For the first time this year, average property prices in the UK have fallen. Newly published figures from the Halifax House Price Index suggest that house prices declined by approximately 0.5% in June, taking annual house price inflation to 8.8% compared to the 9.6% recorded in May.

But even with this fractional fall, average house prices remain more than £21,000 higher than they were at the same time in 2020. The report from Halifax speaks of a “broadly unprecedented period of gains,” triggered in part by a major spike in demand prompted by the temporary stamp duty holiday.

Strong performance in Wales and Northern Ireland

The fastest average house price growth was once again recorded in Wales at around 12%, its strongest performance in 15 years. Northern Ireland and the Northwest of England also performed strongly with 11.5% growth, followed by Yorkshire and Humberside with 10.9%. Average house prices in Scotland were also up a huge 10.4% year-on-year.

Meanwhile, much slower growth was recorded in the South of England and Eastern England, with inflation rates hovering around 7%. House price inflation of just 2.9% year-on-year was recorded in Greater London, which has recently seen record numbers of movers and buyers exiting for less densely populated regions of the UK.

Minimal stamp duty liability for most homebuyers

For the time being, the vast majority of homebuyers in England and Northern Ireland will continue to face significantly reduced stamp duty obligations.

“With the stamp duty holiday now being phased out, it was predicted the market might start to lose some steam entering the latter half of the year, and it’s unlikely that those with mortgages approved in the early months of summer expected to benefit from the maximum tax break, given the time needed to complete transactions,” said Russell Galley, managing director at Halifax.

“That said, with the tapered approach, those purchasing at the current average price of £260,358 would still only pay about £500 in stamp duty at today’s rates, increasing to around £3,000 when things return to normal from the start of October.”

Mr Galley went on to credit the government for introducing a raft of initiatives for home buyers, though he suggested that the market’s current momentum cannot be sustained indefinitely.

“Government support measures over the last year have helped to boost demand, particularly amongst buyers searching for larger family homes at the upper end of the market. Indeed, the average price of a detached home has risen faster than any other property type over the past 12 months, up by more than 10%, or almost £47,000 in cash terms. At a cost of over half a million pounds, they are now £200,000 more expensive than the typical semi-detached house,” he said.

“That power of home movers to drive the market as people look to find properties with more space, spurred on by increased time spent at home during the pandemic, won’t fade entirely as the economy recovers. Coupled with buyers chasing the relatively small number of available properties and continued low borrowing rates, it’s a trend that can sustain high average prices for some time to come.”

“However, we would still expect annual growth to have slowed somewhat more by the end of the year, with unemployment expected to edge higher as job support measures unwind and the peak of buyer demand now likely to have passed.”

Experts recently predicted that the UK could well be on its way to another huge boom for the private rental sector. With average property prices hovering at all-time highs, more prospective first-time buyers than ever before are finding themselves priced entirely out of the market.

Subsequently, some believe that a lack of affordability will inevitably trigger a surge in demand for private rental properties over the coming months.

Elsewhere, the evidence suggests that quite the opposite could be on the horizon. Motivated by stricter rules and higher taxes, older landlords are selling up and leaving the market entirely. Many of them are not being replaced by new landlords, which could lead to a serious drought for the private rental sector.

According to newly published data from the Nottingham Building Society, around a third of all landlords, approximately 1 million, plan to reconsider their portfolios within the next year. Among them, those planning to exit the sector entirely vastly outnumber those looking to purchase new properties.

While at least 16% of landlords indicated their intent to expand their portfolios, more than 20% said they would most likely be selling up.

Consequently, this could lead to a shortage of homes available on the private rental market. Something that could prove problematic for those unable to get on the property ladder due to skyrocketing house prices in most regions of the UK.

Many landlords feel victimised by new restrictions

A study conducted by the University of York in conjunction with the Nationwide Foundation found that buy-to-let mortgage activity has been on the decline for several years. Specifically, mortgage application volumes were down approximately 30% between 2014–15 and 2018–19.

Many landlords have spoken out, indicating feelings of victimisation, having faced elevated tax obligations and heavier general restrictions as of late. In turn, some are finding the prospect of maintaining their portfolios too much hassle to justify the income generated.

