2019 was a challenging year for the residential property market with confidence and sentiment based on the political stalemate and Brexit negotiations never far from the thoughts and actions (or lack of actions) of everybody.
Fortunately, whatever your political views, the decisive General Election result in December has brought greater clarity to our future direction as a country and the markets have seen an almost instantaneous uplift in confidence and activity.
The FTSE 100 ended the year around 5% up on its position pre General Election and the property market saw increased visitor numbers to websites almost immediately and greater numbers of people looking to “stop sitting on their hands” and move home in 2020.
Speaking to clients since December 12th and there is undoubtedly a renewed level of enthusiasm and confidence that 2020 will be better than the last couple of years. Of course, without a clear plan of action, these hopes, wishes and dreams will soon wither in the face of competition from those with the drive, correctly deployed resources, ability to differentiate and to deliver high quality services and results.
A recent report suggested that more High Street estate agents will disappear in 2020 due to the high fixed costs and increasing competition from new models such as “online”, “hybrid” and “personal brand” agencies. Whilst I am sure that this will be true there is also the factor that many agents have been “hanging on by their fingertips” in recent months and may struggle or go under as things improve due to an inability to change, a lack of resources to take advantage of increasing opportunities and, a general tiredness and malaise with the industry.
It is a fact that there are often more businesses that fail on a market upturn than on the decline due to these factors. I expect to see 2020 very active on consolidations, mergers and disposals as the weak get eaten by the fit and healthy.
Sales volumes in 2019 maintained reasonable levels overall but were “flattered” by increased number of new home sales, particularly with first time buyers using the Government’s buy now, pay later Help to Buy scheme which, as a sop to developers, has certainly enabled them to make huge profits. The deadline for the scheme to end is 2021 but has been extended for first time buyers buying new homes until 2023 and so the boost in new homes activity is likely to continue.
The sales figures are also currently being inflated by growing numbers of landlords exiting the private rental section due to increasing regulation, lower yields and lower capital returns. Surveys over the last year have shown that a net reduction of stock in the private rental sector of around 10% may occur. This will obviously have “knock on” effects for the market and estate agents overall.
Major lettings legislation in the year included a tightening up on safety and quality requirements by landlords and, for agents the need to hold compulsory client money protection and a ban on charging fees to tenants. Future legislation will include the removal of section 21 (no blame) evictions although I don’t see this as the disaster that many predict as, in my experience, no landlord is looking to lose a tenant unless there is an issue and so the downsides of section 21 being removed and reliance on section 8 is probably exaggerated. This change will however, almost certainly, see some landlords exit the market.
June 2020 will see the one year transitional period on fees to tenants come to an end and we may therefore see a “delayed” effect on agents who haven’t fully planned and implemented new pricing structures and processes and who will see a significant drop in income as a result.
Amongst the players in the industry we have seen the struggling Countrywide Group divest themselves of their commercial brand Lambert Smith Hampton. This has brought much needed cash into the Group to reduce their debt burden but may well be looked back on in years to come in much the same way as Gordon Brown’s decision to sell off the UK Gold Reserves.
Countrywide have also restructured their share register, consolidating and now having one share for every fifty previously. Despite the aforementioned improvement in market sentiment, Countrywide’s share value has stood still since this action and there remains considerable speculation that other brands within the Group may get sold off although the influx of cash from the LSH deal has possibly reduced the urgency to do anything and they may benefit organically from a market upturn and calmer waters despite their clear inability to manage the business successfully through choppier seas.
Not a major player and unlikely now to become one, online agent HouseSimple have posted cumulative losses of £19 million yet are continuing to proceed with a free sales service based on making money from referral fees on other services and products. This approach was launched against a backdrop of Trading Standards “turning the screw” on the transparency of such fees across the industry and the ultimate threat that they will be banned if agents, and others, do not comply.
I believe my description of HouseSimple as a “Not for Profit” organisation may be harsh but ultimately true!
Across the entire sector there has been a growing belief that there must be a better way for people to buy and sell property and the Government has been commissioning reports, holding consultations and generally tinkering at the edges for some time.
The recent ROPA (Report on Property Agents) concluded that there was a need for greater professionalism in the industry and proposes mandatory qualifications for all those operating within it. This has been broadly welcomed and the Government has said it wants to move forward on that basis. There is a lot of water to go under this particular bridge before the public will see a change. Firstly, an approved level of qualification will need to be agreed, then a process to get the vast majority of people operating in the industry qualified will need setting up and implementing and then a regulator and licensing will need to also be instigated.
Ever since 1979 when the Estate Agents Act became law we have had section 22 lying unimplemented on the statute books. Governments of all colours have always preferred competition to competency when looking at the market. Section 22 calls for minimum levels of competency. I have a feeling I will be sitting in my slippers by the fire before this step in the right direction is fully in place!
I sit as a member of a group called the Home Buying and Selling Group – the clue is in the name! – the Group comprise various stakeholders from across the industry – Government, Bank of England, mortgage lenders, RICS, NAEA, COPSO, Law Society, Licensed Conveyancers, estate agents, surveyors, brokers, technology companies etc and are looking at ways in which the speed and certainty of a sale and purchase can be improved.
It is highly likely that “Reservation Agreements” will be trialled in 2020 but, whilst I welcome the trial, I do not see them as being a universal solution unless several other aspects are built into a revised process. A “Reservation Agreement” is basically a “Lock Out” agreement where both parties (seller and buyer) commit to forfeit a sum of money (proposed to be £1000) if they pull out of the transaction for anything other than a small number of reasons. Of course, it is this “small number of reasons” that opens the door to issues. Key to any improvement in the process will be the provision of information at the earliest possible stage in the transaction so that informed decisions can be taken. This could also have the benefit of reducing the risks of claims under Consumer Protection Regulations based on the provision, or lack of, “material information”.
You may think that what we need is something like a Home Information Pack and, whilst this wrongly maligned blast from the past will, I am sure, not appear under the same name and will not be the same beast as before (we may see Property Log Books emerge), it may well prove to be an essential ingredient in improving the process. Watch this space!
Just when the industry thought it had come to terms with the 2017 Money Laundering Regulations the fifth Money Laundering Directive becomes law on January 10th and will bring high end lettings under scrutiny and also tighten up the need for risk assessments, source of funds etc too. Naturally whilst the industry is generally underwhelmed at the thought of tightening legislation, I am seeing it as an opportunity and places can be booked on my forthcoming courses here!
Finally, I believe 2020 will see an improving market with some of the “pent up” demand turning into transaction numbers as people do need to get on with their lives. However, there will still be many challenges along the way. Whilst Brexit has moved forward and is more certain, the detail of our exit from the EU will still figure strongly in people’s thoughts as the year progresses.
Pressures within the industry will continue to come thick and fast with legislation, competition (especially from new business models) and technology to the fore.
Bring it on!!