What follows is an extended post collating a wide array of commentary from property industry thought-leaders, who kindly took the time to reflect on the market moving into 2018.
In addition to high-level insights into macro influences, price and rental trends, it is interesting to see the experts delve into a number of specific topics. Examples include the notable demographic shifts occurring across the country alongside the real effects of the Universal Credit (UC) rollout, Local Housing Allowance (LHA) freezes and the widening risks of homelessness. The continued evolution of the build-to-rent, property crowdfunding and online auction sectors have also been explored in some depth.
For higher tax paying private landlords, taking heed of the intensifying effects of Section 24 of the Finance Act is frequently mentioned, as are some useful tips to best prepare, and indeed capitalise, for what look set to be a turbulent few years ahead.
Please click on the links in the contents box below below to automatically scroll to the specific commentary link of your choice. You will also see an arrow towards the right which can be used to return to the top of the post.
The Property Investor’s Blog would like to thank all contributors for their input.
- 1 Chief Economist at the Royal Institute of Chartered Surveyors (RICS), Simon Rubinsohn
- 2 Chief Economist at Countrywide, Fionnuala Earley
- 3 Partner and Head of UK Residential Research at Knight Frank, Gráinne Gilmore
- 4 Manager at PricewaterhouseCoopers, Richard Snook
- 5 Director of Savills Residential Resarch, Lucian Cook
- 6 Managing Director at the Halifax, Russell Galley
- 7 Editor and MD of The Property Investor News, Richard Bowser
- 8 Founder & CEO at Realyse (Housing Market Intelligence), Gavriel Merkado at Realyse
- 9 Property Expert, Henry Pryor
- 10 Land, Planning & Development Expert and CEO at Millbank, Paul Higgs
- 11 CEO at Inspired Asset Management and Inspired Homes, Martin Skinner
- 12 Co-Founder of the Property Developers Academy, Brynley Little
- 13 Director of Real Estate Policy at the British Property Federation, Ian Fletcher
- 14 PRS and Build to Rent Consultant, Richard Berridge
- 15 Director at Simplify Property, Alan Frost
- 16 Director at Just Do Property, Julie Hanson
- 17 Senior Economist at UK Finance, Mohammad Jamei
- 18 Editor at Letting Agent Today and Estate Agent Today, Graham Norwood
- 19 Founder at The Property Voice, Richard W J Brown
- 20 Director at IPS Estates, Adam Lawrence
- 21 Chairman at Acadata, Peter Williams
- 22 Chief Executive at the National Association of Estate Agents (NAEA), Mark Hayward
- 23 Founder and CEO of eMoov.co.uk, Russell Quirk
- 24 Co-Founder and CEO of Yopa, Daniel Attia
- 25 Head of Policy at the National Landlords Association (NLA), Chris Norris
- 26 Chairman at the Residential Landlords Association, Alan Ward
- 27 Spokesperson from Axe the Tenant Tax, Jamie Fraser
- 28 Chief Executive at the Association of Residential Lettings Agents (ARLA), David Cox
- 29 Heading of Housing at Crisis, Chris Hancock
- 30 Acting Head of Policy & Research at the Joseph Rowntree Foundation, Brian Robson
- 31 Head of Policy at Shelter, Kate Webb
- 32 Director at The Ethical Lettings Agency, Carla Keegans
- 33 Managing Director at The Castledene Group, John Paul
- 34 Experienced Landlord Since the 1970s, Mary Latham
- 35 Founder and Director at Landlord Action, Paul Shamplina
- 36 Property Market Analyst and Commentator, Kate Faulkner
- 37 Private Rented Sector Consultant at Letting Focus, David Lawrenson
- 38 Director at Rita 4 Rent, Michael Wright
- 39 Co-Founder of Property Tribes, Vanessa Warwick
- 40 Co-Founder of Global Alternatives (owner of Property Crowd), Charles Tan
- 41 Founder & CEO at Homegrown, Anthony Rushworth
- 42 Founders of BrickVest, Emmanuel Lumineau and Thomas Schneider
- 43 Founder of The House Crowd, Frazer Fearnhead
- 44 Spokesperson at LendInvest, Carmen Dixon
- 45 Co-Founder of Crowdlords, Richard Bush
- 46 Founder and CEO of Property Moose, Andrew Gardiner
- 47 Co-Founder of Simple Crowdfunding, Atuksha Poonwassie
- 48 Managing Director at The Buy to Let Business, Ying Tan
- 49 Associate Director at Enness (High Net Worth Property Finance), Chris Lloyd
- 50 Advisor at Bespoke Finance Direct, Paul Lowcock
- 51 Managing Director at Mortgages for Business, David Whittaker
- 52 Director at Coreco, Andrew Montlake
- 53 Director at Searchlight Finance, Simon Allen
- 54 Managing Director of Commercial Mortgages at Shawbrook Bank, Karen Bennett
- 55 Business Development Manager at Optimise Accountants, Simon Misiewicz
- 56 Founder and CEO at Caridon Property, Mario Carrozzo
- 57 Head of Lettings at Rightmove, Sam Mitchell
- 58 CEO and Founder of Upad, James Davis
- 59 CEO of No Agent, Calum Brannan
- 60 Director of Strategy and Business Development at Rentr, Adam Paliwala
- 61 Chairman and Auctioneer at Acuitus, Richard Auterac
- 62 Director at Network Auctions, Toby Limbrick
- 63 Managing Director at Essential Information Group (Property Auctions), David Sandeman
- 64 Property Expert at Buying Auction Property, David Humphreys
- 65 Founder and CEO at Bamboo Auctions, Robin Rathore
Chief Economist at the Royal Institute of Chartered Surveyors (RICS), Simon Rubinsohn
“A key concern for the housing market in recent months has been the softer tone to transaction activity as affordability constraints coupled with the first hike in base rates in a decade and an increase in economic uncertainty has taken its toll on buyer appetite. The headline picture does, however, mask distinct regional variations with London and South East encountering a more marked challenge in this regard than the rest of the country.
The eye-catching announcement in the Budget of scrapping stamp duty for first time buyers could potentially provide a fillip for activity over the coming year but I am sceptical that the impact will be material with the benefit of the policy change being capitalised in prices before long.”
Chief Economist at Countrywide, Fionnuala Earley
“The outlook for the UK housing market is uncertain, primarily because of the Brexit risks and the effect that this has on confidence as well as on the pace of economic growth.
The latest economic forecasts from the Office for Budget Responsibility are probably a bit too pessimistic, but the prospects for growth are still weaker than we may have hoped for. That has implications for household incomes and the labour market which, along with interest rates, have the biggest influence on housing markets. But the interest rate environment will be supportive. Although rates will rise, it will be a slow process and unlikely to rise beyond 1.25% by 2021.
We expect GB house price growth to slow to 1% in 2018, but rise very modestly in 2019 and 2020. Price growth in the London and the South will be slower with a small fall in London likely in 2018. But outside of the capital price growth will be slow but positive.
The relatively benign outlook for prices is due to two main factors. First that we expect income growth to pick up from the spring as wage settlements factor in higher inflation. And second, the continuing issue with supply.
Despite the target to build 300,000 new homes per year, the lack of tailored supply in the UK housing market will support prices, especially in the areas closest to thriving local economies. Stamp duty relief for first time buyers will make little difference to the overall level of activity, nor total average price growth, and government support to smooth the planning process to speed up new building will take a long time to come on stream.”
Partner and Head of UK Residential Research at Knight Frank, Gráinne Gilmore
“The momentum in house price growth is slowing in many parts of the country, and we expect price rises to remain muted overall in 2018 amid increased economic and political uncertainty in the run-up to Brexit and amid more muted forecasts for wage growth. The market is localised and we see slightly stronger growth in the Midlands, East of England and the North West, a continuation of the trend that has emerged this year.
Once the Brexit deal is completed, we forecast rising momentum across the market, with price growth reflecting this in many locations. The variations currently observed in the prime housing markets in London and beyond are set to continue, and we explore this more fully in our blog.
The UK may now be entering a period of interest rate rises, but even so, we expect rates to be low compared to long-term norms by the end of the forecast period. While development levels are rising across the country, the shortage of new homes is unlikely to be fully reversed in the coming years, and that will underpin pricing.
On the other hand, factors such as deepening affordability pressures and property taxes, will continue to weigh on pricing.”
Manager at PricewaterhouseCoopers, Richard Snook
“Recent research by PwC has highlighted the challenges faced by younger age groups seeking to get their foot on the housing ladder. The share of 25-34 year olds owning their own home fell from 50% in 2008 to 34% in 2016. It is projected to reach just 21% by 2025.
Raising a deposit is the greatest challenge, especially for those without family wealth to draw upon. Younger age groups face the mixture of declining real incomes, low interest rates received on savings, historically high house price to earnings ratios and reduced availability of high loan to value mortgages.”
Director of Savills Residential Resarch, Lucian Cook
“The summer budget of 2015 marked the point at which politicians sought to discourage buy-to-let investment through tax policy. And the squeeze continues as mortgage regulation spreads across both small-scale and portfolio landlords. Interest rate rises and progressive cuts in tax relief will limit investor opportunity.
According to UK Finance, the number of buy-to-let mortgages granted for purchasing a property was 75,300 in the year to the end of August 2017 – 47% lower than in the year to March 2016. The growth in the number of outstanding buy-to-let mortgages is lower still, at just 24,800, and there is evidence that some investors are shedding stock.
Irrespective of the support provided by the Bank of Mum and Dad and Help to Buy, little has changed for the deposit-constrained first time buyer and the demand for rental stock will continue to grow.
Cash investors, however, remain far more active. The quarterly stamp duty land tax statistics suggest that in the year to September 2017, the additional 3% surcharge was paid on 245,000 purchases. While some of these will be second home purchases, people buying for other family members or people buying their new home before selling their old one, the majority will have been investment buys.
Looking to 2018 and beyond, the decline of the mortgaged buy-to-let investor will open things up for the growing multifamily or build to rent market, led by the likes of Sigma and institutions such as L&G, M&G, and LaSalle, who have contributed to the delivery of more than 17,000 units so far.”
Managing Director at the Halifax, Russell Galley
“Overall, we expect annual house price growth nationally to stay low and in the range of 0-3% by the end of 2018. The main driver of this forecast is the continuing effects of this year’s squeeze on spending power as inflation has outstripped wage growth and the uncertainty regarding the prospects for the UK economy next year.
As for this year, annual UK house price growth has gradually fallen from 10% in March 2016 to a recent low of 2.1% in July 2017, although levels have recovered in recent months to around 4%.
The imbalance between supply and demand continues. On the demand side, new buyer enquiries have been weakening for much of the year. At a regional level, this measure has deteriorated far more sharply in London, the South East and East Anglia compared to other parts of the UK. On the supply side, new instructions had held broadly stable, however, the latest data shows the supply of homes for sale sharply deteriorating. On this measure, supply has now fallen in 21 consecutive months to November. There is little reason to expect any fundamental shift in the key housing market drivers in the immediate future.”
