Update; UK Housing Market
The UK housing market has been a topic of significant discussion in recent years; fluctuating property prices, rising interest rates and increasing regulatory pressures from the MEES (Minimum Energy Efficiency Standards) scheme.
Landlords are navigating a complex landscape, and Labour’s introduction to their plans to build more homes could provide interesting investment opportunities to those with a growing portfolio of HMO properties.
How is the state of the housing market?
The UK housing market is experiencing a period of adjustment. According to Zoopla, the UK is now past peak rental growth, resulting in the market stabilising.
According to Gov.uk, transactions of non-seasonally adjusted properties were 11% higher in July 2024, compared to the same period in 2023. This illustrates that the appetite from landlords to grow or start their portfolios is returning
What challenges does the market face?
- Regulatory changes: The new Labour government has introduced several regulations aimed at improving tenant rights and property standards. While these changes are beneficial for tenants, landlords are required to invest in renovations and compliance measures, which can be costly and time-consuming.
- Tenant demand and affordability: While property prices are high, and average household income is low comparatively, it puts pressure on affordability for aspiring or current homeowners to meet affordability calculations.
- Property stock: Stock within the market is not keeping up with demand, and the current plan to build one and a half million homes in the first five years of a Labour government seems unclear.
- Rent prices: In just the month of May, rent increased across the country by 9%, squeezing tenants in an already harsh environment
What are the challenges Labour will face in achieving their housing targets?
- Increase in construction: According to Savills, 232,500 homes were built in Q1 of 2024. If construction continued on this path, only 524,800 of the 1.5 million houses would be fit for purchase by the end of Labour’s target date of 2029.
- Cost of materials: Many factors determine at which speed UK housing is being built. One of these factors is construction costs. From May 2020, to the same period in 2024, the cost of materials has risen by 36%, illustrating high demand.
- Planning consent: Local authorities will need to be faster, and in turn, more flexible. These bodies will need to work closer with the government to ensure the targets are hit.
- Construction type: It’s just as important to build the right types of homes as it is the quantity. Modernised builds are much faster to build, as well as likely fitting into an EPC rating of C or above to achieve emission targets.
In conclusion, the current housing market presents numerous challenges for landlords, tenants, as well as the government. It’s as important as ever for lenders, like ourselves, to adapt and find solutions to fit the new ‘norm’. Despite these challenges, positive figures from Gov.uk show an increase in transactions for the market, and this increase seems to be heading upwards.
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