Some Very Welcome Rate Relief for A Resilient Housing Market

Before noon’s announcement from the Bank of England on interest rates, I was all ready to write that we should not regard a rise in official interest rates from 5.25% to 5.5% – as generally expected ahead of the decision – as bad news.

Such a rise was priced into mortgage markets, and mortgage rates had been edging down.

As everybody now knows, there was no such rise, the Bank opting to leave its rate unchanged at 5.25%, on a 5-4 vote, thus breaking a sequence which had seen 14 rate rises in a row.

This was not anticipated by the markets, even in the minutes ticking up to the announcement, so this paved the way for mortgage rates to come down even further.

It was good news.

This decision completed one of the strangest 12-month periods for official interest rates, mortgage rates and the housing market.

It is now almost exactly 12 months since Liz Truss, the very short-term prime minister, and her even shorter-term chancellor Kwasi Kwarteng, almost blew a hole in the housing market with the oddest and most irresponsible “mini” budget in modern history.

She has been defending it, though most people will remember it differently.

Two things survived from it.

The previously planned increase in National Insurance contributions for employers and employees, intended to have been renamed as the health and social care levy by now, was scrapped and has not been revived.

For the housing market there was the minor positive of a reduction in stamp duty, by raising the threshold at which it is paid (except for second homebuyers and most landlords) to £250,000, accompanied by an increase in the nil-rate band for first-time buyers from £300,000 to £425,000.

This was temporary, but quite long lasting.

The main threshold will revert to £125,000 and the first-time buyer band to £300,000 after March 31 2025, by which time we may have had a change of government.

This positive was, of course, swept away by the huge negative of surge in bond yields, a slump in sterling to a record low against the dollar, a crisis for pension funds and massive dislocation in the mortgage market, with hundreds of products withdrawn overnight, as markets feared that Bank Rate would have to rise as high as 7%.

This was the first realisation for most people that something dramatic had changed.

Years of stretched affordability when house prices were measured against earnings were compensated for by ultra-low mortgage rates.

When those mortgage rates started to rise dramatically, things changed.

Affordability was suddenly under enormous pressure.

Everybody reading this will know that housing activity and prices turned down quickly in the aftermath of that mini budget and, by and large, things have stayed down.

Prices are down by 4% to 5% on average.

Source: Property Notify

Buy-To-Let Rental Incomes have Increased by 8.7% Despite Rising Costs & Government Pressure

Landlords in England & Wales have seen their rental portfolio income increase by 8.7% in the past year.

That’s according to new research from London lettings and estate agent, Benham and Reeves, who compared the average rental portfolio income, based on portfolio size and rent values, in Q1 2022 with that in Q1 2023.

Previous research from Benham and Reeves recently reveals that throughout the nation, portfolio sizes have fallen by -5.6% year-on-year, dropping from 9.1 properties to 8.6.

However, despite smaller portfolios, the average rent value has increased by 15.1%, rising from £7,396 in Q1 2022 to £8,510 in Q1 2023.

As such, the average landlord’s annual portfolio income has increased from £67,304 to £73,186 over the same time period, an increase of £5,882 or 8.7%.

On a regional level, the biggest income increase has been seen in London. The average portfolio size in the capital has shown the slightest of declines from 7.6 properties to 7.5, but the average rental income per property has soared by 34.7% to £13,095.

This means that the annual rental income generated from the average buy-to-let portfolio within the capital has increased by 32.9% and now sits at £98,213.

Despite falling rent values leading to a -7.7% decrease in the income per property, landlords in the East of England have enjoyed a strong portfolio income increase of 32.7%.

This is due to a huge increase in portfolio size, rising 6.4 properties to 9.2 in the past year.

Portfolio income has also increased in the South East (27.8%), Yorkshire & Humber (16.4%), the South West (15.5%), North West (5.5%), and North East (0.6%).

In three regions, however, landlords have seen their portfolio income decrease over the past year.

Wales has seen the most significant decrease of -19.2%.

This comes despite the average rental income per property seeing the biggest increase of all regions (41.5%), and is therefore being driven by the average portfolio size falling from 12.6 properties to 7.2.

The East Midlands has seen portfolio income fall by -11.1%, once again driven by a shrinking average portfolio size, down from 11.8 in 2022 to 7.8 in 2023.

The West Midlands has seen portfolios increase from 8.5 to 9.2, but a drop of -8.7% in income per property means that portfolio income has fallen by -1.2%.

Source: Property Notify

Average UK Rental Prices Continue to Rise Across All Regions

New data from HomeLet has revealed that average UK rental prices have continued to rise across all regions, with the average rent, excluding London, now £1,051 per month (PCM), up 1.4%, while prices in the capital have continued to soar to a new high of £2,145 PCM, up 1.7%.

The continued rise in rental prices comes at a time when there has been a record increase in mortgage interest rates.

The current average five-year rate is now 6.19%, compared to 2.64% in December 2021, and as a result, many first-time buyers are unable to buy a home.

This also comes at a time when 1.6 million Brits will be coming to an end of their fixed-rate mortgages at the end of the year, with many unable to afford to remortgage – piling pressure on a dwindling rental market and pushing up rental prices, as demand outstrips supply.

