No jam today and definitely no jam tomorrow as property sector mulls Autumn statement
Having now had time to reflect on what the Chancellor did for the property market, many agents feel that Jeremy Hunt has delivered no direct benefit. In a generalist way there was some respite for business rates, but in terms of helping out a slowing market there was nothing.
As 2023 draws to a close, it is likely that there will be 28% less house completions this year than the year before, and this is significant as it means the sector is on tick over, with the likelihood that 2024 house buyers and sellers will largely be from the hatched, matched and despatched verticals with social movers hunkering down until economic headwinds improve.
With 16,000 estate agents in the UK handling roughly 800,000 sales a year, the other sales being transacted directly by homebuilders or being delivery to local authorities and their social housing quotas, it will mean many businesses will on their residential sales side be trading on wafer thin margins or a loss.
Now as 70% of agents have a lettings arm, and rents have been increasing by 8% to 10% annually, with the resultant management fee also rising in line with this, there has been some Jam for some businesses. But increasingly the lettings operations have been subsidising the loss making residential sales sides of estate agencies.
Whilst the general public may not shed a tear if there is a consolidation of agency numbers, if 2024 becomes a retrograde housing market, and the OBR is actually forecasting an 8% drop in house values nationally by Q4 2024, a stagnant market is bad news for all stakeholders. A sticky or declining housing market is a sign that the economy itself is in the doldrums, when people move they spend money, which helps the general economy spin forward.
It is not a commonly known fact but the average house move generates a bubble of £57,000 of cash being deployed. Think about it you sell your home for £350,000 and purchase for £650,000, the fees for the two sales would constitute at 1.5% £15,000 + VAT in fees. Add in solicitors cost on a purchase and sale, and you are up to £2,200 + VAT, add in SDLT that is another £20,000 (5% of £400,00). A new mortgage, survey fees, moving fees, incidental costs new carpets, redecoration maybe a new kitchen within the year, quickly you hit that £57,000 mark.
Think then if 28% of these money guzzlers do not move in a year, what will be the knock on effect to the treasury in taxation, to the 4,000 conveyancers who rely on new clients, the mortgage brokers and lenders and associated insurers. This is even before we think about that new car or extension or conservatory that is often in the house moving mix.
Also, and in over 30 years I dealt with nearly 18,000 agreed sales so I observed it first hand; often moving home was a traditional way of tidying up debt using the rise in equity in your home to pay off and consolidate debt. Many times I have seen vendors who maybe lived in their home a decade but had credit card debt and lived off an overdraft and needed a new car, deciding to sell their home and using some of the accumulated equity in their home to pay down or pay off debt, take on a larger mortgage and move up the property ladder.
But, if the home you live in has less equity than when you bought it, and equally as important if the cost of your next mortgage is too high as a 5.35% interest rate on £250,000, the extra mortgage on top of your old mortgage you need to stretch to gain the next house up, well you just do not move. And market stagnation kicks in.
The reason that we had such an overcooked housing market where values rose by 20% in two years is that Rishi Sunak whilst Chancellor gave a huge SDLT holiday which caused a rush to buy, fuelled further by ultra-low interest rates. Fast forward to now, with the base rate having moved from 0.1% to 5.25% a 525% increase in an incredibly short period and you can see why we are in the present situation. And in fairness to Jeremy Hunt or any Chancellor there is no quick fix. Only time and a changing economic cycle will re-balance things.
Andrew Stanton is the founder and CEO of Proptech-PR, a consultancy for Founders of Proptechs looking to grow and exit, using his influence from decades of industry experience. Separately he is a consultant to some of the biggest names in global real estate, advising on sales and acquisitions, market positioning, and operations. He is also the founder and editor of Proptech-X Proptech & Property News, where his insights, connections and detailed analysis and commentary on proptech and real estate are second to none.