Editor and MD of The Property Investor News, Richard Bowser
“The recent, much awaited conclusion to the first stage of the Brexit negotiations has been greeted with a sense of relief by many business owners and property professionals, albeit this is just the first stage in the protracted ‘divorce’ negotiations. In the last eighteen months the London economy and its housing market has seen a cloud of uncertainty hang over the capital as sentiment weakened with the burden of increases in stamp duty not helping matters. Some EU nationals have voted with their feet and left the UK to seek employment in locations which may offer a warmer welcome than the UK. With net inward migration lessening, the acknowledged skills shortages in the building and construction industry are unlikely to improve and build costs are increasing not helped by the decline in sterling.
Transaction volumes have reduced as buyers have held off from land and property purchases given the less certain outlook ahead. In the regions however, particularly in the Midlands and North, buyer confidence had seen steady growth in average property values in many localities and this trend looks set to continue into 2018. Property developers in the Greater London area now need to widen their margins when doing a viability assessment on potential deals given the likelihood of a longer sales period and with many ‘off-plan’ buy-to-let investors being deterred by the effects of the Section 24 tax changes.
Build to rent continues to appeal and the roll out seems set to increase, particularly in some regional cities.”
Founder & CEO at Realyse (Housing Market Intelligence), Gavriel Merkado at Realyse
“Markets for 2018: Our research has shown that real estate markets are auto-correlated, and so we can expect that next year will be somewhat like this year. Modest volumes and modest price changes. The supposed meltdown inspired by the Brexit vote failed to materialise, and contrarily, stock markets are up, yields are down, and real estate prices have more than recovered past their pre-Brexit vote levels. However some hazards may yet present themselves to the property market, with records high prices putting a strain on affordability, as well as changes in interest rates.
Technology for 2018: The plethora of new technology solutions to real estate problems will continue to expand as companies and users move along the adoption curve, from ‘early adopters’ into the ‘early majority’. Most companies and users will find it hard to choose which product or service to engage with, setting up a scene for consolidation in late 2018/2019;
World Cup 2018: Our view is that Italy will win, based on the very strong opinion of our lead back end developer. This may result in enthusiastic buying of properties in central London and Bedford, which statistics show have relatively higher proportions of Italian residents! (That one is a joke! But who knows, it might happen!).”
Property Expert, Henry Pryor
“2018 will be more complicated than 2017 and the potential icebergs are bigger but the opportunities will be significant for those investors who take their time before plunging in. The buy-to-let sector is already soaking up huge changes both to tax and regulations but there are more consultations underway and the political appetite for more support for tenants looks set to continue.
Yields in parts of the country look too thin by longer term standards. I still think property needs to deliver 6% or more but many looking to participate are mistaking speculating with investing. Both are fine but there are important difference. Investing delivers a dependable yield. Speculation is more like gambling hoping for capital appreciation.
2018 may well expose those who bought assuming prices would rise ‘because they always have’ but more savvy buyers will look to balance risk and reward. I expect that these are the people who will lay down the foundations of their future property fortunes.”
Land, Planning & Development Expert and CEO at Millbank, Paul Higgs
“There are various approaches to property development and business in general. Personally speaking, I never really worry too much about what is happening in the market. Obviously, developers need to keep an eye on where things are heading – but the truth is that no one really knows for sure. There are always people calling the top and the bottom of the market. Most of the time they are wrong but every now and then someone is bound to get it right. It goes back to the adage that “even a stopped clock gets the time right twice a day”. Sometimes people get things right by virtue of the law of averages and they’re then deemed as geniuses.
I’ve experienced 2 major property crashes and a number of smaller ones in my career – sometimes I’ve had a feel for the way things would turn out which have proven correct and other times it’s been a surprise. Based upon what I think is happening (or going to happen) in the market I’ll adjust my strategy slightly. For example, as we approached the EU referendum, I had no idea which way the vote was going to go (and was surprised that the UK decided to leave) but did however anticipate that a severe economic shock could ensue which would impact upon buyer sentiment. As a result, I changed my approach slightly and made sure I wasn’t building-out and selling anything and started trading my sites with planning permission instead. Note that I didn’t change my strategy entirely but simply adapted to the market as best I could.
My priority is always to look for real off market opportunities where there is little competition from people that do not know what they’re doing bidding the prices up. Furthermore, I always aim to add significant value to any scheme through my detailed knowledge of planning. Whether the market is going upwards, downwards or sideways, identifying the right opportunities and adding value will never go out of fashion. Of course, crashes happen – but when they do, provided you have prepared correctly and created a significant uplift in a deal before you have started, then you have a buffer in place to handle the downturn. When the market goes up, it’s an added bonus.”
CEO at Inspired Asset Management and Inspired Homes, Martin Skinner
“Recent progress in the Brexit negotiations, plus the stamp duty discount for first-time buyers should both provide a much needed boost to the market once the seasonal slowdown has passed. Mortgage rates close to all time lows; Help to Buy; the Lifetime ISA (where the government tops up £4,000 of annual savings with a further £1,000); and the stamp duty changes all combine to make it easier than ever for first-time buyers to purchase a new home. In fact, we’ve worked out the mortgage repayments of our Help to Buy purchasers are nearly half the cost of renting the same apartments.
I expect sales of new homes to owner occupiers – particularly first-time buyers – to pick up significantly during 2018. I also expect buy-to-let investors to trickle back into the market as they take advantage of Limited Companies to retain finance cost (mortgage interest) relief. An increasing number of Limited Company buy-to-let mortgage products are now available and competition between lenders is driving interest rates lower.”
Co-Founder of the Property Developers Academy, Brynley Little
“In our opinion 2018 is going to bring plenty of opportunity. With the market softening in most areas, us as developers are firmly in acquisition mode. Our main focus is looking at the lower end of the market and acquiring sites suitable for social and affordable housing, with an eye on the long term by holding the units rather than trading. Higher value sites carry more risk in the current climate.
Obviously there has been a lot of emphasis on increasing housebuilding in the UK, with a target of building 300,000 new homes a year by 2020. The last time this level of housing was produced was in the 50’s and 60’s, where land was not sold competitively.
The Government have committed to boost the supply of skills, resources and land over the next 5 years through capital funding, loans and guarantees, such as the Home Building Fund, and the Housing Infrastructure Fund to enable SME developers to play a bigger part in UK housebuilding. Time will tell as to how effective this will be for SME developers.
Changes to developer contributions, releasing strategic sites, an increase to compulsory purchase powers, improvements to the planning system, and government funding are just some of the things that are under further consultation, and in some cases already going ahead. It seems as though there is a lot of joined up thinking for the first time in a long time. To take advantage of the opportunities 2018 is going to bring it is paramount to understand the development business and start, or scale your business from a solid foundation.”
Director of Real Estate Policy at the British Property Federation, Ian Fletcher
“We’ve been delighted with our 3rd quarter (2017) figures which showed close to 96,000 build to rent (BTR) units in various stages of the development pipeline. We have been waiting for a number of these units to come to fruition – but there are approximately 17,000 units that are now delivered. 2017 trends have seen far more BTR activity in the regions, stretching out from the core cities to a number of secondary locations across the UK including Aberdeen, Glasgow, Dundee, Southampton, Leeds, Norwich and Cardiff (see our interactive map here).
We’re noticing a growing trend of BTR developments appearing in university towns as there is a ready-made market for quality rental products – predominantly for young graduates who have become accustomed to higher-quality, purpose-built student accommodation. The more units that come into the market, the better as we will be able to see the operational realities of these schemes – especially through gaining insights into tenants’ perspectives and other feedback.
We were also encouraged by the contents of the Housing White Paper, which formally recognised BTR in national planning policy. Looking into 2018, we should see the final “blocks” of government policy come into place. We need to see this progress quickly, as a big challenge for many of our members is that many local authorities still struggle to embrace BTR conceptually. A national vision, embraced by local governments across the country, will certainly help the sector move forward.”
PRS and Build to Rent Consultant, Richard Berridge
Build-to-Rent: That was the Year that was. But what of next?
Was 2017 the year that Build-to-Rent finally came of age? No, not really. There’s much to learn still, and whilst we continue to keep a weather eye on our cousins across the pond, for both good and bad practice, it’s clear that we have to forge our own brand of ‘multi-family’ living.
So what of 2018? Well, the BTR sector is at a point where we’re close to 100,000 units either having been delivered, in the process of delivery or in planning. The really interesting, purpose built BTR schemes have yet to come to market. The majority of delivered schemes so far are a mix of PD and bastardised ‘for sale’ blocks adapted to fit the template we all harp on about. Reading between the lines in a recent ’The Times’ article about planning not being fit for BTR purpose, it was clear that house-builders are looking beyond ‘help-to-buy’ for their next subsidised product. It’s been done to death, but we will start to see the sector seriously consider differentiating itself through a separate planning class. Why? Viability, S106 obligations, taxation (including VAT). Such a change may not come to pass, but with institutional involvement, the journey’s end is always going to be unimpeachable structure and professionalism. We will see little let up in BTR activity and we could be looking at close to 150,000 units by the end of 2018 as institutions, funds and sovereign wealth becomes ‘comfortable’ with this ‘alternative’ asset class.
Which leads me on to the evolution of operational management. We shall see our new management tested for real and there will be some fairly high profile failures. Early movers in this have tickled the G-spot of many landlords but, like many things, the early rush of pleasure and attraction will be replaced by the more prosaic desire for delivery. That’s the tough part, and not everyone is up to it. So, with the wakening of the operational Titans and the desire for institutions to de-risk management to resource rich organizations, we will begin to see some changes.
PropTech occupies me at the moment, and it’s fairly clear that the industry is in exponential growth but there’s still a gap between analogue and digital thinking. There’s no point having great tech if all it produces is the result of analogue input. It’s merely a translation. That will change in 2018. We will see AI and visualisation advances this year and greater a reliance on reaching out to customers via social media channels. Of course, that means data. This is one area BTR will change the world of renting. We will be flooded with data. But the skill is in interpretation; to get the right answer, one has to ask the right questions. There will be a lot of questions in 2018, not least of which will be ‘can traditional agents survive?’ My answer to that is I feel they will, largely, go the way of Kodak.
Affordability: my old hobbyhorse. There has been and there will be some ‘adjustment’ in the sector, which has to become more sensitive to affordability. I feel it’s reasonable to assume an institutional landlord backed by great management and amenity can achieve a premium over a broadly equivalent BTL landlord. But they mustn’t fall into the trap that they can base their premium rents on or above the upper decile. Some have, and some will continue to do so. My concern for 2018 is that as more product is delivered it will be harder to achieve premium rents. A few days ago Harvard released their 2017 review and it had some stark warning s for the US Multi-family developers who, in Harvard’s view are building too many ‘premium’ units and ignoring the hoi polloi. It reflects my feeling of where we are in the UK. Harvard’s research can be found here.
Finally, yields: all things being equal we should look at mature markets, especially Europe, and consider the profile of the ultimate owner who is very likely going to be in it for the long term, and what effect they have had on sectors where they have become involved: ground rents for instance. What that generally means is yields become compressed, especially as the asset becomes more mature and a consistent NOI is being delivered. Clearly interest rate rises will impact, and there will be more of them, but I believe net compression will evolve with institutional grade assets yielding some 50-75 bps below that of less secure residential assets. The net effect of course is higher capital values.
