In the past decade, we’ve seen new homebuying initiatives, tax rises, tax cuts, a building scheme that resulted in no homes being built, and 13 different housing ministers.
Despite these interventions, mortgage rates are now three times higher than two years ago, houses are taking longer to sell and the cost of renting is soaring as landlords leave the market.
undefinedBuying your first home is a big milestone, but for many renters the chances of getting on to the property ladder might seem slimmer than before.
Rent rises and high inflation have made saving more difficult. Data from the Office for National Statistics (ONS) shows that rents increased by 6% in the year to November 2023. Further rises are forecast.
However, the biggest barrier to homeownership is mortgage rates, which have skyrocketed since the mini-Budget in September 2022. The cheapest 90% two-year mortgage is now just below 5%, compared with 1.6% in early 2022.
Banks have also been extending maximum repayment ages to open deals up to more borrowers, with some now going as high as 80.
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Successes and failures
First-time-buyer affordability is an issue successive governments have tried, and largely failed, to crack.
There have been some qualified successes. The Help to Buy scheme, which offered 20% equity loans to first-time buyers purchasing new-builds, resulted in 328,000 people buying their first home between 2013 and 2023.
In 2021, the government capped the prices of houses sold under the scheme.
But other housebuilding schemes have been less successful. In 2015, the government said it would build 200,000 ‘starter homes’ at a 20% discount for first-time buyers. In 2019, the National Audit Office found that no homes had been built.
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Glimmers of hope
The property market is in a slump. HMRC data shows that sales are down 22% year-on-year, while Rightmove says homes are taking an average of 66 days to go under offer, with 39% being reduced in price.
Expert forecasts say that house prices will drop marginally this year. If you’re looking to sell, you’ll have to be realistic with your asking price, as buyers will aim to knock you down. Zoopla says buyers achieved an average discount of 5.5% on asking prices in November.
Mortgage woes
High rates and the cost of living are making it difficult for homeowners to move up the property ladder. This is a particular problem for ‘second-steppers’ – families hoping to move to larger homes.
Land Registry data shows the average difference in cost between a semi-detached and detached home is now £176,000. A decade ago, the gap was £103,000.
When rates were low, it was easier for homeowners to make overpayments and borrow more to move up the ladder, but many will now have to stay put.
No incentive to downsize
Affordability issues are also having a knock-on effect on people looking to downsize from bigger homes to smaller properties.
Larger homes are more expensive to buy and run, so may be on the market for longer, and desirable homes for older people can be increasingly hard to find.
For example, the National House Building Council says that just 228 bungalows were built between July and September 2023.
One of the main reasons people downsize is to release funds for use in later life or to help their children or grandchildren.
But this money is being eaten up by high costs. Data from the comparison site Reallymoving shows that the average cost of moving is £14,500.
A stamp duty cut for downsizers has long been mooted. Along with the potential scrapping of inheritance tax, this may be something to keep an eye on ahead of a general election.
Find out more:Leasehold reforms
Leaseholders should finally benefit from the Leasehold and Freehold Reform Bill coming into force this year.
A consultation on scrapping existing ground rents is ongoing.
The changes should be a major step in bringing an end to a leasehold system beset by huge ground rents, high service charges and freeholds being sold off to third parties.
undefinedOver the past decade, ‘accidental’ and professional landlords have faced a series of tax and regulatory changes that have eaten into their profits and triggered a huge sell-off of properties.
Research by the estate agent Savills found that net profits for landlords fell below 4% in the first quarter of 2023 – the lowest figure recorded since 2007.
Savills concluded that there was a ‘very real’ risk that landlords with bigger mortgages would sell up, further depleting the number of rented homes available.
This great landlord sell-off has been happening for some time. Data from Hamptons shows landlords have sold 294,000 more homes than they’ve bought since 2016. Buy-to-let sales have outweighed purchases in eight consecutive years, as shown in the chart below.
A tax double whammy
In 2015 and 2016, landlords faced a double whammy of tax changes that have shaped the rental sector ever since.
First, and most significant, was the phasing out of mortgage interest tax relief. Landlords could previously offset 100% of their mortgage interest payments when calculating profits. This was phased out between 2016 and 2020, before being replaced by a flat 20% credit, leaving some landlords out of pocket.
These plans were designed to cool the buy-to-let market – and in that respect they worked. But MPs have questioned whether the number of properties in the rented sector has been reduced too far. Hamptons estimates that there were 43% fewer rented homes available to tenants in 2023 than in 2015.
Find out more:Red tape and U-turns
The Bill is designed to make the rented sector fairer, but one major issue remains unresolved. The government has long been seeking to ban Section 21 no-fault evictions, but this has now been delayed indefinitely, creating further uncertainty for landlords and tenants.
The government’s recent U-turn on energy rules has also caused consternation. The plan to require all new rentals to achieve Energy Performance Certificate ratings of ‘C’ by 2025 and existing rentals to do so by 2028 was scrapped in September. A survey by Shawbrook Bank found that nearly half of landlords had already spent money preparing for the changes.
The red tape continues to build up. Mandatory licensing schemes for landlords operating Houses in Multiple Occupation (HMO) have long been in force, but a growing number of councils have introduced selective licensing schemes over the past few years.
The rules can vary but may include landlords being required to sign up to a code of conduct or passing a ‘fit and proper person’ test.
The mortgage gap
This raft of changes has resulted in buy-to-let becoming increasingly professionalised, thereby creating challenges for ‘accidental’ or part-time landlords.
Data from the English Private Landlord Survey (2021) shows that 53% of landlords without mortgages and 33% of those with mortgages only have one buy-to-let property.
As with the owner-occupier mortgage market, costs have begun to fall, but it’s unlikely that any drops will have a significant effect in the short term. This means landlords will continue to see their profits squeezed, resulting in higher rents and more sell-offs.
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This article originally appeared in the March issue of Which? Money.
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