Britain's housing market has changed shape over the past five years and advisers need to understand what this means for them and their clients.
This is the view of residential mortgage brokers and landlord agents alike, who have warned that brokers may have to "rethink" their model.
According to Graham Hayward, chief operating officer at rental guarantor service Housing Hand, legislation, the turbulence of Covid-19, the impact of Brexit, and the most recent political and economic factors have combined to "change the shape" of the housing market.
Hayward said: "This means brokers will have to rethink their model, as where they sit in the marketplace they are being challenged and squeezed."
Purchase prices and rents are running away with themselves.AboodyPart of this is to make sure that brokers have made their model "more digital", especially as the government's legislation is moving in this direction, he said.
Marc Schneiderman, director of Arlington Residential, said while there is still strength in the market, there are indications that the buy-to-let market might be slowing down, especially as the rising cost of living puts a strain on affordability.
He said: "We are still seeing strong competitive bidding from buyers keen not to miss out.
"However, there is undoubtedly a sense that the market may be cooling down. A rise in interest rates, high inflation [and] fear of further increases in the cost of living may all contribute to a slowing down, in particular of the sales market."
Tomer Aboody, director of property lender MT Finance, also warned that a lack of supply in both the sales and rental markets has meant that "purchase prices and rents are running away with themselves".
This requires mortgage advisers to do a lot more hand-holding for clients who are looking to buy.
Aboody added: "Rising interest rates could help curb the uptick in property prices should they get to such a level that borrowers can no longer afford the mortgages they need to purchase these homes.
"This would reduce demand and in turn slow down the pace of price growth."
Generation rent
Hayward explained that 'generation rent' will grow, and the need for quality buy-to-let and rental accommodation will expand considerably.
Hayward added: "The UK market flattened during Covid and Brexit, but the purpose-built student accommodation market is coming back, and build-to-rent is thriving and expanding at an alarming rate.
"The changing demographics with less overseas influence of renters, and increasing shift of servicing UK renters, has meant that generation rent is expanding as the ability to buy houses is becoming limiting.
"Generation rent is not going away and their requirements for renting have changed, as they want the full experience, demanding more for their money."
The situation for buy-to-let differs regionally, however, as John O’Malley, chief executive of Glasgow-based Pacitti Jones, explains.
While residential property in London is yielding approximately 3-4 per cent a year, he said it was still possible for buy-to-let investors to buy real asset in and around Glasgow’s "trendy west end area" for 6 per cent yield a year.
He added: "Currently sales prices in Glasgow aren’t ‘broken’ – people have just decided to put more value into where they live.
"The house price index in Glasgow has risen by 10 per cent throughout 2021, and we’re told that inflation will peak at between 7-8 per cent CPI, so it’s not running rampantly ahead of inflation.
"When people are worried about inflation, they like to invest in real assets, and real assets provide a good asset class.”
These eye-watering numbers have prompted fears of an affordability crisis.LeafMeanwhile, former RICS residential chairperson Jeremy Leaf, commented: "In many ways what is happening in the sales market is being mirrored in lettings.
"Shortage of stock remains on both sides, while demand remains strong – even though inflation reached a 30-year high and many are facing a record drop in living standards according to the government’s own financial watchdog."
He pointed to the latest Office for National Statistics figures, which show that not only are rents up 2.3 per cent a year – their fastest rise in more than five years – but to purchase the average-priced property in England now requires 9.1 times earnings, up from 7.9 times 12 months earlier.
As reported in FTAdviser last month, the average house price is now £273,762, according to HM Land Registry data.
But Leaf does not expect a significant downturn, despite the pressures building in the mortgage and rental markets across the UK.
Leaf added: "These eye-watering numbers have prompted fears of an affordability crisis.
"However, the purchasing power of savings is still driving activity while the pandemic-inspired race for space is not yet finished, so we don’t expect a sharp correction for the rental or sales markets."
simoney.kyriakou@ft.com