So my Christmas message to anyone in BTR is; wherever you start your journey in 2018, have one eye on the end of the road. Because at the end of that road is an institution. The value of the asset, whenever that value is realised, will depend on you having ticked all the institutional boxes each step of the way.
Director at Simplify Property, Alan Frost
“The last couple of years have certainly been tough for property investors and developers. The natural slow-down of the market is one thing, but the Government’s attitude to landlords in particular and small to medium operators in general created plenty of headaches, hassles and more.
However, wherever there is a challenge there is an opportunity, and I believe 2018 will be a good year for those who discover opportunities and strategies that are out of the reach of the joe public. The fundamentals for the property market – supply and demand – are still strong, and as a long term, income generating asset there are few better alternatives. If you can work the opportunity harder and earn more income then even better, but naturally that will more time, energy, and better support structures and power teams.
For those looking to start or grow you need support from professional experts with plenty of industry experience – the vanilla buy-to-let, bought at market value, is no longer good enough. Fortunately, people like ourselves are offered through our contacts and network much better deals even for beginnings, and if you can work in partnership even better.
Short term strategies reliant on adding value (such as flipping) will struggle because the market is struggling. However, more creative solutions will find more success. Multiple exits will be key, and sourcing good deals will be extremely important. There will not be any help from the Government for us, so we need to create opportunities ourselves.”
Director at Just Do Property, Julie Hanson
“The property market in 2018 is set to weaken caused by various factors:
- Uncertainty in the market caused by Brexit;
- Mortgage Constraints – this will have an impact on the amount that investors are able to borrow;
- Rising interest rates – interest rates have started to rise and will continue to rise gradually, this will increase the cost of borrowing;
- New taxation rules.
The above factors will certainly make investors more cautious in the short term. However, a low supply of stock means the market will continue to grow.
Estate agents Savills forecast in November that national house price growth will slow by half, growing only by 14.2%. Countrywide, the biggest agency in the UK, thinks prices across the country will go up by 2% in 2018, and Savills and JLL both predict a rise of 1%
The Nationwide Building Society reports that property prices have risen by 2.5% over the past year.
New BBC data shows that house prices are lower now than they were ten years ago in 58% of neighbourhoods in England and Wales.
In the North-East house prices in real terms have gone down in 95% of wards, and it’s the same story in Wales.
By contrast, house prices in London have gone up in 99% of all neighbourhoods in the last decade. However, Savills predict that house price growth in London is likely to be more constrained than the rest of the country by the factors above. In posh prime central areas, Strutt & Parker estate agency gives two scenarios: at best, prices will be static, but at worst they could plummet by 5%, depending on wider economic influences. Gloomier still is its warning that prices in prime central London could stagnate for several years.
Property isn’t always a good investment – unfortunately it’s no longer true that all house prices double every 7 years, despite what it used to be!
It’s going to be a bit more difficult to make money in property in the next few years, however if you are a savvy investor this is the time to pick up some bargains! If you do your research and due diligence, then there are some great property deals to be found. Property continues to be a great investment vehicle if you are an educated investor.”
Senior Economist at UK Finance, Mohammad Jamei
“Several different factors are weighing on buy-to-let house purchase activity. Lenders tightened affordability criteria ahead of the Prudential Regulation Authority’s stress tests, which came into effect at the beginning of 2017, and the tax relief changes began to take effect from April, the first stage of a four-year transition. These two changes, along with the change in stamp duty for additional homes means buy-to-let house purchase activity has been flat since June 2016.
There is still uncertainty in how landlords will react to the income tax changes. We have not seen any sudden contraction in lending as a result, but expect landlords to become more cautious and will likely limit their ability to re-leverage their portfolios. Our forecast for buy-to-let remortgage activity is that it continues at its current pace over the next two years.”
Editor at Letting Agent Today and Estate Agent Today, Graham Norwood
“Buy-to-let is clearly more challenging now than at any time during its history – but that in itself is not a reason for avoiding it. It sounds like a cliché but that doesn’t mean it isn’t true – choose locations where jobs and transport are still strong, go for secondary locations where capital values are reasonable and so rental yields will be good; and make the investment for 10 or 15 years so you have a chance of reasonable capital appreciation.
Furnish, equip and maintain your buy-to-lets well, and ensure it’s managed by a strong letting agent, because Build To Rent is coming to a location near you soon, and you need to compete with it.”
Founder at The Property Voice, Richard W J Brown
“My main focus is in the residential property market, where I see a mixed bag for 2018. The Government has introduced policy changes and incentives aimed at encouraging or discouraging certain behaviours among selected groups…and incentives do tend to work! Some Housing Associations have been given additional borrowing powers, and developers or institutions are being encouraged in a variety of ways to build more homes to sell or rent. First-time buyers have a helping hand in the form of the Help to Buy Loan and ISA along with the recent stamp duty stimulus. Meanwhile, disincentives and tougher lending criteria for private landlords has led to a greater burden on those that use finance in particular. All of this with the backdrop of weak economic performance and the dark cloud of uncertainty surrounding Brexit. Adding all this up, in 2018 I see small wins for first-time buyers, developers & institutional investors and cash-buying investors. I see elements of struggle for existing homeowners and conventional private landlords, whilst more professional or corporate landlords and investors adapt and hunt down higher yields, added-value opportunities and tax-loopholes!
In conclusion, more development starts, if not completions, and a shift in the balance of purchasing power from finance-backed private investors to first-time buyers, cash investors and corporates. The housing market will see it’s better price growth, probably in the regions more so than in central London, unless a good Brexit deal emerges. Fundamentals, such as modest growth in rent and mortgage affordability through wages, will probably keep a lid on prices and rents at below long-term average growth rates. Therefore, the best investment opportunities lie beyond vanilla buy-to-let and instead with development, and a more professionalised approach of, tax-efficient business structures, higher-yield strategies and an value-added approach such as ‘forcing the appreciation’. My personal focus is very much on the professionalised approach to property investment this year.”
Director at IPS Estates, Adam Lawrence
“As we come to the end of another calendar year, there lies before us another year of uncertainty it seems. We’ve seen bucket loads of wrong predictions (well, it is a mugs game), and markets flying in the face of what experts have been saying for some years now. However, in 2017 we’ve seen a long-awaited correction in the market in London and the South East of the UK.
On the flip side, the northern side of the north-south divide has been the beneficiary of this, as money finds the home that it needs, with the “buy for yield” investment market in the south having been killed stone dead by recent changes in stamp duty, personal tax around property investments, and new mortgage requirements and restrictions on portfolio landlords and on all buy-to-let investors.
As investors it is best to remove all emotion from the situation and look at the facts – the facts are that Mark Carney and the Bank of England have stated the objective for some time to cool the buy-to-let market down. They have, remember, at their core a significant problem – money is too cheap. You can borrow at tiny rates to invest in property, often heralded as a safe asset class, and still achieve excellent returns by buying properties that yield well.
To solve that problem once and for all, they need to get interest rates back to “normal” levels. These days, we have forgotten what those are! Historically, the UK mortgage rate before 2008 was 6%, and the historical average base rate was 5%. Since of course we have only seen mortgage rates falling and falling to a 2% average for 2 year-fixes, and base rates at 0.5 and 0.25% – a true step change.
The Bank of England still talk about a “new normal” for the next decade of 2.5% base rate, occasionally, when they do release anything on this subject. One does need to be careful, because often they release titbits of information in order to shape expectations and markets, but this does seem like a reasonable target given the damage that was done in 2008 which simply has not been repaired as yet – the gigantic airbag that is Quantitative Easing, and Zero Interest Rate Policy, is bound to take a long time to unwind.
We’ve seen the Bank take a different approach to try and cool the housing market. Overall this should be seen as a positive step to try and cool boom and bust – most investors don’t see it this way of course. It takes a particularly dispassionate viewpoint. The Bank, ultimately, have been successful. However, the drop in Sterling has meant the UK, a traditional bastion of security for money around the world, has become a bit more attractive. Another drop would make the UK even more attractive for money from North and South America, and Asia – £100bn of which flowed into the capital to buy property between 2010 and 2016.
London will always be attractive to such investors who are not looking for returns but for security; however, Manchester and Birmingham are now firmly on the radar as cities where investment property can and should be purchased. Flats are purchased at the ratio of 3:1 versus London prices, with stronger yields, and at the moment, vastly superior capital growth. These trends of 8%+ a year capital growth cannot continue of course, but I was saying similar things about the London market in late 2014/early 2015 and there was another year of rampant growth after that. If anything, it also feels like Birmingham and Manchester are earlier in the cycle than London was at end 14/early 15.
The big question that comes from the Bank’s tactics however, is, how effective do they really want them to be? There is gigantic uncertainty around Brexit and the fact of the matter is that people are now not coming to the UK in the same numbers – some industries including banking are seeing a net outflow of talent. This has to have an impact on the demand side for expensive property in the South East.
The Bank has tools at its disposal to get that market moving again – if it decides that a stagnant London market is not desirable. It may however consider that an elongated period of flat prices in London is exactly what it does want, while inflation charges away at the 3% mark.
All of this high-level rhetoric does, of course, need to lead to some projections, and here are mine:
London market – capital values to be flat, best guess 0%
South-east England – flat/small growth, in the 1-2% region
Midlands regions – growth in the 5-7% region
North West – growth in the 3-5% region
Wales – growth in the 3-5% region
South-west – growth in the 2-4% region
North-East – growth in the 2-4% region
Interest Rates – one rise to be implemented in the latter half of the year, although a strong possibility there will be no rise. I am primarily basing this on the journey of the interest rates in the US (who are ahead of the UK because they took more pain more brutally post-08), and the forward pricing of interest rates in the UK. 55% likelihood one rise of 0.25%, 35% likelihood no rise, 10% possibility that rates need to go up more than 0.25% (Brexit uncertainty primarily, and uncertainty around inflation control).
Unemployment – to remain steady, 2018 will be a year where few firms want to move too quickly, that will apply to hiring and firing, but outside of the capital, regional industries are recruiting. Brexit and the weak exchange rate is good news for traditional industries, manufacturing is up 3.6% in 2017 thanks to Brexit, and the more traditional the locale, the better off that Brexit could potentially make them on a regional level. This is why I am particularly bullish on the Midlands areas, there are plenty of primary/secondary businesses that look more viable than they have done for some time (as long as they are not having to import too much at inflated prices!)
Crash? Unlikely, although there is a really significant probability of an unseen event at this time, due to the levels of uncertainty and the unknowns involved. An election has to remain a possibility which is unlikely to help, and until more is known about a trade deal we will not understand whether inflation could potentially reach 5% or more and action would then surely have to be taken by the Bank, regardless of how temporary that inflation may be.