“Letting property look altogether different to landlords now: it is a riskier proposition, delivering a lower level of return and with a lot more hassle,” commented Dr Julie Rugg, lead author of the report.

“As one landlord said to me, ‘stocks and shares may not deliver the same level of return, but they don’t call me on a Sunday morning because the boiler’s bust’”.

Commenting on behalf of Nottingham, head of mortgage operations Denise Wells said that while there is still money to be made, the buy-to-let sector is not proving to be the goldmine it once was.

“Our research suggests sellers currently outnumber buyers in the buy-to-let market, with regulatory issues and tax changes among the reasons persuading landlords to pull out of the market,” she said.

“It remains the case that there are potentially strong returns to be earned in the buy-to-let market, and we continue to see landlords buying rental properties while our research indicates that many more potential landlords are considering going into the market too.”

The report published by Nottingham indicated that the main motivations for landlords planning to sell were the current regulatory environment (52%), followed by personal circumstances (41%), reduced tax benefits (24%), and problems with tenants during the Coronavirus crisis (21%).

New data published by Halifax paints a picture of a booming UK housing market, where annual property price growth has reached a new seven-year high. In addition, the average price of a UK home has now reached a record high of £261,743, according to the latest Halifax House Price Index.

“House prices reached another record high in May, with the average property adding more than £3,000 (+1.3%) to its value in the last month alone,” commented Halifax managing director Russell Galley.

“A year on from the first easing of national lockdown restrictions and the gradual reopening of the housing market, annual growth surged to 9.5%, meaning the average UK home has increased in value by more than £22,000 over the past 12 months.”

“Heading into the traditionally busy summer period, market activity continues to be boosted by the government’s stamp duty holiday, with prospective buyers racing to complete purchases in time to benefit from the maximum tax break ahead of June’s deadline, after which there will be a phased return to full rates.”

Mr Galley also commented on how savings amassed during lockdown could help movers and first-time buyers with more ambitious property purchases than would otherwise have been possible.

“For some homebuyers, lockdown restrictions have also resulted in an unexpected build-up of savings, which can now be deployed to fund bigger deposits for bigger properties, potentially pushing property prices even higher,” he said.

A strictly temporary trend?

While the momentum the housing market has gained over the past year has been extraordinary, experts continue to point out that the trend will eventually be reversed.

However, Mr Galley believes that the events of the last 12 months will permanently change the preferences and priorities of the UK public.

“While these effects will be temporary, the current strength in house prices also points to a deeper and longer-lasting change as buyer preferences shift in anticipation of new, post-pandemic lifestyles, as greater demand for larger properties with more space might warrant an increased willingness to spend a higher proportion of income on housing,” he said.

“These trends, coupled with growing confidence in a more rapid recovery in economic activity if restrictions continue to be eased, are likely to support house prices for some time to come, particularly given the continued shortage of properties for sale.”

The fastest growth in 15 years

Mr Galley went on to comment on the extraordinary performance of the housing market in key regions of the UK, where prices have been increasing at their fastest rate in over 15 years.

“All UK regions bar the North East saw an acceleration in year-on-year house price inflation last month. The strongest growth was once again recorded in Wales (up 11.9% over the past year), closely followed by the North West and Yorkshire & Humber, both of which posted double-digit annual growth. For Wales and the North West, these are the biggest percentage gains since April 2005, and for Yorkshire and Humber since June 2006,” he said.

“The South of England, traditionally the driving force of national house price performance, is for once lagging somewhat behind the rest of the country. This is especially the case in Greater London, where average prices are still 3.1% higher than a year ago but growing more slowly than the rest of the country. This likely reflects a weakness in city prices given the shift in preference for properties with more space, while recent surcharges on stamp duty for non-UK residents and Brexit concerns will also have weighed on the capital’s market.”

Driven by the imminent stamp duty holiday deadline, UK house prices have once again seen an enormous spike of 9.5% in the year to May. According to the latest figures from Halifax, the average market value for a UK home increased by more than £22,000, reaching a new all-time high of £261,743.

Along with elevated demand among buyers looking to take advantage of the government’s temporary stamp duty holiday, Halifax also cited growing demand for more spacious properties as a major catalyst for the sector.

