Partner and Head of Property Department at City of London-based solicitors Carter Lemon Camerons LLP, Rufus Ballaster, has spoken out about the current UK property market, following new statistics released by lettings network Countrywide.
Countrywide’s May Lettings Index recently revealed that the average City worker aged under-30 handed over 57 per cent of his/her monthly wage to a landlord last month.
The sales and lettings network’s research also highlighted that the average rent on a one bedroom property cost £1,133 in May.
Property prices (capital values when buying/selling and rents under tenancy agreements) are a factor of market forces. The two biggest factors which fuel that market are “supply/demand” and “confidence”.
The under 30s of working age are learning a lesson their grandparents could share with them. Most people over 70, if they started work in a city probably lived at home, in a house-share with others or rented a room in what we might call an HMO or a B&B today but they often called “digs”.
Back then in real-terms property was a lot cheaper but wages for entry level workers were also a lot lower in real-terms than today. Few starter-salary employees 40 to 50 years ago could afford to buy a home to live in and that reality has returned to Britain today.
If working at a salary, which does not enable someone to borrow enough to buy a home (or if working in a job one is uncertain has long term prospects, or in a place one hopes to leave in the short to medium term), people have a number of options:
- Pay the very high percentage of net income it takes to rent a home in which living in is convenient.
- Run a budget deficit for the first few months or years of independent life if, (a) the landlord will accept you when your rent appears unaffordable and, (b) your bank will permit you a healthy overdraft limit and, above all, (c) you are confident of rising income with experience in the role you have taken on so you can clear that debt and get on an even keel over time.
- Stay with/move back into the home of parents or other close relatives – if they live in a suitable area compared to the workplace.
- Pool income to rent a larger place – be that as a “couple” or as a pair (or larger group) of likeminded friends (a two, three, four, or five bedroomed home is almost always cheaper per room to rent than a one bedroomed home).
- Live further from the workplace as there will almost always be a cheaper-to-rent location within an achievable commute.
- Live semi-nomadically – using cheap hotels and friends’ or rented-by-the-night spare rooms during the week, and having a weekend base with family.
While any (or all) of those may be unpalatable or unavailable, those lucky enough to find work will understandably want and need to take that up – and something needs to be done. This is the “demand” side of the market.
Unemployment as a percentage of the working population is falling according to national statistics. Wages are rising slowly, but faster than inflation, according again to national statistics. It would almost certainly be good for the economy if rents stayed stable, while wages and prices nudge up, so that the percentage of income being paid to get a roof over workers’ heads reduces.
The “supply” side of the market is interesting too. Core central London has had supply side issues for decades, plus intense demand internationally, which is how we reach the staggering values for flats and houses in public transport zones 1 & 2. That causes a ripple effect of higher values going out to zones 3, 4 and even 5 & 6.
The better the public transport communication the wider the price rise ripple effect can go. Thameslink has had its influence and Crossrail is starting to affect prices in anticipation of making key working spaces of London more accessible to certain towns which were previously thought “independent of” – rather than “suburbs of – London.
Finally “confidence” is the big issue which has stoked the market in South East England, and over which there is the biggest question mark. If people in the UK and further afield decide that the residential property market as a buy-to-let investment is now so overpriced and so over-taxed that it is a silly sector into which to put new cash, prices will drop. They have risen as the decision worldwide has been, in recent decades, quite the opposite.
London in particular is thought to be a safe haven with strong national and international rental demand. What is more, the capacity of those tenants to pay eye-watering rents has driven rental increases year on year. This prices younger tenants out of the market unless they are massive exceptions to the rule on likely earnings or they have unearned income sources they are willing to use to subsidise their property costs.
Some investors must be waiting for a Brexit vote and some turmoil which would follow, thinking they will buy “if …”; other investors must be waiting for a Remain vote and some adjustment, which will follow that in currency and stock markets, thinking they will buy “if…”.
One thing is sure – nobody can accurately predict what is going to happen in the future, whichever result we wake up to on 24 June 2016. The immediate future either way is uncertain; the long term future either way is utterly hidden from our view. Only one certainty can be held on to, however, and that is this: People will need to live in homes whether the UK is part of the EU or not so there will always be “a housing market”.