Credit Crunch – I see this as extremely unlikely, because the lessons learned in 2008 were “don’t let the credit dry up!” – asset prices are accused of being overvalued, although a lot of the FTSE 100 is denominated in non-UK currency in non-UK domiciles these days, so that argument is a tougher one to follow – cheap money does of course mean asset inflation, but properties or commodities could go either way as money races into “safe havens” if the stock market does have a bigger wobble. If anything, both the UK and the US currently have (in theory) pro-business governments, and thus the markets should be relatively calm at their current levels. I’d be surprised to see an 8000 FTSE, but I’ve been surprised before.
Cryptos – can’t resist a quick mention, I have to take this opportunity to go on record and say I think it will be possible to buy bitcoin in 2018 at below $5,000. Perhaps even below $2,000. This is a ramp unlike many others, an unregulated market, and there are tales of people remortgaging houses to get involved, and putting their life savings in. These sort of tales always end one way – even if we see $30,000 or higher in the new year, the music cannot go on for too much longer.
That’s it – my neck is on the line! Be gentle with me when I’m wrong…”
Chairman at Acadata, Peter Williams
“Acadata produces an independent monthly house price commentary published as the LSL /Acadata House price Index for England and Wales (see here). A separate index is published for Scotland. The Acadata index has been published since 2003 and includes both cash and mortgaged transactions. Through 2017 we have commented on the ebb and flow of the market noting the slow decline in prices, led by London. Acadata does not forecast house prices, it reports in detail, on current trends in prices and transactions by country, region and local authority, but we do take a forward view informed by other market commentary.
Looking ahead to 2018 we would see the slowing continuing reflecting both modest wage growth, rising interest rates and the general decline in consumer confidence. House price inflation in 2018 is likely to be in the region of 1% albeit with strong regional and local variations then rising to around 2% in 2019 and this is very much in line with other commentators who then see acceleration through 2020 onwards. We would take a more cautious stance on this given recent commentary on diminished wage growth and interest rate trends (not least as the Bank raises rates and withdraws from the Term Funding scheme) but we recognise that the demand and supply imbalance continues and this in turn generates price pressures. Our expectation is that transactions will remain flat at around 1,200,000 per annum for the two years and that the market will be well supported by good mortgage availability and pricing.
The OBR has recently published its housing supply forecast showing increased output up to 2021, with the government coming close to meeting its supply targets. Aside from the uncertainty surrounding Brexit and the what happens to Sterling – itself quite a key driver in terms of foreign investment in the UK property market – we have the added unknown of what happens to the Help to Buy equity loan scheme post 2021. This has been an important prop to housing output and to increased first time buyer access to the market. Getting clarity as to what happens post-2021 is going to be an important conditioning factor in terms of prices and transactions for 2022 onwards. The recent stamp duty changes are themselves not an inconsiderable boost to the market with government estimating that some 205,000 first time buyers will benefit in 2018/19, though the number of additional households who could not otherwise have bought is likely to be much smaller.
As this suggests, there are multiple effects working through the market and which will find expression over the next two years. The fan diagram of uncertainty is very wide. What is very clear is that there is no likely market collapse even though we are some way through the normal property cycle and that the most likely prospects for 2018 and 2019 are for more of the same.”
Peter Williams – Chairman, Acadata
Chief Executive at the National Association of Estate Agents (NAEA), Mark Hayward
“It’s been a big year for the housing market, with the Government pledging to improve the house-buying process, and stamp duty relief for first-time buyers coming into effect. However, looking ahead to next year, more than half of our members don’t think the FTB tax relief will have a real impact on the number of sales being made to the group.
Further, agents expect supply to remain the same but demand to grow which sounds like bad news, but if we can improve the process of buying a property, we’ll be making vast improvements to the sector which will ultimately make it easier and provide more certainty for FTBs.
Our members want to see stamp duty relief rolled out nationally to all buyers, and hold out hope that housing stock will increase. This will be a case of ‘wait and see’ – the Government has made many such promises in the past which we’ve never seen translated into reality.”
Founder and CEO of eMoov.co.uk, Russell Quirk
“The UK property market has weathered the storm of the Brexit vote, snap election and various other changes in legislation over the past year or two, and for the large part, come out the other side unscathed.
While price growth patterns have been turbulent, we’ve seen a degree of stability return to the market over the last few months and once the seasonal lull has passed, we believe the market will continue to find its feet in 2018, with prices growing at a slow but steady rate, up around 5% annually.
While London has been hardest hit of all, the capital remains an attractive proposition for home buyers and a 3% increase in property prices over the coming year is probably a realistic expectation.
Changes to the buy-to-let market have certainly looked to dampen the appetite of aspiring and existing landlords in terms of building out their portfolio. While an increased rate of stamp duty might dampen this demand marginally, the buy-to-let sector remains a lucrative proposition and it is unlikely we will see this practice fizzle out completely.”
Co-Founder and CEO of Yopa, Daniel Attia
“2018 will be a year of political and economic uncertainty, which will inevitably affect the housing market as people delay making big decisions until they have more clarity.
But on the other hand, the near-abolition of Stamp Duty for first-time buyers may help to get the bottom of the market moving, which will help to support prices further up the market.”
Head of Policy at the National Landlords Association (NLA), Chris Norris
“We expect landlords’ costs to increase in 2018 mainly due to the tax changes, although the recent interest rate rise could also add an extra £20 a month to interest payments for every £100,000 of outstanding finance.
While the impact will depend on individual circumstances, many existing landlords who currently rely on finance to fund their portfolio may have to choose between selling up or increasing rents.
Rental property can still be a worthwhile investment in 2018, and we expect new landlords to continue to enter the market, but the increased taxation of the sector, the three per cent stamp duty surcharge on additional property purchases, and potential further rises to interest rates means it will become increasingly difficult for anyone considering their first steps.”
Chairman at the Residential Landlords Association, Alan Ward
“From an investment point of view, April will see further changes to mortgage interest relief, and there will possibly be more mortgage rate increases during the year – although the market is still fairly fluid.
Landlords overall don’t tend to be buying at present – whether that will continue depends on borrowing. Those landlords with bigger portfolios tend to be more inclined to buy, those with a smaller number of properties seem to be staying where they are.”
Spokesperson from Axe the Tenant Tax, Jamie Fraser
“2018 looks set to be another challenging year for landlords and the entire private rental sector, with the government showing no signs of altering its hugely destructive course first set out on by George Osborne in July 2015. This is of course hugely disappointing and the Axe the Tenant Tax campaign continues its seemingly endless work of lobbying and discussions at the highest possible level. Our partners and supporters, – including the Property 118 campaign team – continue to meet MPs, talk at relevant events, write letters and contribute to public forums to try to get the message across of the damage to come, which is likely to be irreversible. The NLA, RLA, SAL and ARLA continue with their high profile work meeting with government to try to explain the outcomes.
The good news is that we seem to be gaining traction amongst certain influential players, and many MPs particularly seem to be getting a clearer understanding of the likely negative outcomes. Sajid Javid hinted recently at his keenness to reward landlords offering longer tenancies, so we live in hope that some sense might prevail for those landlords supplying more secure housing.
It seems clear to us that 2018 will see further rent rises and the sea of homelessness that started its upward rise two years ago will continue apace with increased evictions as landlords are forced into selling. January will also see the first tax returns without the wear and tear allowance, so many landlords will get a nasty shock, which will be exacerbated in 2019 once the first year’s returns from Section 24 add to the burden.
At this stage, all we can do is continue to challenge the pro-Section 24 position wherever we find it, and we urge all landlords and supporters to engage with our Facebook page for the latest updates and discussions. The more people that understand the consequences, the greater the chance we have of getting this ludicrous attack on us stopped.”
Chief Executive at the Association of Residential Lettings Agents (ARLA), David Cox
“2017 was a big year for the lettings industry, and tenants felt the effects of this. Unfortunately, it looks like rising rent costs are going to continue into the New Year as agents need to be moving into a 0% fee business model by October, which will push rents up as the costs are passed through landlords and onto tenants.
There is a lot of other regulation making its way through Parliament next year, which will more positively affect the rental market however – including regulation of the industry, housing courts and longer-term tenancies. While these policies will be developed rather than implemented, they should start to affect the market as agents adapt their businesses in anticipation.
In terms of the supply of rental properties, which agents largely expect to fall, we need to remember that the minimum energy efficiency standards coming into effect in the New Year could see up to 300,000 properties being taken off the market because they don’t reach the minimum requirements. This will also – in turn – push rent costs up.
Overall, the industry is going through a seismic change and the lettings market we know today will be radically altered over the next five years. This change will be painful for agents, but we firmly believe that the industry will come out of the other end stronger, more professional and with a robust reputation among consumers.”
Heading of Housing at Crisis, Chris Hancock
“We have just seen a hugely encouraging reaction by the government to our Home Campaign with the Chancellor committing £20million to support Help to Rent schemes in the budget. Help to Rent schemes act as a vital support for homeless people moving into private rented tenancies and support landlords to find, secure and maintain long lasting successful tenancies. We are seeing a rise in landlords interested in providing long term homes to people moving out of homelessness and this announcement will mean there are much needed funds available to support this work.
We are also awaiting further details on this but the announcement that it will be easier for Universal Credit to be paid directly to private landlords is extremely welcome. Quite rightly private landlords are looking for certainty when receiving their rent and direct payments is a huge incentive and reassurance, which will make it easier for Help to Rent projects to attract and work with more private landlords.
However there is still work to do as the private rented sector remains a key housing solution for many homeless people, given the supply of social housing is nowhere near the levels needed to meet need. We do also need to see a lift in the freezing of Local Housing Allowance so that people on lower incomes can compete in increasingly competitive markets and make sure they present a viable choice for landlords having to meet their own costs.”
Acting Head of Policy & Research at the Joseph Rowntree Foundation, Brian Robson
“The failure of the 2017 Autumn Budget to end the freeze on means-tested benefits means low-income renters will face continued pressure in 2018. Analysis for the Joseph Rowntree Foundation by the Institute of Fiscal Studies suggests 90% of low-income renters now face a gap between their housing benefit and their rent. The gap people have to bridge is not small – tenants on low incomes spend an average of 35% of their other income to pay the proportion of their rent that’s not covered by Housing Benefit. These sums have to be found in the context of other benefits also being frozen, despite higher than forecast inflation.
It’s in everyone’s interests to find ways to make the private rented sector work better for those in poverty. That starts with helping people pay their rent, and is why it is so important that 2018 sees an end to the freeze on Local Housing Allowance.”
Head of Policy at Shelter, Kate Webb
“The Treasury has now committed to spending 50% of the savings from the Local Housing Allowance freeze on boosting LHA rates in particularly unaffordable areas through the Targeted Affordability Fund. What it’s taken with one hand it’s now – partially – giving with the other. An extra £40 million will be made available in 2018-19 and £85 million in 2019-20 to ease pressure for approximately 140,000 households.
This falls short of our central ask to ensure LHA rates everywhere keep pace with rising rents. But amid a Autumn 2017 Budget that continued the overall restraint on social security spending, it’s a vital concession and recognition that the housing benefit cuts have gone too far. The Treasury deserve credit for listening to widely-held concerns.