“There’s greater demand for larger properties with more space,” said Halifax managing director Russell Galley, who spoke of “new, post-pandemic lifestyles,” triggering a major shift in buyers’ priorities.

“An increased willingness to spend a higher proportion of income on housing” has also resulted in more people than ever before setting their sights on larger homes with more extensive outdoor living spaces.

The figures released by Halifax indicate the fastest annual house price growth in May for almost seven years, with average property values having increased around 1.3% month-on-month.

Halifax said annual house price inflation was at its strongest level in nearly seven years, with UK prices rising by 1.3% month-on-month.

An increase in purchasing power

Elsewhere, real estate experts and economists have highlighted the role affordable borrowing is playing in driving the sector towards a successful summer. Low interest rates and the re-introduction of the 95% LTV mortgage are encouraging on-the-fence buyers to make their moves, while the opportunity to access considerable savings exists.

“This market is moving so fast that if you blink, it increases in value,” commented Fine & Country managing director Nicky Stevenson.

“It is incredible to watch when desire wrests control away from other factors during periods of exceptionally high demand like this, and it could be about to get even busier.”

“Now that almost all foreign holidays appear to be off, there’s nothing stopping the freight train that is unbridled demand from crashing straight through June, July, and August”.

Similarly, Lucy Pendleton of James Pendleton Estate Agents commented on how the unprecedented events of the year to date have created a climate of more “ambitious” property purchase intent.

“The inability of Britons to go on holiday means there’s no distraction now from executing that ambitious move to a larger home,” she said.

However, others have highlighted the growing difficulties faced by the vast majority of first-time buyers, who are finding themselves priced entirely out of the market in key locations across the country. The strongest average property price growth was recorded in Wales, reaching an unprecedented 11.9%. The rapid acceleration was also evident across Yorkshire and the Humber, both of which achieved average increases in excess of 10%.

With the buy-to-let market becoming an increasingly uncertain environment, it is not hard to see why potential investors are feeling cautious in the wake of the pandemic.

Research has been published that goes back in time to the last major global event that brought the property market to its knees, the 2008/2009 recession, and analyses how things have changed since then.

A report published by build-to-rent specialists Ascend Properties reveals which areas of the English rental market have performed the strongest since the 2008 “credit crunch”. The research revealed that the average rent in England fell from £699 in 2008 to £678 the following year. Fortunately, following the end of the property crash, the market has seen a steady recovery, with average rental income increasing by 20% to £814 in 2020, despite the effects of the COVID crisis.

But these are just ‘average’ figures. The picture looks quite different when looking at individual regions, with some areas experiencing much stronger rental income recovery than others.

London has seen a huge average rental increase of 68%, with the average rent increasing from £977 p/m during the recession to an incredible £1638 in today’s rental market.

The second-highest increase in rental income was seen in the South East, with an increase of 38%. Followed by the West Midlands at 25% and the East Midlands at 23%.

Increases of 19% were seen in the East of England, with other regions close behind with rises of 17% in the North West and South West and 11% in Yorkshire.

Coming in last place, with an average rental income of £607, is the North East, with an increase of 10% since the economic downturn of 2008.

Managing Director of Ascend Properties, Ged McPartlin, commented:

“It’s fair to say that pandemic uncertainty may have caused hesitation for some when looking to invest within the rental market, particularly in areas such as London where demand has dropped due to the enforced trend of working from home.”

“However, while COVID uncertainty has created a tricky landscape in some respects, we remain a world away from the financial crisis of 2008, and many remain reliant on the rental sector in order to live.”

“It also remains clear that, much like the wider housing market, any periods of instability are relatively short-lived, and we’ve seen strong and consistent growth across the board as a result.”

“For the professional investor who may be worried about a potential bump in the road, the build-to-rent space could be the best route to help mitigate any concerns. Not only does the sector provide a higher rental premium to begin with, but the lifestyle offering it provides attracts those with a longer-term view to renting. As a result, residents often rent for far longer terms than the traditional 12 months, providing a more stable stream of income and fewer void periods.

