Property Outlook 2022: Will it be Rishi or Liz who kick starts the UK economy?

Published: 04/08/2022 By Ricky Sodha

Summer is sometimes called the ‘silly season’, when journalists scrabble around for interesting snippets because of the lack of important news.
But not this year. 

With the departure of Boris, and the Conservative Party trying to work whether Rishi or Liz will give the country the much-needed boost of confidence it needs, as well as the highest level of interest rates for 40 years and a housing market which shows little sign of cooling, there is plenty of news to consider when it comes to evaluating the prospects for the property sector for the rest of the year.

Not least the different approaches the two candidates have towards taxation. With only three years until the next election, they have to deliver a suite of reforms which kick start a recovery. Liz Truss’s approach is to reduce the tax burden by approximately £30bn, funded by borrowing, a measure which the former chancellor deems irresponsible.

Rishi Sunak takes a longer view with a proposal to cut the basic rate of tax from 20% to 16% over the remainder of this parliament. He and the foreign secretary are also likely to undo the hike in National Insurance and scrap the planned 6% increase in corporation tax and potentially remove VAT on energy bills. Rishi’s more measured approach may result in interest rates rising more slowly than if his rival succeeds in gaining the position of PM.

Whoever you favour, the main point is that neither has a magic wand to wave over a struggling economy and bring about a quick recovery. Against this tough economic background, the property sector has its own challenges to overcome, most of which are caused by factors beyond our boundaries.

House prices continue their upward trajectory

The latest Office of National Statistics affordability statistics show that the average home in England costs an eye-watering 9 times the average annual disposable household income. Figures for Wales and Scotland are significantly lower at 6 times and 5.5 times respectively. 

This compares with a post-war figure of between 4 and 5x, a figure which has increased dramatically since the financial crisis of 2008. 

The main reasons for this property inflation include:
  • Years of low interest rates
  • Cheap buy-to-let mortgages
  • Help to buy schemes
  • The SDLT ‘holiday’
  • The lack of social housing
  • An increase in the population, and
  • The lack of new house building to meet demand.

In a recent interview for Property Industry Eye, Timothy Douglas, Head of Policy and Campaigns at Propertymark, hinted that this steady rise in prices is expected to slow:

“The current availability pressures within the market are a key factor to rising house prices but this is expected to start to slow at the end of this year.”

Even though the Bank of England has scrapped the mortgage affordability test, the main constraint on borrowing for buyers is the loan-to-flow load limit which is currently up to 4.5 times the borrower’s salary. So with affordability at twice that level, many buyers simply cannot afford to get on the property ladder.

To Rent or to Buy?

Not only will purchasers be paying higher prices, but the rental market is expected to stay strong due to lack of supply and the difficulties faced by first-time buyers to save for a deposit and secure a large enough mortgage. Although there is a slight increase in the supply of rented properties, demand remains strong. Propertymark reports:
“The average number of properties available for rent per member branch has been gradually rising over the past few months, but the vast majority (80 per cent) of responding agents reported rents continuing to increase month-on-month in June.”

Despite the stricter regulatory environment for landlords, it is unlikely that the demand for rentals will fall, and any increased costs are expected to be passed onto tenants by way of increased rents. 

Divergence in the Commercial Property Sector

In its recent quarterly commercial property survey, the Royal Institution of Chartered Surveyors reported that 43% of respondents think the sector is in the early stages of a downturn, and a further 10% think it is in the middle of one.

As usual, the outlook varies when it comes to retail, offices and industrial. The capital value of retail space is negatively affected by the cost-of-living crisis, whereas the demand for office space, which has recovered since the height of the pandemic, is levelling out. In contrast, demand for industrial sites remains strong.

Fluctuations in prices across the commercial property sector provide opportunities for both investors and developers, so it pays to monitor the changes in capital values closely. Additionally, the outlook isn’t uniform across the country; there will be pockets of strength and weakness which will be down to specific local circumstances. Researching each location is the key to success when it comes to identifying profitable commercial property opportunities. Like many investments, it is important to view commercial property as a long-term investment. 

Helping you to find a glimmer of hope

As we head for an autumn of uncertainty, with a global post-COVID economic slowdown, increasing debt burdens worldwide, inflation and geo-political tensions, it is important to look for opportunities which reduce risk. Even in a crisis, there are always chances to find a potentially profitable venture. 

The team at BTC are always available to help our clients find their ‘ray of sunshine’, whatever is happening domestically or internationally. We are here to listen to your plans and provide you with an objective view based on over 35 years’ experience.