Failure to look at housing benefit would have made a mockery of the government’s commitment to reducing homelessness and re-announcement of its Homelessness Reduction Taskforce. The rise in homelessness can only be reduced by ensuring people have access to affordable homes. In the long-term this means the government committing to a meaningful increase in genuinely affordable housing, but as a first step, an adequate safety net for people hardest hit by the housing crisis is essential.” [Quote extracted from the Shelter blog with the organisation’s permission]
Director at The Ethical Lettings Agency, Carla Keegans
“Universal Credit (UC) – The impact of UC has already been seen in our day to day activities and it’s been mixed.
To cite a worse case example: We signed up two new tenants in mid-August. Both were existing Local Housing Allowance (LHA) tenants in their previous properties but they fell into UC during the transition period. It took 9 weeks to receive any payment from the Department of Work and Pensions (DWP) towards their rent. We had to spend a significant amount of time liaising with the DWP to resolve several issues for both tenants. During this period, we had to regularly speak to the landlord to explain what was happening and to prevent eviction notices being served. We also had to issue letters to the tenants to warn that they were at risk of eviction due to the rent arrears, whilst also working with them to resolve the issues. This was obviously stressful for them, one of whom had a baby about 6 weeks after moving in. When we eventually resolved the issues and received the first payments, they weren’t correct. It took a total of 3.5 months for the problems to be rectified (with the correct back-payments). We also had to liaise with the Local Authority to claim Discretionary Housing Payments (DHP) for the tenants, which we were successful in doing, but this money can only received once UC is in-pay. We now have UC paid direct to us because of the arrears (caused by the DWP delays), along with deductions towards the arrears made on a monthly basis.
On the positive side, once UC is in-pay, the fact it is paid per calendar month is more helpful than the LHA four-weekly payment cycles. You can request deductions towards rent arrears, which is also helpful (this is not possible under LHA).
The DWP pay UC payments for individual tenants, rather than all tenants being on one schedule as is the case with LHA. This means that more administrative work is required in any one month – i.e. checking that the correct payments have been awarded etc. Also, inconsistent or missing payment references mean additional work as we have to get in touch with the contact centre to determine the relevant details.
Managing Local Housing Allowance (LHA) Tenancies – People are people and most are good. Some aren’t and some make bad tenants; this usually has no correlation with being rich or poor! However, given the huge changes in the PRS over the past decade, it would be helpful if letting agents had more of the skills and knowledge of issues that can often be linked to people living in poverty. These include benefit delays and associated difficulties as well as knowing how to navigate the system to ensure correct and timely payments. Understanding support needs (mental health, learning difficulties, addictions, domestic abuse etc.) is also important as is the issue of homelessness and the real impacts of serving eviction notices. To put this into context: almost 50% of the private rental market in Redcar and Cleveland consists of LHA tenancies, and so there is a real need for agents and landlords to understand the above issues to ensure successful tenancies. Given the huge increase in size of the private rented sector nationally, and the corresponding number of people in receipt of benefits to help pay their rent, the lettings industry may be behind the times. The LHA part of the rental market should perhaps be less about a sales culture and more about supporting people to be good tenants – as this ultimately benefits landlords too by minimising voids, tenancy and property problems whilst maximising rental income.”
Managing Director at The Castledene Group, John Paul
“2018 is going to be an interesting year in relation to the property sector. The tenant fee ban will probably com into effect which will no doubt increase charges to landlords and in turn increase rents for tenant, hurting the very people the Government intended to help. This is exactly what has happened in Scotland so its not a major stretch to think this will happen in England.
Universal Credit has just been slightly improved in the budget but it doesn’t go far enough to improve the incredibly flawed system. UC helps no one. Landlords struggle with the length of time it takes to get their rent, tenants struggle to budget and many rely on food banks.
Over all the sector is becoming more regulated and professionalised, sometimes thats a good thing and sometimes its not necessary and stifles innovation.
For professional landlords and agents 2018 could be an interesting year ahead, one full of opportunity as the rogues/cowboy agents and landlords are being forced out of the industry, which of course I welcome with open arms.”
Experienced Landlord Since the 1970s, Mary Latham
“I believe that 2018 must be the year that private property investors review our business models. In my opinion there are several issues which will make a huge difference.
The first is Welfare Reform, particularly Universal Credit and benefit caps. The Homelessness Reduction Act will put all local authorities under more pressure to work with private landlords because we are the only people who have enough homes to make a difference BUT these authorities have been “shot in the foot” by Welfare Reforms and only those landlords and agents who have no other choice will work with their councils to continue to plug the gap in supply and demand. Many landlords and agents have found alternative tenants and will not go back until the risks are removed if at all. Those who have not found alternative markets need to explore their options.
The second change that we will see is in the student market, which is huge in many parts of the country. We will see a reduction in demand for several reasons. Firstly, the introduction of 2 year degree programs. Secondly, the introduction of more online learning – which is actually happening in most universities where student spend less and less time in the university and more and more time on their PCs. There is actually no need for them to leave university with huge debts having spent 3 years living close to the university. They could achieve far more by travelling the world and learning on and off line while building a great CV. Furthermore, the amount of corporate investment in this market increases year-on-year which puts private landlords under pressure to raise standards and therefore reduce ROI.
It’s time for private landlords to do what we do best – look at emerging markets and move on before demand disappears and the value of our properties begins to fall. There has been too much investment in HMO and we are seeing reduced rents and more voids in many parts of the country. Couple this with the increasing regulation and the cost that involves and the ROI will fall further in 2018.
Finally, technology is changing the way that we live and work and I believe that people will soon chose to live in a different environment rather than be forced to live close to a place of work, there will be many opportunities for the PRS to invest in areas of the country that offer a more convivial lifestyle. This will have an impact on the whole property market, as people move out of big cities and into areas which have not been the traditional domain of the PRS. Renting is here to stay and we need to begin to look at where future renters will choose to live before prices begin to rise in those areas. As one door closes another opens, and those who succeed in property investment are those who see the future and move quickly.
To summarise, 2018 should be the year that we all review our business models and make a plan B.”
Mary Latham @LandlordTweets, experienced landlord since the 1970s
Founder and Director at Landlord Action, Paul Shamplina
“Undoubtedly, it has been another tough year for landlords. With so many legislative changes in the last 18 months (wear and tear allowance, Right to Rent checks, landlord licensing, etc.) it is more important than ever for landlords to fully understand their obligations in order to protect their investment and tenants, and ensure they are adhering to new and existing laws. However, for those who focus on the long-term gains by educating themselves and working closely with their letting agents, landlording will still be a good business and a better investment than many of the alternatives. If sums are done correctly and compliance is taken seriously, property can still be financially rewarding in 2018.
Regarding Universal Credit, the Government finally had a realisation there is a range of fundamental issues which need to be urgently addressed and bowed to the volume of criticism levelled at it’s scheme by announcing changes in the Autumn Budget. The changes, which included removing the 7 day waiting period, before eligibility commences; access to a full months’ advance (loan), instead of current 50%, payable within five days of applying; extending the repayment period for advances from six to 12 months, will undoubtedly help ease concerns. It was also announced that new housing benefit claimants could continue to receive it for an extra two weeks, while waiting for their Universal Credit payments to start. This news was welcomed by tenants and landlords alike and should help reduce rent arrears at the point of transfer to Universal Credit.
However, I do still have a number of concerns. The reduction in the waiting period by seven days doesn’t apply to the vast majority of claimants anyway, so this will only help the minority. Of greater issue is the increasing complexity of the scheme; staff assessing Universal Credit claims have not been properly trained, meaning mistakes are being made on an all too regular basis; and as the Full Service rollout expands, more complicated cases will arise, causing even more challenges for DWP staff. Some experienced commentators have suggested the changes, whilst welcomed, represent ‘sticking a plaster’ to a fatally flawed system which requires re-engineering, rather than tinkering and have grave doubts concerning DWP’s ability and willingness to alter the direction of travel. Until the system has proved itself ‘fit for purpose’, landlords will remain cautious about renting to those in receipt of Universal Credit for fear of unsustainable levels of rent arrears.
Another significant change for landlords in 2017 was the cut to tax relief. Until this year, landlords could deduct mortgage interest and other finance-related costs from their rental income before calculating their tax liability. April 2017 marked the beginning of this interest relief being slashed gradually from 100% to zero by April 2020. Instead, landlords will claim a tax credit worth 20% of their mortgage interest – a change which will hit high-earning landlords hardest.
My top-tips for landlords heading into 2018 would be:
Get your accounts in good order: Landlords with mortgages need to understand what impact changes to mortgage interest tax relief will have on their profits so being organised and understanding what is coming in against what expenses you have is essential.
Create a business plan: Following the introduction of stricter affordability tests imposed by lenders this year, landlords need to have all financial records relating to their portfolio documented in a business plan for any new mortgage application.
Put a price on your time: If you are struggling to keep on top of changing legislation and your obligations as a landlord, seek professional help. The cost of having your asset taken care of will be far less than a fine for non-compliance.”
Property Market Analyst and Commentator, Kate Faulkner
“At this time of year, people spend a lot of time looking ahead, trying to predict what’s to come – and the property industry is no different.
And if you’re thinking of buying, selling or investing, you probably wish you had a crystal ball to help you make the right decisions. Unfortunately that’s not easy in the property market, but most experts agree that the next five years will see slower property growth, which will be encouraging for some, but less good news for others.
Of course, how property performs is very much dependent on location and the deal you do, on top being faced with hundreds of micro property markets all over the country which vary from street to street and even house to house.
From an investor’s perspective, slower growth may seem like a poor outlook and it’s true that the days of property prices doubling every 10 years are over, for now at least. Recent research from the BBC shows that property in more than half of UK wards is worth less than it was 10 years ago, if you take inflation into account.
Add to this the loss of various tax reliefs for buy-to-let landlords, the stamp duty surcharge, fines of up to £30k and stock levels being at their lowest, potential investors could be forgiven for thinking investing is now an uphill struggle.
In fact, property is typically a high-risk investment for the first five years, so it’s essential to visit an independent financial adviser or wealth manager to assess whether you may be better suited to a financial investment rather than property, especially with the tax advantages now afforded to financial investments.
But there are still plenty of advantages for buy-to-let investors; slower growth coupled with a subdued sales market means bargains may be available and rental inflation is expected to reach a new high. Meanwhile, mortgage rates are still low, which can boost your returns, and there are leasehold changes ahead which could offer new opportunities.
Research as a result has never been more important. As well as seeking financial advice on returns, make sure you understand local property values and achievable rents, by talking to quality agents who know their market like the back of their hand. Moving forward, with the need for agents to have Client Money Protection (CMP), lose letting fees and become regulated, many will fall by the wayside, so it’s essential to choose an agent who is able to survive i.e. one that is a member of ARLA or RICS.
Key for 2018 is maintenance. It’s not just that a well-maintained property will be easier to let, it will also ensure you don’t let things slide could lead to problems escalating and you falling foul of the many letting rules and regulations. So a 15-25-year maintenance schedule is a must, to keep your property in prime letting condition.
Advice for 2018 is basically get your financial life plan in place and ensure your property investment will deliver – especially focusing on delivering homes to legal property standards.”