In the 12 months running up to May 2021, there has been a Consumer Price Index inflation rise of a whopping 2.1%, according to the statistics provided by the ONS. The Bank of England’s target of 2% has therefore been breached, leaving speculation as to how the bank’s MPC (Monetary Policy Committee) will react. It is thought that a monetary policy adjustment will be needed, and it is expected that interest rates will rise.

When compared to May 2020, last month showed a CPI rise of 0.6% when compared to last year, which showed little to no change.

CPIH (including owner-occupancy housing costs) also showed a monthly increase of 0.5%, growing from 1.6% in April to 2.1% in May.

Of the largest contributors to the rise, the increased cost of fuel, clothing, recreation, and eating and drinking out has had a detrimental effect on CPIH 12-month inflation rates from April to May.

Associate Investment Director at Killick & Co., Rachel Winter, stated:

“The jump in UK inflation signals the hustle and bustle of life once more. Although the government is not progressing with the roadmap as previously promised, a clear vision of the country coming out of lockdown has boosted consumer confidence. Inflation has been driven by the rising cost of clothes, fuel, food, and drink.”

“With the United States exceeding inflation expectations as its consumer price index reached the highest levels since 2008, it will be critical to keep an eye on inflation here. Gradual inflation is beneficial, but having too much of a good thing too soon is not. If inflation becomes unmanageable, the Bank of England may be forced to raise interest rates much sooner than anticipated.”

Portfolio manager at Quilter Investors, Paul Craig, added:

“Inflation is on the up, breaching the Bank of England’s 2% target, yet it remains hesitant to respond by reducing the stimulus it has provided and the quantitative easing that has become so addictive for markets. For now, this is likely the correct decision, as we still expect much of the inflation feeding through to be transitory. Wage increases do appear to be coming through, but again, this data is so distorted by the furlough scheme that it can’t be seen as a reliable indicator.”

“Unfortunately, much of the inflation that is coming through is bad inflation, hitting lower-income households in the pocket. How long these price rises continue remains to be seen. Will inflationary pressures be self-defeating or resolved as pent-up demand dissipates or is met with increasing supply? But should it become sustained, then it risks making the recovery even more uneven than it already is, and thus, it will ultimately fall to the government to pull the fiscal levers as it continues its levelling-up agenda.”

“The data we are getting continues to be noisy and won’t return to normal for some time. Therefore, don’t be surprised to see things run hot for a period while the Bank of England assesses the impact. Investors will need to keep listening closely to the noises coming out of the central banks because, as soon as they hint at moving, markets will react quickly. This is why investing in quality businesses is so crucial right now. They are built to withstand multiple market environments and won’t necessarily be phased by spiking inflation and the impacts it could have on central bank decisions.”

Derrick Dunne, CEO of Beaufort Investment, commented:

“UK inflation continued its ominous climb in May, with the CPI reading surging year-on-year to 2.1%, up from 1.5% in April, beating analyst expectations and, crucially, breaching the Bank of England’s 2% target for the first time since 2018.”

“Clearly, an impressive economic recovery is coming. Today’s data once again indicates a promising rise in consumer demand, largely driven by the easing of restrictions and a hearty embrace of the return to hospitality: the strongest upward contributions in May came from transport, clothing, food, and recreation.”

“But the Bank of England may soon have to take tightening measures. Let’s not forget a few years ago when it started cautiously raising the base rate in the face of a post-Brexit inflation surge.”

“That being said, the latest delay to our so-called ‘Freedom Day’ and the impending end of the furlough scheme should temper price rises in the short term, but the breach of the Bank’s stringent 2% target may already be provoking discussion of a monetary policy adjustment. Investors should still ensure that their plans can withstand both inflationary pressures and a potential rise in the base rate. At this stage, nothing is off the table.”

In March, the Royal Institution of Chartered Surveyors (RICS) issued new guidance that was supposed to help up to half a million leaseholders sell or remortgage their flats. The guidance was introduced to enable surveyors to establish if extra fire safety checks were needed for tower blocks.

Unfortunately, an investigation conducted by the BBC Money Box has found that the guidance is still being ignored by many lenders. Consequently, many leaseholders are still finding themselves in positions where they are unable to sell or remortgage their flats, despite there being no specific safety issues of concern.