The rental market has seen an exodus of landlords at a time when properties are in huge demand.

However, despite the demand, it has become less profitable for buy-to-let landlords to rent out a property.

This comes as soaring mortgage prices are now forcing landlords to push up rental costs to cover their mortgage repayments, alongside the planned introduction of the government’s costly new EPC targets, which will force landlords to upgrade the energy efficiency of their buy-to-let properties to a rating of ‘C’ within 5 years.

This is set to come at a considerable cost or Landlords willface fines of up to £30,000.

Data from Cornerstone Tax 2020 found that only 20% of landlords in the UK now say their investment has been a successful one.

Source: Property Notify

Entering a New Age of Urban Workspaces

Surging interest rates and transforming business paradigms have brought traditional office spaces to a pivotal crossroads – an industry once valued for its towering structures of glass and steel, the sector must now chart a course through new, choppy water.

Properties acquired or financed through substantial debt have been left burdened by bloated loan repayments.

Meanwhile, exacerbating the situation, the recent evolution observed in working culture has led to shorter leases and occupancy rates in traditional office buildings plunging to decade-lows, sowing doubt in the sector’s stability and thus triggering significant devaluations across the traditional office space landscape.

Although these circumstances are certainly unfavourable, landlords and asset managers who own traditional offices can still bounce back.

Through thoughtful evolution, in other words creating greater harmony with progressive work patterns and ideals, workspaces can be prepped for longevity as fundamental pillars of the business world far into the future.

To achieve this, however, we must examine what the urban workspace of tomorrow will entail, and how conventional office models can integrate into this transformation.

A changing professional landscape

Working patterns were changing before we had ever heard of Covid-19. Flexible workspaces were already on the rise, while more and more employers were embracing flexible working to attract and retain the best talent. But the pandemic undoubtedly kicked this trend into overdrive.

Lockdowns propelled the widespread adoption of hybrid and remote working as many workers took steps to reprioritise their work-life balance. When we could finally return to the office, soaring inflation and cost-of-living crises raised commuting expenses, creating additional barriers for city-based employees to frequent the office.

Meanwhile, this challenging economic period has led to many businesses gleaning valuable insights about the benefits of flexibility.

This, coupled with the surge in hybrid working arrangements, spurred a wave of demand for office solutions with greater flexibility, resulting in record-high occupancy rates for flexible workspaces at 83%.

Within just three years a cultural revolution has been enacted, becoming deeply embedded in work culture as well as a pivotal factor in shaping the workspaces of the future.

Future-proofing our workspaces

Clearly, a new vision for workspaces must be forged, one that is seamlessly woven into the tapestry of modern life. To hit the mark and maintain relevancy, future workspaces must meet three key criteria: be appealing; be conveniently accessible; and facilitate a seamless transition between professional and personal spheres.

Enter the concept of the “15-minute city”. This asserts that within a 15-minute radius from their residence, an individual should be able to conveniently access essential amenities, workspaces, and leisure facilities. Namely, this would be achieved through a blend of mixed-use developments, where people can seamlessly move between their professional and personal lives.

Envisage, for example, a mixed-use skyscraper. On the lower floors a shopping and leisure complex could be found, on the middle floors a range of flexible workspaces, and finally upper floors could offer residential flats for contemporary living. Such a development is more than an idea: it creates a ‘future of work’ framework that could benefit landlords and tenants alike.

Such buildings are increasingly common, at least as far as the addition of retail or leisure units to residential blocks is concerned. But throwing flexible workspaces into the mix would now satisfy modern demands for how, when and where people want to work.

The repurposing and retrofitting of conventional office spaces into vibrant hubs for communal and professional interaction would be the ideal way to achieve this, attracting tenants and bolstering occupancy rates for landlords. Indeed, with environmental concerns mounting, embracing lower carbon-emitting development solutions like retrofitting becomes increasingly imperative.

Importantly, this is no one-time change; these workspaces must be equipped for continued evolution. We’ve observed working patterns pivot rapidly, and so workspaces must be optimally redesigned for adaptability. Refitting some traditional offices as flexible workspaces, where occupancy rates have increased considerably, is one way landlords can respond.

Such a strategy enables landlords to react swiftly to the changing demands of prospective occupants over time, creating lasting appeal and therefore enhancing the longevity of occupancy.

Understandably, such a transformation may seem challenging for some landlords. However, it can be achieved seamlessly by partnering with a third-party flexible workspace provider, which can take on tenant acquisition, operations and implement infrastructure.

Crucially, this approach enables commercial landlords to keep abreast of rapid transformation in the modern workforce, from emerging office trends to the latest in workspace technology.

A new age for offices

Ultimately, forming the urban workspaces of the future means creating spaces that can optimally adapt to emerging professional needs. Without evolution, traditional office models risk becoming obsolete.

Spaces must become flexible, attractive, and accessible, and concepts like the ’15-minute city’ will therefore form the bedrock upon which workspaces of the future will thrive.

Developing these future-proof, flexible workspaces will take effort, but flex space providers are at hand to ease this transition.

As a new working culture emerges, workspaces must be thoughtfully designed to guide us through this transition into the future of work.

Source: Property Notify