Private Rented Sector Consultant at Letting Focus, David Lawrenson
“The trend over the last five or so years has been for rents to rise, more in less in line with general and wage inflation, though of course there are differences locally.
What we think will be most interesting over the next five years will be what the impact of the increased burden of regulation, tougher landlords mortgage underwriting rules and especially increased taxation of the sector will be on the size of the sector.
We are convinced that there is a very good chance that these factors will lead the private rented sector becoming smaller in future years, because more and more landlords will think the business is not worth it any more. Indeed, a recent report from Kent Reliance has shown that the smaller landlords (with just one or two properties) have already stopped adding to their holdings.
If supply of available-to-let properties were to fall, in the absence of any change in demand from tenants (admittedly a big if), then we would certainly expect see rents increase far ahead of the rate of inflation, in those future years.”
Director at Rita 4 Rent, Michael Wright
“From a tax perspective, 2018 will certainly be an important and interesting year for landlords. Whilst the Section 24 changes began to phase in on 6th April 2017, landlords will not start to see their taxes affected in reality until they complete their 2017/18 tax returns. Of course, these cannot be completed until 6th April 2018 onwards, up until the final filing deadline of 31st January 2019. We still find it surprising how many landlords are still unaware of the Section 24 changes, so 2018 will certainly ruffle a few feathers once Section 24 begins to bite.
There has been much interest in operating through a limited company as a solution to combat the changes, but there are many pros and cons here, as well as plenty of other possibilities. Ultimately, no two landlord’s circumstances are the same, and it is important to seek good property tax advice to help ensure you are making the right decisions for the right reasons.
That being said, it is also important to keep an eye out for any future tax developments, as landlords have been targeted numerous times of late at Budgets. With an arguable let-off at the last Budget, who knows what is in store for the 2018 Budget. Should more changes arise, it will continue to be a case of understand, plan and adapt.”
Co-Founder of Property Tribes, Vanessa Warwick
“I have really struggled to predict what might happen in 2018, because there is so much uncertainty facing landlords – and one things landlords don’t like is uncertainty! What I can say is that I feel that it will be a year of legislation that has seemed a long way off, coming home to roost and bite! Section 24, the PRA, and Energy Efficiency Standards will start to sting, and those landlords who were unaware of their existence will get a nasty shock in the early part of the year.
With these threats coupled with Universal Credit, increasing landlord licensing, further interest rate rises, and Government meddling, I feel that a significant proportion of landlords will go into a kind of hibernation or “holding pattern”, just treading water with what they have and seeing how things pan out.
I believe that amateur and accidental landlords may not see any benefit in investing, and will likely seek to exit in 2018, and newbie landlords will be deterred. As they make up a significant proportion of the landlord “mass market”, I can envisage that rental supply may contract, pushing rents up.
I predict that the landlord who survives and thrives in 2018 will be a landlord who has professionalised their operation, and commitment to education and learning, and who is pro-active in managing their properties, looking to maximise income and minimise costs.
As a wider picture, I expect a lot of pain and fall out from the PRS, increasing homelessness, and local authorities increasingly struggling to discharge their housing obligations into the PRS. It will not be pretty, and both landlords and tenants will be casualties. So time to batten down the hatches and ride out the storm of uncertainty that will prevail throughout 2018, with a view that there will be blue skies and plain sailing beyond – because every storm has to pass and every cloud has a silver lining.”
Co-Founder of Global Alternatives (owner of Property Crowd), Charles Tan
“The UK real-estate market, commercial and residential, is already slowing, particularly in London, and it may decelerate further over the next year or so as the ripples spread outwards from the capital until the Brexit cloud lifts. But it’s hard to envisage a crash when interest rates and unemployment are so low and credit remains accessible.
Irrespective of the cyclical slowdown, the structural underpinnings of the UK property market – scare land supply and dense population growth (latest figures show the sharpest increase for 70 years) – point to continued steady growth in volume and prices in the medium to long term.
Crowdfunding is set to play an increasingly important role in the real-estate market. Despite a plentiful supply of credit, smaller developers still struggle to access capital from banks sticking rigidly to stricter lending criteria after the financial crisis. And, notwithstanding the recent tiny increase in bank base rates, lenders, having discovered the yield and diversification benefits of property crowdfunding, will continue to flock to the new platforms that have sprung up.
It was interesting to see that in a recent survey by the research boutique CREATE, institutional investors across Europe put real estate debt right near the top of the list of asset classes that they find most attractive over the next three years. Like infrastructure, real-estate offers steady capital growth, regular income, and inflation protection, and institutions can’t get enough of it. No wonder that UK pension schemes now have their highest average allocations to real estate since 2008 (5.3%) while average equity allocations have sunk below 30% for the first time on record as schemes continue to de-risk, according to data from the Pension Protection Fund.
Where institutions tread, retail investors are sure to follow. I doubt, however, that they will be able to “shop” at quite so many different outlets in the future. There has been an explosion in property crowdfunding sites in the last few years, all selling similar wares. But their business models are not all equally robust.
At Property Crowd, we have resisted the temptation to try and do everything ourselves under one roof. Instead, we have differentiated our business by partnering with a range of experts to bring our deals to market. These include established institutional lenders to originate, manage, and part-fund the deals and top law firms to perform the legal due diligence. We have also put in place independent custody arrangements for holding investors’ cash and securities. In addition, we only offer short-term investment opportunities with clear exit strategies that are secured against assets with low loan-to-value ratios.
These safeguards add up to a robust investor protection framework that we believe will help us stand out from the crowd as the market inevitably consolidates.”
Founder & CEO at Homegrown, Anthony Rushworth
“Generally our view is that 2018 will be a really interesting year for the property market but unusually because of housebuilding rather than house buying. Even before the budget we were expecting to see potentially record numbers of new homes being built in the UK and this was further supported by a budget which invested heavily in this area.
Despite some government-backed initiatives to incentivise buying (e.g. Help to Buy and the latest changes to stamp duty for first time buyers), we expect uncertainty associated with Brexit to continue to suppress demand as potential buyers hold off making a decision until the UK leaves the EU in 2019. The property market could also be affected by further housing policy changes, movement in interest rates and changes in currency rates.
As a crowdfunding platform that focuses on property development, we have seen substantial demand from exiting buy-to-let landlords in 2017 who are actively looking for alternative ways to invest in property and we expect that to continue in 2018.
Years of house price growth, recent tax changes, tighter rules on mortgage lending, falling rental yields and increased regulation all appear to have contributed to the move away from direct investment. We expect the concept of investing in value-creation through property development, either directly or through a platform to be popular in 2018 at a time when the market consensus expects house prices to remain flat.”
Founders of BrickVest, Emmanuel Lumineau and Thomas Schneider
“2017 was a strong year for the real estate industry. Despite a number of external factors that could have easily affected market performance, low interest rates remained stable and demand in real estate investment products continued to rise.
Brexit – The Decision to leave the EU has clearly had an effect on the UK but we believe that across the continent, there remains strong deal flow levels and investment opportunities. Our recent research showed that one in three (33%) commercial real estate investors highlighted Germany as their preferred region to invest in. This is the first time that Germany has been chosen as the number one region to invest in, and ahead of the UK which was selected by a quarter (27%). The UK saw a drop from 31% in the last quarter and from 32% in the same Barometer 12 months ago. The Barometer also revealed that UK, French, German and US investors are now less favourable towards the UK since last year. 45% of UK, nearly a quarter (21%) of US, a fifth (19%) of French and 18% of German investors suggested they favour the UK this quarter, representing a decrease from last year across the board from 46%, 26%, 28% and 21% respectively. Despite investors seemingly focussing away from the UK, there has been an abundance of international capital flowing into real estate, almost every major institutional investor globally has been increasing their portfolio allocation to real estate over the last five years mainly because of lack of alternatives. Moreover, the average risk appetite of BrickVest’s investors continues to rise to 52% from 49% last quarter and from 48% this time last year, meaning a sentiment shift from low to balanced risk.
Interest Rates – The Bank of England’s decision to raise interest rates in the UK in November was momentous for the economy and should signal the start of a series of gradual increases. The Bank decided that inflation is potentially getting out of control and the economy now requires higher borrowing costs. In contrast, the ECB’s decision to unwind its QE programme to €30 billion a month is a glowing endorsement of healthy Eurozone growth and falling unemployment, which will more than likely mean that interest rates will stay at historic lows until at least 2019 in order to help financial markets adjust. Increasing interest rates has a direct impact on real estate. Higher interest rates and rising inflation make borrowing and construction more expensive for owners, which can have a constraining effect on the market but can also lead to an increase in property prices. In a low interest rate environment, European real estate yields will continue to look attractive and real estate serves as a good alternative to fixed income.
Value in 2018 – We expect to see increasing demand for real estate in 2018. Indeed our research showed that two in five (40%) institutional investors plan to increase their allocation to European commercial real estate while 44% expect commercial property yields to increase in the next 12 months, just 22% believe they will decrease. We believe that the best value can be found in real estate deals that are not too sensitive to price erosions. Investors should keep a close eye on the risk of high leverage and debt service coverage ratios. We believe that the best investment options for 2018 will most likely be found in value-add real estate in combination with a conservative financing policy.
Investment Strategy 2018 – Given the fact that we believe demand will remain relatively high in 2018, one of the main challenges will be to find good deals. Investors will have to find the right balance of higher leverage (due to continually low interest rates) and being able to handle potential price corrections in the event that the market cools off due to external factors such as Hard Brexit, escalation in the US vs. North Korea conflict, etc… Institutional investors are investing in less liquid secondary and third level cities to achieve acceptable going-in cap rates (cap rates in major markets such as Paris are historically low). Investors will also be forced to look at less traditional investment products such as student housing, services apartments, and senior housing or industrial to get better returns. The overall risk of these investment is that they are in general less liquid and if the market bounces back, cap rates will also increase much faster than in downtown Paris. In order to manage this problem, some institutional investors are now investing in real estate debt products so that they a.) have their exposure to real estate but b.) also have an achievable exit (i.e. when the loan maturity is reached). We think this might be smart strategy in 2018 given real estate prices are already very high and might fall in the long term (so no upside opportunity but also no real downside risk).
Sectors to Watch – We continue to see the highest level of volatility from the office sector as many international firms put decisions on hold over their long-term office space requirements. Our research with institutional investors highlighted that more than a third (34%) believe the biggest real estate investment opportunities will be found in the office sector and the same number in the hotel & hospitality industry over the next 12 months. Three in ten (31%) thought the industrial sector would present the biggest commercial real estate investment opportunities over the next 12 months while one in five (19%) cited the retail & leisure sector.
Mifid II – When implemented in January 2018, revisions to the EU’s Markets in Financial Instruments Directive (MiFID II) will radically change the regulation of EU securities and derivatives markets, and will significantly impact the investment management industry. It will have a significant impact for wealth and asset managers on profitability, product offer and their distribution across Europe, operating models and pricing and costs. As a consequence, we expect MIFID II to widen the gap between global, infrastructure-based players, and local players. Crowdfunding platform may be affected by these changes.
