Lucian Cook of Savills presented a good talk at the IRPM conference today.

In his talk Lucian addressed the factors that will affect the residential housing market in coming months. A short list of the key factors appears below:

• Weak consumer confidence as a result of Minority conservative government
• Beware Millennials… Interest rates might go up !
• And if they do? What about the B2L market which is under increasing pressure.
• SDLT – the increases have had an impact on price growth and also reduced transaction volumes.
• Finally, we have never seen such significant government interest in the area – with the various consultations including those affecting the leasehold sector.

These are the factors affecting the market – there is fragile consumer confidence. Predictions are for subdued house price growth.

London has led the way but the North of the country and Wales are very slow in House price growth – there is effectively a two tier market with some outer lying prices being at pre credit crunch levels.

Lucian’s prediction is that Buy to let investment will to shift to the north as a result.

Interest payment are at historic lows. A 1% increase in interest rates would take us to the 30 year average.

So, are we too far off where we were in 2007 in terms of affordability?

House price seems likely to be be outpaced by rental growth.

Income yield will be more important.

14% capital growth over the next 15 years is the current Savills prediction.

Returns have been better on all previous comparable assets. Investment – and as per the report above it looks like higher yields will be possible in the North.

Transaction levels are at around 1.2 m transactions a year. 20% of all transactions are leasehold

B2L transactions are down by 27%.

Possibly a lot more cash transactions 1-3 is cash at the moment.

As interest rates rise we will see less debt funded landlords.

There are less amateur investors

The new kid in town is going to be build to rent – up by 36%

31,000 in the planning applications for build to rent are in the pipeline.

58% of those are in London, but it is likely that the rest of the country will follow.

Political interest is the key – MHCLG – now has a new housing minister in James Brokenshire … Theresa may has made housing policies personal favorite.

Gavin Barwell – is chief of staff having lost his seat and having been a former housing minister is now driving no.10’s policy forward on this.

Housing and leasehold is under the political microscope as never before.

‘Help to buy’ has made a big impact – up 80% on last year.

81% of this funding is going to first time buyers – but most are flats. But if the houses 15% on leaseholds.

But to the big news is that of all new houses 16% were leasehold and this is reflected in the so-called ‘leasehold scandal’ that has had a wider impact in regulatory reform and the consultation.

Almost all of these 16% leasehold houses are concentrated in north west and north Wales only. However it is this injustice that has provoked change.

There is therefore an impetus from government to deliver change. The market will be challenging – that is clear and also that there are likely to be significant changes ahead.

In terms of policy we are likely to see a shift in focus to planning targets aimed at small and medium sized investors and housing associations.

Mark Chick

23.5.2018