to keep up with their payments…
Mark: They should, yes, although we shouldn’t forget that rent and mortgage payments are usually the very last things that tenants and homeowners don’t pay. They’ll cut everything else before they risk losing their home.
However, it’s obviously good news that the Energy Price Guarantee was extended for 3 months. People will effectively be paying the same until the summer now. And then, with wholesale prices coming down, let’s hope we can avoid another nightmare next winter.
JMI: Amen. So let’s talk specifically about the sector now. What did the budget do, or perhaps we should say didn’t do, for property professionals?
Mark: It’s a shame that Jeremy Hunt didn’t make any specific new gestures. But at least there weren’t any controversial announcements, either. There were rumours, for example, that they might do something drastic with stamp duty.
There was also some talk beforehand that the government might reinstate tax relief on mortgage interest payments, which would’ve been helpful for both landlords and homeowners. Sadly, however, this didn’t materialise. Therefore, I wonder if this was just chat from ‘experts’ rather than anything coming from a source close to the government.
One thing that we should quickly mention, however, is the rise in corporation tax announced in the budget – from 19% to 25% for businesses making profits over £250,000 per year. This will obviously hurt many agencies and also portfolio landlords who are set up as limited companies.
Other than this, though, there really wasn’t much to talk about. There wasn’t even anything on targets for building new homes. Although at least we had some good news away from the budget with property prices actually going up in February; therefore the massive falls that some predicted haven’t materialised yet.
JMI: Another piece of property news (away from the budget) was the talk surrounding Purple Bricks. Of course, they made quite the stir when they launched a decade ago. But it hasn’t been all smooth sailing since…
Mark: Agents were quite dismissive about Purple Bricks’ model when they first launched. But they can’t deny that the business did take off. In fact, their market share used to be bigger than it is now.
In many ways, this early success followed a pattern. There were a lot of online agents around a decade or so ago but their number has obviously declined because few have been able to make significant profits doing things this way.
Purple Bricks has had quite a turnover in personnel over the years, too. The entrepreneurs who founded the company are no longer there, they’ve had changes in management, and chief executives have come and gone. Plus it’s probably proven harder to make money from financial services than they originally anticipated.
What’s struck me, however, is that they didn’t enjoy the same busy periods that traditional agents did as we came out of the pandemic. This must have hurt them.
JMI: Their main proposition – asking vendors to pay one flat fee to sell their homes – seems like a very attractive one. However, their critics would say that they aren’t offering the same level of service as traditional agents.
Mark: That was the knock, yes. But I think their current situation comes down to a number of factors. For example, there has been a big constraint in supply, which hasn’t helped. At the end of the day, it’s just a very different model.
JMI: Indeed. The model certainly has its strengths, although some would say that it doesn’t give agents a chance to do some of the things they’re best at, such as negotiations.
Mark: Yes, it does eventually become advantageous to actually talk to somebody. People need advice, too. For example, if a house isn’t selling then an agent needs to get in a vendor’s ear and persuade them to drop their price. Sadly, because of the volume, it’s not always possible for online agents to do this.
JMI: Some traditional agents also complain that online agents have forced them to cut their commissions, and this has led to a fall in customer service standards across the sector. Does this ring true?
Mark: Well, lower income usually means cutting hours and ultimately cutting jobs so standards might well decline - although many younger people actually prefer the online model where things aren’t necessarily done over the phone or face to face.
One problem is that online agents don’t always have people who are experts in a local area. Their people tend to cover a lot of ground. And they might not have a database of local buyers, either. Therefore, once a deal falls through, or the buyer stops looking for a bit, the online agent can’t get back on the phone and tell them about new instructions.
Overall, however, the online agents have introduced some interesting and different ways of doing things. I just wonder whether technology can do everything. A hybrid model, where the technology supports a human, probably works best.
JMI. The final thing on today’s agenda is rent-to-rent. Did you see the Supreme Court’s ruling that superior landlords will not be liable when rent-to-rent companies they’ve hired break the rules?
Mark: In this particular case, the agreement that the tenants had was with a rent-to-rent company serving as an intermediary. Therefore, it follows that the intermediary should be the party liable for issues relating to the tenants they’ve found.
What these rent-to-rent companies tend to do is split a home up and rent different rooms to multiple tenants in order to collect a premium rent. But they still need to get all the necessary paperwork done. In this case, sadly, they failed to secure the HMO multi-occupancy licence; therefore the tenants were trying to claim their rent back. The Supreme Court has ruled that they won’t be getting this from the superior landlord.
JMI: Superior landlords like rent-to-rent because it gives them a guaranteed income for a fixed period without the usual hassles. But it’s not always great for the tenants…
Mark: One of the problems is that there’s little incentive for intermediaries to invest in a property and improve the conditions inside. After all, they’re only dealing with the home for a set period of time - perhaps a few years.
It’s not always a good thing for landlords, either, because they don’t have control over what’s going on in their property during the tenancy. It’s obviously good for landlords, however, that they won’t be liable for rent repayments if an intermediary fails to ensure necessary HMOs. One imagines this will set an important precedent.
JMI: So perhaps, after all that, we have actually found some good news for landlords this month?
Mark: Ha. Yes, I suppose we have.
To watch the full video version of this episode, click the link below.
https://youtu.be/f1sqU_nt2YU