They say a week is a long time in politics. For Boris Johnson it must seem like an age as he lurches from crisis to crisis in recent weeks.
With inflation rates now in double digits and rises in the cost of living having an impact on everyone, we have seen the Bank of England take slow but steady upward action on interest rates as they seek to try and stop the economy heading into recession.
The global fuel crisis coupled with the war in Ukraine is contributing to the inflationary pressures and one could be forgiven for feeling that everything is currently “heading south”
As inflation increases so do understandable demands from workers on wage levels, often though from the same workers who were supported by the Government with the JRS and other initiatives during the pandemic, the costs of which will have to be repaid at some point, albeit over many decades.
At the time of writing, Boris is still hanging on by his fingertips in number ten and is trying to rebuild a cabinet around him following a huge exodus of ministerial colleagues including several high-profile resignations. It is looking increasingly unlikely that he will be able to do so.
He may ultimately be a “dead man walking” politically but, unless ousted by his own Conservative members, he cannot actually be touched and may, having been backed into a corner, decide to come out fighting with new tax cutting and spending initiatives to both aid economic strength and appease growing disillusionment amongst the electorate. Of course, if he is forced out, or chooses to resign, we may see a new incumbant take a more expansive approach economically.
UPDATE 7.7.22 9.45am - It seems likely that Boris Johnson will stand down as leader of the Tory party today but may remain as PM until his replacement has been found.
UPDATE 7.7.22 12.45pm - Boris Johnson has resigned as Tory Party leader but does intend to stay as PM until his successor is in place. This story looks set to run and run!
The property market has, so far, remained buoyant with demand continuing to outstrip supply, prices rising and activity levels strong. Everything would suggest that this has to change and I believe we are beginning to see the tide turn as affordability and confidence wanes.
I anticipate that, with all of the aforementioned issues, price inflation will now rapidly start to ease and level out as a result. Inevitably the amount of available stock will start to increase, particularly as some sellers will be late to the party, slow to adjust and will be marketing property at artificially inflated values. I do not however anticipate a major downward adjustment in values as underlying demand remains so strong.
House-hunters will, at last, start to see that more information about properties is being provided on websites and the major property portals. This is part of a requirement on agents to provide more detail about tenure and any costs associated with leases etc plus council tax banding alongside the existing requirement for EPC ratings.
This provision of information should help potential buyers and tenants to make informed decisions and is the first of three stages in raising the amount of “material information” that is made available at the onset of marketing.
I fully support this approach as it should result in quicker transactions and less abortive work for all parties. In this regard, I also advocate sellers instructing their conveyancers when placing a property on the market in order that much work can be undertaken during the marketing period, even before a prospective buyer has been found.
It is ludicrous that in 2022 the average time for a property sale to go from offer to completion is twenty-two weeks when twenty years ago, and before much of the digital world that we now occupy existed, it was thirteen.
The Bank of England (BoE) has recently confirmed that it is to withdraw its mortgage market affordability test from August 2022 and thus simplify the mortgage approval process.
The Financial Policy Committee, part of the BoE, introduced the test in 2014 which specifies a stress interest rate for lenders when assessing prospective borrowers’ ability to repay a mortgage.
The purpose was to ‘guard against a loosening in mortgage underwriting standards and a material increase in household indebtedness that could in turn amplify an economic downturn and so increase financial stability risks.’
However, in a statement, the BoE said the loan to income (LTI) ‘flow limit’ measure of affordability, which limits the number of mortgages at 4.5x salary or greater borrowers can draw down, was “likely to play a stronger role than the affordability test in guarding against an increase in aggregate household indebtedness and the number of highly indebted households in a scenario of rapidly rising house prices.”
The Government has just announced via its White Paper on lettings reform that it intends to remove section 21 notices (often unfairly called no blame evictions) and make it mandatory to allow pets at rental properties.
These moves follow a growing number of regulatory requirements on landlords, many valid and often for health and safety reasons, but we will, I am sure, see many small “non-professional” landlords exit the sector as the burden become too difficult to manage cost effectively. The removal of “rogue” landlords is to be welcomed but we must be careful not to “throw the baby out with the bathwater”
This scenario is an opportunity for agents to secure managed business but the risk of reducing the stock of available accommodation to rent is real. The Tory government is, of course, focused on increasing the levels of home ownership and many of the properties will move from being rented to being owner occupied.
As a country we require a mix of tenures to satisfy the needs of our population and it is likely that potential shortfalls in the private sector may be made up by a growing number of build to rent schemes, developed and managed professionally and providing higher quality accommodation for tenants. Proposals to allow local authorities to sell off social rental stock under a right to buy scheme could have a similar effect in reducing choice unless the reinvestment of monies raised is tightly controlled and focused on providing replacement accommodation.
As always, the property market is a barometer for the entire economy, it both drives and reflects change, particularly based on supply and affordability. It also reflects confidence and the remainder of 2022 will certainly be an interesting environment that affects us all.
Yours
Michael S Day MBA FRICS FNAEA FARLA
Managing Director