In the wake of the Grenfell Tower tragedy that resulted in 72 deaths, the RICS introduced the Exterior Wall System or EWS1. The purpose of this form is to offer formal assurance to sellers, buyers, and lenders that a flat is safe to sell, buy, or lend against. Vertically stacked balconies, flammable cladding, and other potential fire risks are assessed in order for the surveyor to reach a decision on the property’s safety.

But even where a flat does not need an EWS1 form in full accordance with RICS guidance, some lenders are declining applicants for not having one.

Trapped by bureaucracy

BBC Money Box interviewed leaseholder Jie Shen, who said that his retirement plans are now in jeopardy due to his inability to sell his flat.

Despite RICS guidance clearly indicating that his flat does not need an EWS1 form, prospective buyers interested in his property have now been declined by three separate mortgage providers on this basis.

“I feel like I’m trapped in this situation. I can’t move on with my life; I’m just locked into this, and I don’t know how to resolve it,” he said.

“I think the mortgage lenders should follow the advice from RICS and shouldn’t insist on an EWS1 form [for a building] that does not contain flammable cladding.”

“I just don’t understand why the mortgage provider insists on this—it’s just bureaucracy.”

Jie also commented on the fact that an EWS1 form is not something he is personally authorised to do, as responsibility lies with the freehold owner of the building.

Government intervention is required

In response, MP Clive Betts has written to the government to ask why a complete disregard for the guidance issued is being tolerated on a widespread level.

Mr. Betts penned his letter to the Secretary of State for Housing, Robert Jenrick, demanding information in two key areas:

• The ways in which the government is supporting the implementation of the new guidance from RICS.
• The actions that the government plans to take in the event that mortgage lenders continue to insist that EWS1 forms are obtained for buildings that do not meet RICS criteria.

“The system was set up with the lending industry and the surveying industry to work together to give reassurance to lenders. That is its whole purpose,” Mr Betts said in an interview with BBC Money Box.

“So if it isn’t giving reassurance to lenders to lend on buildings that the system says don’t need a certificate… then the system is a complete failure, and it needs taking up with both RICS and the lenders, so it doesn’t leave people stranded in homes that they can’t sell and can’t remortgage.”

Most major and minor renovations can make a positive contribution to the market value of any home; the extent to which home improvements influence property values varies significantly from one property to the next.

There are several significant home improvement projects that are known to contribute significantly to market values in the current climate. If you are looking to sell your home for the best possible price, irrespective of its location, these are the renovations worth considering right now:

Cellar conversions

Even a relatively rudimentary cellar conversion to create an additional room can boost the market value of a home by as much as 30%. If you have a relatively spacious cellar that could be converted into a comfortable shared living space, it could make a major contribution to the market value of your home.

Garage conversions

The same also applies to garage conversions, where the renovation results in a fully functional additional living space for the property. A converted garage can be used to set up a home office, a home cinema, a game room, or a guest bedroom. It can also be a surprisingly affordable project if the existing structure of the garage is relatively sound.

Loft conversions

A loft conversion can be carried out to create additional storage space, add an extra bedroom to the property, or create a quiet and secluded haven for relaxation. On average, it is estimated that a loft converted into a functional living space can boost the value of a home by around 15%.

Conservatory construction

The installation of a conservatory almost always boosts a home’s value far beyond the associated construction costs. Exact values vary from one installation to the next, but a typical conservatory will boost a home’s value by at least 10% on average.

Driveways

Even something as simple as a functional yet attractive driveway is known to significantly boost curb appeal for prospective buyers. Where a property does not have a private garage, a driveway is the next best thing.

Kitchen extensions

A kitchen renovation can be a great way of boosting the value of a property, but not nearly on the same level as a kitchen extension. As the kitchen is considered the heart of the home by most would-be buyers, it is often scrutinised more intensively than all other living spaces. Expanding a compact kitchen with a modest extension is guaranteed to boost the value of the property as a whole.

Bathroom updates

Last but not least, a bathroom makeover can also make a real difference. This also tends to be a space that is heavily scrutinised by prospective buyers, resulting in a renovation that almost always pays for itself with its subsequent contribution to the market value of your home.