The latest from Gilson Bailey

Property market set to revive after Brexit

With Brexit negotiations in Brussels reaching their crescendo, the reality of Britain leaving Europe is now truly upon us, and for the property market, it seems that this could lead to something of a revival.

During the drawn-out periods of consternation and uncertainty around Brexit, sellers and buyers alike have shown some restraint in their interactions with the market, and this pent-up demand is set to boost activity next year.

“People with important and costly decisions to make tend to pause and reflect, waiting for a time when the outcome is more predictable. The ongoing machinations of the Brexit process for the last two years are no exception, so it is little wonder that the property market has become increasingly subdued as time has gone on” said Richard Watkins, the land and planning director for Aston Mead.

“What’s more, despite the risks involved in the current challenging market conditions, we expect that come April 2019, those hoping to trade up will find that the gap in sale values and onward purchase prices will be the narrowest it has been for half a decade. So there continue to be real opportunities out there” he concluded.

First-time buyers will be buoyed by the two-year extension to the Help to Buy scheme offered by the government in the recent Budget and, with house prices growing at a steadier rate than in historical years, people looking to take their step on to the property ladder will surely benefit from the post-Brexit period.

Despite the well-publicised Brexit uncertainties, the property market has remained relatively stable this year and endured the period of political instability better than most predictions initially forecast. However, 2018 has still seen some slowdown in property transactions throughout the year, and therefore the notion of a post-Brexit revival will be good news for many. With the demand for properties now at an all-time high, and new-builds unable to keep up with this vociferous appetite by the masses to own a home, buyers and sellers should benefit equally after March 2019.

Help-to-Buy scheme extended by 2 years

The Government’s Help to Buy scheme has been extremely successful, with a duality in its accomplishments; firstly, in encouraging people to take a step on to the property ladder and secondly, in encouraging housebuilders to develop new homes in the knowledge that they have a government-backed safety net of potential buyers, just waiting to purchase their newly-built homes. With the news from the recent Budget that the scheme which is due to end in April 2021 will be extended, albeit in a new format, by two years prospective buyers should be buoyed by the government decision.

Help to Buy will have been in existence for a decade by the time the extended period finishes and is available to first-time buyers as well as current homeowners looking to trade up on the property ladder. Essentially, the scheme provides a government-backed loan to people who want to buy a new home but cannot afford the deposit. For developments participating in the scheme you only need a 5% deposit (ie. &10,000 for a home worth &200,000) and the government then lends 20% of the cost (topping up the deposit), with the remaining 75% consisting of a mortgage. The 20% loan from the government is also exempt from fees for the first five years of the scheme.

The extra two years of Help to Buy will be available to first-time buyers throughout the UK for houses worth up to a new regional price cap, rather than the current scheme’s cap of &600,000. As well as new regionalised limits for the equity loan, the scheme will solely be available to first-time buyers whereas currently, you do not have to be new to the property market in order to buy through the scheme – a fact which very few are aware of.

The scheme in its current guise has helped more than 300,000 people purchase a property, all of which have been new-build homes. It is this interaction between buyers and new-build homes which has helped to answer the ever-increasing demand for properties across the UK, and with the scheme forecast to end in 2023 there will surely be an impact upon the ready availability of new homes from this point onwards.

Housebuilders have had the luxury of a steady supply of buyers ready to purchase through Help to Buy who otherwise would not have been able to purchase their properties, and after 2023 there is the real possibility of a slowdown in new building projects due to the cessation of Help to Buy. Companies such as Barratt, Taylor Wimpey and Persimmon have reaped the rewards of the scheme since it’s introduction in 2013 with around 40% to 50% of their sales from Help to Buy homes.

For five years, potential homebuyers have been able to purchase properties which would otherwise have been outside their price range – and for first-time buyers in particular, this has allowed a first foray in to property ownership. The announcement of an extension to the length of this scheme should therefore encourage potential buyers to take the plunge, and allow building firms to continue to reap the rewards of a particularly lucrative sector of the property market.

Student accommodation - a sound investment

With a recent survey compiled by Frank & Knight showing that 76% of students were happy with their housing choice, it is clear that the student market is buoyant at the moment, with happy renters and landlords content with their wise investments.

The old stereotype of student accommodation being dark and dingy homes in need of some serious TLC is simply not representative of the current realities of modern, chic student housing. Students are now willing to pay a premium for their lodging, with the largest percentage of students saying that they would be happy to pay over-the-odds for fast wi-fi, a large bedroom or an on-site gym.

Additionally, the competition for student accommodation is more rife than ever with 57% of second- and third-year students securing their accommodation by the end of March - despite most university terms not starting until September. This ever-increasing competition to secure a humble student abode is great news for investors who have seen capital values in the student accommodation market increasing 6.5% year-on-year in the 12 months to September. The increase of 6.5% is up from the previous 12 months growth rate of 4.5%, showing a consistency in the growth of the market. In fact, the student market is outperforming the regions in terms of capital value growth– for example in London the student market totalled returns of 17.5% for the past 12 months compared to annual total returns of 10.5% in the regions.

Jo Winchester, executive director of student accommodation valuation and advisory services at CBRE UK, a real estate services and investment firm, says the first published student accommodation index demonstrates the continued strong performance of the sector.

“UK student accommodation is now firmly established as a mainstream investment sector,” she said. “Investors will find the increasingly sophisticated raft of influences on performance highlighted by this index, including location, asset scale, university rankings, applications, and distance to university very informative.”

With the student accommodation market proving a sound investment for landlords across the UK (albeit with differing rental yields dependent upon the university town) and demand for student property higher than ever, it is clear that further education is popular when economies are booming and also when economies are struggling – such as during current Brexit uncertainties. In terms of longevity of investment, there is also the knock-on effect of students remaining in their city of study once they have graduated. In Birmingham, for example, 49% of students who study in the city remain there after having completed their studies. This stimulates the local economy and sees demand for more and more student accommodation increase year on year, with flats effectively taken out of the equation each year by those who leave university and remain in the city requiring accommodation themselves.

Homes England's 5 year growth plan

The government’s target of 300,000 new homes being built each year is soon to be missed, and with the efforts of current policy failing to increase the capacity at which new homes are being created, Homes England has set out a bold new plan to try to bridge the gap in terms of new properties being built.

During the course of the past 12 months, 222,000 new homes have been built, which is some way from the government target, but nevertheless, it’s a step in the right direction as this represents a significant increase in the delivery of new homes to the UK market. With demand for homes increasing faster than ever, now at 39%, the push for new homes to be delivered has never been more important.

Homes England chairman, Sir Edward Lister, told delegates at a recent ‘Construction News’ conference: “We’ve had a great year, we’ve built 222,000 homes. You could say that the industry is at capacity; it’s not going to leap up to 300,000 at present. We can’t go on with the current model, so we’re moving into modern methods of construction, doing things differently.”

This different tact being taken by Homes England reflects a highly interventionist role which the government agency has taken in recent years. Reflecting Sir Lister’s comments above, Homes England is planning on incentivising modern methods of construction (MMC) in order to accelerate delivery of new homes. The agency will incorporate a requirement to use MMC in leases when working with housebuilders, as well as providing finance to developers that both partner with Homes England and use MMC. Homes England’s plans reflects its move to acting as a partner to the housing industry, rather than a moderator.

Key aspects of the plan, which runs up to 2022/2023, involve; making land available to build upon, ensuring that a range of products are available to support housing and infrastructure (including more affordable housing and homes for rent) and improving productivity of construction and offering expect support for priority locations. These actions have the intention of providing longevity in the delivery of new homes – with the priority being the increased production of homes at a sustainable level.