General Data Protection Regulation (GDPR) – This regulations comes into force on 25 May 2018 and represents the biggest change in 25 years to how businesses process personal information. The directive replaces existing data protection laws and will significantly tighten data protection compliance regulation. Like other industries, real estate companies will have to conduct a risk analysis of all processes relevant to data protection.”
Founder of The House Crowd, Frazer Fearnhead
“In 2018, we should expect mixed fortunes for the UK property market. For traditional operators, the business environment has become somewhat adverse, and it’s unlikely to get better in the year ahead.
Small developers don’t have access to the finance they need to build houses, and there has been a shortfall in available buy-to-let properties. Landlords know how difficult it is to make any sort of return on a standard buy-to-let portfolio, and are cutting their losses and selling up. Expect property values within London and the M25 to fall by as much as 10% – with the Midlands and North West making gains and growing by around 4-5%.
The property market of 2018 won’t look anything like the property market of yesteryear. While traditional operators pack up and leave, peer-to-peer lenders will experience serious growth: their model offers the ideal risk/reward ratio, and their investments are flexible and secure. As more people become aware of it, more will take advantage of it.”
Spokesperson at LendInvest, Carmen Dixon
“Every quarter, the LendInvest Buy-to-Let Index ranks 105 towns and cities across England and Wales to find which markets have the most attractive metrics for buy-to-let investors (see our latest issue here). Over the course of 2017, we have watched many of these markets move up and down the rankings as the dynamics of their individual regions change over time.
Hull is a standout performer for 2017. Having been on the cusp of the bottom 10 at the end of 2016 (#99), Hull has been in the Top 10 since September and is now at #6. Cambridge is another big mover, ascending 69 places from #83 to #14 in the Index. Slough is the third best performing market. Now at #16, it has moved up 63 places from #79, thanks in no small part to having one of the largest growing capital gains rates in the country. With the exception of Hull there seems to be less of a focus on Northern cities here, and far more cities located towards the centre of the UK moving up the Index.”
Co-Founder of Crowdlords, Richard Bush
“2018 will be the year we begin to see the impact of the Governments successful strategy to “professionalise” the Private Rental Sector. Some would say we should be glad to see changes in legislation having the effect they were designed to have, whether we agree with the policy or not?
However, if like me, you believe that private landlords play an important role in the housing market and in society in general then that joy should be short-lived. Private landlords bring diversity to the rental market and they invest in areas that the Institutional PRS investors wouldn’t even consider. And they make a profit from it, profit which is fed back into the local economy as well as generating significant tax revenues.
This year’s surveys have all reported that the number of private landlords, as well as the number of properties purchased as buy-to-let investments, are likely to reduce significantly in 2018. This could be good news for some first time buyers who have been lucky enough to save for their deposits, but it could also result in a reduction in the number and range of properties available to rent. Which undoubtedly will result in rent increases burdening the very people the government set out to help in the first place.
That’s why 2018 will be the year that property crowdfunding will begin to make sense to more people. It offers an alternative and significantly easier way for those ‘would-be’ private landlords to invest in property. Whilst at the same time, providing the funds that professional landlords and smaller developers need to build or refurbish a diverse and appropriate range of homes for rent. Funds that are harder and harder to get from traditional sources.”
Founder and CEO of Property Moose, Andrew Gardiner
“PropTech, as an industry, seems to have experienced exponential growth. In 2018, I believe we will watch the market consolidate, and naturally, institutionalise. Collaboration is likely to play a significant role in uniting the landscape, with firms recognizing the value of moving forward together. As businesses grow with time, reputations will continue to develop and offerings will reach a wider market, institutionalising the industry beyond nascence.
In planning our next steps, we should remember that innovation lives a short life – novel ideas lose their impact once they are accepted. At this point in the market’s lifecycle, we cannot afford to settle or grow comfortable with how we’re driving the industry forward. The market is moving quickly away from its beginnings, and we need to keep pace with this evolution or else we run the risk of losing momentum. If you’re not moving forward, you’re falling behind.”
Co-Founder of Simple Crowdfunding, Atuksha Poonwassie
“I believe that property financing will become more interesting in 2018 and I look forward to seeing property professionals further embrace alternative finance. I am expecting to see a growth in alternative finance opportunities and a change in the offerings of more traditional lenders. The area that I am most excited about is crowdfunding and peer-to-peer lending as this presents a substantial opportunity for both fundraisers and investors. The recent ‘4th Alternative Finance Industry Report 2017’ published by the Cambridge Centre for Alternative Finance showed significant growth in the alternative finance market overall in 2016. The total size and growth of the overall market represents an annual growth of 43% to £4.58 billion. Of this, the peer-to-peer property lending market grew by 88%, with real estate crowdfunding falling by 18% from the previous year. The total number of active investors grew from 1.09 million in 2015 to 2.5 million in 2016 representing an increase of 131%.
Over the next 18 months, I expect this upward trend in property alternative financing to continue. I believe that real estate crowdfunding will stabilise. Crowdfunders in this space have come and gone and I expect there to be a consolidation over the coming months and years. Peer-to-peer for property will to continue on an upward trajectory with simple enhancements; an increase in auto-selection, ISA investing and also more institutional funds being accessible. This is all good for those looking to raise funds.
This also presents an opportunity for Investors. I expect that the Simple Crowdfunding ‘Learn Whilst Investing’ program where investors invest and learn from the fundraiser throughout the project lifetime will become more popular. Having spoken to many investors in the community, this allows them to invest in areas of interest to them such as commercial to residential or planning gain and learn from property professionals who are already active in this area. It also allows them to invest smaller amounts into multiple projects.”
Managing Director at The Buy to Let Business, Ying Tan
“There’s no doubt Limited Company lending will increase in 2018. TMW’s return to the limited company market is a sign of the importance of the sector. A leading name in the buy-to-let world, it last offered loans in the Limited Company arena in 2011 but now there is such appetite for these products it clearly does not want to miss out.
I doubt the PRA criteria changes will cause too much trouble in 2018. Yes, landlords have to jump through a few more hoops to access finance but as with other regulatory changes, landlords will simply factor this into their application now and will accept it may take a little longer to get to completion. That being said I do think we’ll see greater demand for bridging loans – we all know how quickly the buy-to-let world moves and property investors will need access to fast finance on some occasions. Bridging has always been a friend of the buy-to-let investor and I expect it to become an even more important tool for them next year.
Elsewhere I think the next 12 months will be relatively calm for the sector (at least by current standards!). Lenders have now bedded in the changes from PRA and stricter stress testing and landlords will continue to rise to the challenges they face. And, with any luck, the chaos surrounding Brexit should mean the buy-to-let sector gets a little break from government interference for a while.”
Associate Director at Enness (High Net Worth Property Finance), Chris Lloyd
“2017 has certainly been a challenging year from a buy-to-let lending perspective with the mortgage / remortgage application process becoming more difficult. However, moving forward, 5-year fixed mortgages will remain popular and borrowers will generally be able to secure more finance with these extended terms (relative to the 2-3 year products).
Limited company buy-to-lets are also becoming a lot more popular, particularly amongst portfolio landlords. At the moment, the rental stress-testing is simpler on these types of loans. In spite of the base rate rise, we’re seeing that there are some very good Limited company buy-to-let rates which I feel will remain in the coming year – particularly as more competition enters the space.
In terms of buying activity, landlords seem to be increasingly focused outside of London due to better yields and perhaps better prospects of capital appreciation.”
Advisor at Bespoke Finance Direct, Paul Lowcock
“The new PRA regulation will continue to dominate the Lenders processes and procedures, and dampen their appetite to lend to portfolio landlords. The Limited company, portfolio landlord (4+ owned) and House of Multiple Occupation spaces have and will be dominated by a handful of specialist lenders. This will provide less competition and may increase rates and fees as well as underwriting as they can afford to be more choosy. We have seen this already as clients who would have fit with traditional high street lenders now do not fit and have to be directed to these specialist lenders to remortgage.
Obviously this has lengthened the time it takes to arrange a mortgage by about 2 weeks, and we expect lenders to not get up to speed until the later part of 2018, and applicants and estate agents will have to get used to this as well as start to use experienced brokers like Bespoke Finance due to their contacts and experience with the specialist lenders.
New Special Purpose Vehicle (Limited Company) buy-to-let purchase will start to dominate the market which may bring some new lenders to the market as with TMW, but this will be limited to small distribution channels until the market settles. We expect loan to values to stay between 75%-80% although Kent informs us they have no intention of reducing their 85% LTV product as long as the rent fits. We also believe that the 5-year fixed products will become far more popular to help fit the rental stress tests and to secure a longer deal due to the Bank of England’s first rise in 10 years.
Anybody entering the market may start to pick some ‘off the shelf’ properties with existing tenants as some older landlords look to sell some of their portfolio as tax rises bite, so could be a busier year for new landlords with stable background earnings and good deposits.”
Managing Director at Mortgages for Business, David Whittaker
“The outlook for 2018 is mixed. New buy-to-let lending is predicted to be lower than the top expectation of £35bn for 2017. The tax changes are only just starting to have an impact and stricter EPC rules kick in from April, both will prompt more landlords to act. Some will certainly exit the market. Those who do will create an opportunity for those who decide to carry on.
Many of our clients tell us they have expansion plans in their sights. Financial advice is higher up on their agendas and investment strategies are shifting to accommodate the changing environment. A tougher market indeed. But not an impossible one.”
Director at Coreco, Andrew Montlake
“The next year, in fact the next couple of years, is going to be very important for the buy-to-let market in general as landlords start to see the tax changes have an effect on the income they earn from their properties. I still feel that too many landlords have not really come to grips with the changes and once they start to see a reduction in their income we may see more looking to sell.
That said, property in general is still seen as a good investment by many who like the fact that bricks and mortar is something tangible. With no meaningful increase in the numbers of properties made available for buyers, especially in high demand areas, and household creation still increasing, rental prices look set to hold their value.
Whilst some new landlords may be put off by the extra stamp duty and tax changes, professional landlords will still be looking out for deals in what is set to become a buyers’ market. We will no doubt continue to see a growth in the number of landlords looking to purchase future properties in Limited Company names and lenders will increase their availability of products in this arena. The buy-to-let mortgage market will be dominated by remortgage business rather than purchase in 2018 and lenders will continue to fall over themselves to try to attract this type of business which will keep product rates at the low levels we have seen this year.
If anything, competition will increase in this market as new lenders continue to come into the buy-to-let arena.”
Director at Searchlight Finance, Simon Allen
“The buy-to-let market will be one of constant change and product innovation. Now portfolio lending is with us I can see lenders relaxing their requirements throughout 2018 as at the moment with some it’s a barrier to do business. More lenders are forecast to enter the Limited company buy-to-let market and competition can only be good for investors and landlords.
The overall buy-to-let market will reduce again but portfolio landlords should be able to take advantage of increased stock. Low yielding properties will continue to be an issue and I see more investors moving into semi-commercial, HMOs and blocks of flats. Location is key for these property classes as lenders are fussier but still open for business.
As there are too many lenders in the market I see changes to criteria and new products. The areas that need this are bridge to let, refurbishment lending and multi-property portfolios.”
