Are private landlords doomed?
Are private landlords doomed? 

The UK property market boom is soon over, as experts predict that the rising inflation and the cost of living crisis will cause a house price correction. 

The Government also proposes major changes to the private rented sector, which will end the no-fault eviction process under section 21 of the Housing Act 1988.

Currently, the property market is overheated. Property prices have increased by an average of 11% over a year. This makes it increasingly difficult for first-time buyers to get a foot on that elusive first rung of the property ladder.

The average UK house price rose by £25,000 in August, says the Office of National Statics.

Why are UK house prices so high?

The average UK home price has nearly trebled since the turn of the century.

It would appear on the surface that the increasing house prices derived from

simple supply and demand, a shortage of housing compared to high demand for homes.

The Bank of England says its record-low interest rates have been powering the housing market.

Rates have been at rock bottom for more than a decade and were at a record low of 0.1%. As a result, it was very cheap to borrow money to buy a home.

The Bank of England has increased the base rate four times since December 2021 in response to soaring inflation, and it is currently at 1%.

The Times reported that further rises are expected throughout 2022, which could dampen the housing market as it means mortgage repayments will increase.

The cost of living crisis is likely to be the biggest cause of a slowdown in the housing market. As household budgets come under pressure, fewer people can afford to stretch themselves to buy homes.

Since the coronavirus pandemic, rent arrears across the UK have been at a record high, making it more difficult for renters to purchase their first home.

This also caused many landlords to fall into arrears with their mortgages, notwithstanding the so-called “mortgage holidays” that were introduced by lenders.

Many experts think that some first-time buyers could hold off as they wait to see what happens to the market.

Average house prices in the UK

Growth in average house prices in the UK gathered pace in the second half of 2020, a trend that has continued throughout 2021 and into this year.

It had been expected that the end of the stamp duty holiday and furlough in October 2021 would result in less demand for house purchases, but that has not been the case.

In March 2022, UK house prices increased by more than 14%, growing at the fastest pace since 2004, according to Nationwide, the biggest mortgage lender in the UK.

However, growth has since decreased somewhat. Nationwide data has shown year on year increases of 12.1% in April and 11.2% in May, indicating a gradual slowdown.

Nationwide says the price of an average home is now £269,914, more than a fifth higher than at the start of the pandemic, or around £30,000 higher than May 2021.

Meanwhile, mortgage lender Halifax has also confirmed that house prices appear to be slowing, saying the average house price was 10.8% higher in April than a year ago at £286,079.

Month-on-month, prices rose 1.1% – down from the 1.5% recorded between February and March.

Nationwide and Halifax differ in their house price estimates because the representative properties they track are slightly different.

We have more on avoiding paying too much for a house here.

What are the regional variations?

There are several regional variations when it comes to house prices, and some areas remain highly competitive.

  • House price growth is slowest in London
  • But prices in the capital are still the highest in the UK at almost £520,000 – almost double the UK average
  • Wales is growing faster than any other region or area in the UK, with the growth of more than 15% year-on-year

Meanwhile, prices of large, family homes are growing faster than flats. For example, prices for detached and semi-detached houses have risen 12% over the past year, compared to 7% growth for flats, said Halifax.

Will house prices crash in 2022?

What does the future hold for the UK’s housing market? A few factors could put a dampener on the recent spectacular growth.

The cost of living crisis, impacted heavily by record petrol and energy prices, alongside rising inflation and tax rises, could dampen economic growth and stall the housing market.

As a result, rising interest rates to curb soaring inflation will increase mortgage rates.

Property consultancy Cluttons suggests that prices could fall by as much as 10 per cent in some parts of London.

This, coupled with the squeeze on household finances resulting from the cost of living crisis, means we could see a significant slowdown in house price growth as the year goes on. 

House price predictions for 2023 and beyond

Analysis from Capital Economics predicts that the Bank of England base rate will peak at about 3% in the second half of 2023, in turn pushing average mortgage rates to 3.6%. While still historically low, that is more than double the 1.6% rate recorded at the end of 2021.

Based on this data, Capital Economics has forecasted house prices to rise throughout 2022 before falling by 5% in 2023.

Russell Galley, managing director of Halifax, said the prospect of increasing pressure on households’ finances could cause growth to slow:

“The headwinds facing the wider economy cannot be ignored. With interest rates on the rise and inflation further squeezing household budgets, it remains likely that the rate of house price growth will slow by the end of this year.”

Section 21 Evictions

The Government has confirmed its intentions to repeal Section 21 of the Housing Act 1988 in the May 2022 Queen’s Speech, as originally set out in the Renters’ Reform Bill released in late 2019, and “strengthen tenants’ rights.”

Shelter has released statistics claiming that a Section 21 notice has been issued to a tenant every seven minutes since 2019, affecting 230,000 people – although Sajjad Ahmad, the CEO of the British Landlords Association, has stated that the overall use of Section 21 notices has in fact been falling since 2015 as more landlords want long term tenants.

Landlords are understandably concerned about repealing the Section 21 ground for possession. 

Landlord Advice UK wrote a detailed article on this previously, which can be read here.

Should landlords consider selling up? 

With increasing mortgage rates, increased costs of living, higher risks of rent arrears than ever before, and the abolishment of no-fault evictions, it is not looking good for landlords in the private rental sector. 

The CEO of the British Landlords Association, Mr Ahmad stated: 

“There are grave concerns for landlords in the private rent sector with yet more red tape to come, combined with increasing mortgage rates and higher risks than ever before of rent arrears.”

“The government’s proposal to abolish no-fault evictions couldn’t have come at a worse time for landlords. Landlords should consider their options very carefully and quickly.”

Many organisations providing financial advice to landlords are advising landlords to consider selling their residential investment properties and to wait and see how the market turns out over the next 2-3 years before re-investing. 

A large national property investment company, Sell House Fast 4 Cash reported a 33% increase in its purchases of tenanted properties nationally.

It had connected to the landlord’s concerns over the current market and economy.

If you wish to seek possession of your property, Landlord Advice UK can assist obtain an order for possession. You can complete the enquiry form here, and a team member will contact you. 

If you are seeking to sell your property and want to discuss your options, you can complete an enquiry with Sell House Fast 4 Cash here for a quick and easy sale. Landlord Advice UK will also be able to put you in contact with its conveyancer.


The Times

The British Landlords Association

The National Office of Statistics

Sell my House Quickly 4 Cash

Cluttons Property Consultancy