Managing Director of Commercial Mortgages at Shawbrook Bank, Karen Bennett
“The Prudential Regulation Authority (PRA) changes implemented earlier this year could result in a period of adjustment for the buy-to-let market with a slowdown during 2018. Landlords will be waiting to see how it will impact on their portfolio, holding onto existing portfolios or making fewer acquisitions.
Notwithstanding a more difficult environment, the fundamentals of the buy-to-let market remain robust and as an asset class it will remain an appealing investment with a combination of leverage, strong rental demand and long term capital appreciation remaining attractive.
It would however appear to be favouring the professional landlord who is most likely to have the equity and scale from larger portfolios to better weather the changes and we will potentially see smaller investors exit the market altogether.”
Business Development Manager at Optimise Accountants, Simon Misiewicz
“Some property industry commentators are predicting that 2018 will present some very real and lucrative opportunities for savvy property investors in the UK.
Property developers in the City have been reporting strong performances across their property portfolios. This is in the face of uncertainty, and difficulties in the aftermath of Brexit. As we predicted in 2016, braving the initial post-Brexit storm was a wise choice.
Another interesting development post-Brexit, and one which our property tax experts believe will continue in 2018, is the increased demand for rental properties across the UK. Investor appetite has increased across the property sector, with no sign of depression in the buy-to-let market. In fact, my property tax team are busier than ever before, with new landlord clients on board.
Confidence in the property investment sector continues to remain buoyant, and I believe that post-Brexit the strong rental demand will remain, with positive confidence in the property sector in the UK ongoing.”
Founder and CEO at Caridon Property, Mario Carrozzo
“The buy-to-let market is currently looking very bleak due to a combination of factors such as changes in stamp duty for second home purchases, mortgage interest relief restrictions, base rate rises and regulations specifically affecting first time buyers. This will, in my opinion, create more uncertainty and a slow house price growth in 2018.
The London area will take the biggest blow and I feel many investors will be investing outside the Capital in the hope for better yields. Hopefully we should see the market recover again in 2020 once the Brexit negotiations are concluded and interest rates have stabilised.”
Head of Lettings at Rightmove, Sam Mitchell
“I tend to refrain from making predictions but, as highlighted in our Autumn update, the exodus of buy-to-let investors has yet to come to fruition following the first tranche of Section 24 of the Finance (No. 2) Act, Prudential Regulation Authority (PRA) borrowing restrictions and other regulatory reforms.
It is worth noting that the effects of restricted relief on mortgage interest may take some time to filter into the market. In the 2017/18 tax year landlords with personally owned properties still have 75% mortgage interest relief in addition to a 20% credit on mortgage costs. Noticeable tax bill increases will therefore be truly felt from 2019 onwards (as a result of the 50% tax relief restriction in place for the 2018/19 tax year). In turn, there may be some time before any negative effect on rental supply manifests.”
CEO and Founder of Upad, James Davis
“It may seem doom and gloom for landlords in 2018, but there’s positives and negatives that any industry faces. I believe many landlords will be in for a shock when they come to file their first tax return in April as we start to see the impact of the restriction of mortgage interest relief- being phased in over a 4-year period. We’re also going to get more clarity, and hopefully an implementation date, for the fees ban, which is going to be huge shock for many letting agents and landlords with fees averaging £202 in England – but a huge plus for tenants facing increasing tenancy fees.
On the plus side, we’re going to be seeing incentives for longer tenancies of 12 months or more, which I believe will reduce void periods and the hassle factor of re-letting for landlords, and give more security to tenants in the booming rental sector. I also hope to see a more widespread use of deposit insurance schemes, giving tenants the option to pay a monthly premium rather than a lump-sum deposit. We surveyed Upad landlords and found that 39% of landlords didn’t think an insurance scheme was a better option, so I’m hoping we’ll see that attitude shift as we gain more clarity on the insurance policies.”
CEO of No Agent, Calum Brannan
“I’ve seen a lot of doom and gloom peddled by the industry and the media about a mass exodus of landlords from the PRS sector, and I think there’s a lot of exaggeration there. What we at No Agent are seeing with our customers, and we will see more of in 2018, is landlords getting savvy and running their portfolios more efficiently and professionally.
A lot of landlords started to operate through a Limited Company and to make more use of new online tools available for searching and letting homes, accessing buy-to-let mortgages, etc. These landlords are pushing for more innovation in the lettings industry, and it’s encouraging to see the government supporting the trend with initiatives like the £2 million competition for fintech applications that will help renters boost their credit scores.
So I am very optimistic about the PropTech industry in 2018. As for what all this means for the traditional lettings industry, I think next year will be sink or swim for many agents. Once the tenant fees ban will come into effect, a lot of agents will find that their customers are migrating to PropTech solutions to avoid the costs being passed on to them. So high-street agents will have to close shop or adapt.”
Director of Strategy and Business Development at Rentr, Adam Paliwala
“Expect residential lettings to remain buoyant in 2018. A rise in interest rates is likely fuel a slowdown in house sales and a consequent pickup in lettings activity. Buyers with capital are likely to be in a strong position to invest and grow their portfolio. Watch out for a big increase in the private rented sector as the Government emphasis on new builds takes hold, while at the same time the tenant fees ban – a boon for tenants but heavily disruptive to established lettings business models – kicks in.
We expect to see many businesses checking out, but, like many of our clients, businesses and individual investors will be looking to offset losses against increases in productivity. UK-wide those productivity gains are targeted to come through digital transformation, so watch out for savvy investment in General Data Protection Regulation compliant PropTech companies and solutions to be a key move for those looking to get ahead as the market shifts.”
Chairman and Auctioneer at Acuitus, Richard Auterac
“A growing number of private investors are looking for a diversification from the residential property sector because of the increasingly onerous tax burden, and instead are favouring commercial property as a ‘bricks and mortar’ investment medium.
The proportion of private investor investment into commercial property being carried out at auctions is at its highest level for five years.
Our analysis shows that nearly 40% of all private investor commercial property purchases between the start of the year and the end of July were made in the auction room. By the end of July, private investors had spent £1.94 billion on commercial property and the trend was accelerating. Of this amount, around £774 million was committed by private investors through the auction room.
A growing number of institutions, investment funds and banks are selling assets through auction because it achieves best value. This, in turn, is making a higher grade of investments available through auctions and giving High Net-Worth Investors the ability to buy the kind of stock they previously could not access. Buyers are attracted to our auctions by the returns which commercial property offers, the immediacy of the auction process and also the improving quality of assets being offered at auction.
This trend is being vividly illustrated at our commercial property auctions where private investors are looking to lock-in to long-term income with attractive yield profiles. This demand can be seen both in the success rate of our sales this year and also in the proportion of lots selling for £1 million or more – the ‘sweet spot’ for many private investors.
As we head into 2018, this strong correlation between the requirements of private investors and what the auction room can provide will continue, but buyers should be aware that commercial property can require a higher level of active asset management – especially if income returns and capital growth are to be maximised.”
Director at Network Auctions, Toby Limbrick
“Network Auctions saw their turnover increase 12% and their sales rate jump from 79% to 82% in 2017. We witnessed some structural changes in the auction room in 2017 – a cooling of demand for London residential property and a sharp decline in the number of buy-to-let transactions which I expect to continue in 2018.
I predict increased demand for mixed use properties that avoid the punitive stamp duty regulation while consented building land and commercial property will be the strongest performers reflecting what we’ve seen in the last six months.
The outlook is positive as the low interest rate environment continues to drive investors towards the secure returns property provides.”
Managing Director at Essential Information Group (Property Auctions), David Sandeman
“The auction market made a fairly sluggish start to 2017, most likely affected by the cloud of Brexit uncertainty and the Prime Minister’s surprise decision to hold a general election. However, things picked up well in the latter half of the year, with significant gains made in lots sold and amounts raised whilst sale rates remained in the mid-to-high seventies.
There was a marked difference in results across the UK, with northern regions experiencing notable growth spurred on by increasing numbers of lots being sold conditionally, lower-than-average house prices and attractive yields. In contrast, London and the South-East cooled off, having seemingly been in its own imperious bubble for the last few years.
It is difficult to predict how the market will fare in 2018. The government’s attempts to temper the buy-to-let market by introducing a stamp duty surcharge on buy-to-let and second home purchases, coupled with reforms being phased in that reduce the tax relief on mortgage interest payments for buy-to-let landlords, could decelerate growth. However, speed and certainty of sale, transparency and the wide variety of stock available ensure that auctions remain an attractive proposition for buyers and sellers alike.”
Property Expert at Buying Auction Property, David Humphreys
“I expect to see 2 aspects of the residential property auction market trending through 2018 which, in both cases, will require a different or modified approach to due diligence on the part of the investor.
1st is the increasing trend by sellers to pass on or recover their costs through the special conditions included in legal packs. It used to be the case that these costs seldom included more than search fees, but today they can extend to some thousands of pounds and include virtually everything the seller can dream up. Expect to see this aspect trending as it becomes more commonplace for the buyer to pay the selling costs in so-called modern auctions.
2nd is an increase in online auctions, mainly because the buyer does not have to face the, sometimes, intimidating atmosphere or speed of the auction room. Competitive bidding in the auction room is a very different environment to bidding online where speed is only a factor in the last few minutes of an online auction, not seconds as in the auction room, but online bidding is still a new skill that needs to be mastered to win.
As with all matters auction, the confidence resulting from expert training is still needed as the period between catalogue release & auction day remains the same as does the essential due diligence necessary to spot both the bargain and avoid the lemon.
A full programme of Auction Masterclasses is planned for 2018, starting January 27.”
Founder and CEO at Bamboo Auctions, Robin Rathore
“2018 looks set to be a transition year – we’re going to find out what the state of play will be as elements of Brexit are negotiated and the property sector will need to react accordingly. I personally think that property price growth will slow down. London and the south of the country are certainly due a correction but it’s difficult to predict when that will happen. In the mean time, evidence shows that people in their 30s are buying outside the Capital, in areas such as Birmingham, Manchester, Sheffield. These cities are genuinely affordable and increasingly attractive to younger demographics. In London, the stamp duty relief announced in the Autumn Budget will help but, with property prices are already so high for many people, any positive effects will be negligible for first time buyers, who are struggling to raise a deposit in the first place.
The predicted rises to interest rates in 2018 are unlikely to be hugely impactful to the market on their own but, combined with risks such as Brexit-fuelled unemployment and inflationary pressures, things could change quite quickly.
The online property auction space is only likely to get more popular in the coming years. Despite being initially deemed as some kind of ‘fad’, buyers and sellers are now comfortable with the concept. It is worth noting that our intention is not to replace the existing status quo but to complement it. Under 2% of properties in England and Wales are sold by auction – and we think it should be close to 10%. We’re working together with traditional “ballroom” operators and innovative estate agents to drive the auction space forward. I believe there is a vast swathe of properties out there that are not being sold by auctions but should be – often due to lack of access, information and transparency within the current system. There remains a general uncomfortable feeling that people have around the word ‘auction’. So, our aim is to change perceptions by normalising and democratising the space.”