All the signs are that the Lincoln housing market is sat on good foundations, yet one key hazard could still scupper the market

Will the Lincoln Property Market Continue to Boom?

All the signs are that the Lincoln housing market is sat on good foundations, yet one key hazard could still scupper the market.

‘UK Property Prices Rising at Record Levels’ is the headline of many newspapers. In the last few weeks, the Halifax reported they had grown by 6.5% in the last 12 months, whilst the Nationwide said 7.1% and not to be outdone, the Government’s own Land Registry said 8.6%. Nothing new there then you might think, don’t UK house prices always increase?

Actually, they don’t, as many Lincoln homeowners will remember 2009, when they dropped by 19%. Also, some more mature Lincoln homeowners will remember the early 1990’s where house prices dropped just over 40% over 4 years (after the 1989 property crash). So, the increase in UK house prices over the last 12 months has mystified all the forecasts made by most economists as…

house prices were forecast to drop during the pandemic because during the previous six UK recessions experienced since WW2, house prices have always fallen sharply in real terms.

Yet 2020 was different with house price growth increasing at its highest rate since 2014 as the substantial Government support programmes (including Bounce Back Loans, grants and furlough) has mollified the hit to household incomes. Add to that the pent-up demand from the Boris Bounce, all the people working from home wanting an extra room for an office and therefore needing to move, plus the stamp duty tax holiday, with the cherry on the cake of 0.1% Bank of England interest rates keeping borrowing affordable. This has meant…

Lincoln property values are 3.9% higher than a year ago.

Yet the affordability of property is a big issue going forward. By the time of the height of the last property boom in 2008, the national ratio of average property values to earnings had risen from 5.1 in 2000 to 8.8 (i.e. the average house price was 8.8 times the size of the UK’s average person’s annual earnings). We then had the property crash in the proceeding years, and the ratio dropped to around late six’s/early sevens. However, over the last few years, the ratio has been steadily rising and now with the recent growth in demand for property (the five reasons mentioned in the previous paragraph), the ratio has now smashed past nine. Looking locally…

the ratio of average property values to earnings in Lincoln as a comparison was 2.5 in 2000, rising to 5.7 in 2008, dropping to 5.0 the year later when the Credit Crunch hit, and now currently stands at 5.6.

So, are we heading for another house price crash? Maybe, maybe not – because the House Price to Earnings ratio only tells us part of the story. Another indicator of the property market is mortgage affordability, which measures the proportion of mortgage payments to average incomes. For all mortgage holders, in 2015, this stood at 24.13% and today it is only just above the national long-term average of 25%, demonstrating that property is still affordable.

Yet, the life blood of the property market are first-time buyers. The long-term average percentage of income which goes on mortgage payments for first-time buyers is 33%. Just before the 1989 property market crash, this stood at 54%. Whilst just before the 2008 property crash, it reached 49%. Today, it stands at 31.7% (and the reason it’s so low even with record high property prices is low interest rates, because when mortgage interest rates are low, this permits people to afford larger mortgages, which enables them to bid up house prices).

If you are a Lincoln homeowner, Lincoln first-time buyer or Lincoln landlord and thinking of buying or selling a Lincoln property in the next few years, then this article will be of interest.”

Will Lincoln House Prices Fall in 2022?

As 1 in 6 Lincoln homes are selling within a fortnight of coming to market.

One of the most astounding things that has happened in the last 12 months was something that did not happen. Even after the country saw the deepest recession since the Great Freeze of 1709 with GDP dropping 28% in one quarter, one would have expected a large fall in Lincoln house prices would follow. Yet…

Lincoln house prices are 3.9% higher than 12 months ago.

Even though buying and selling Lincoln property was put on ice for the first time in the history of the Lincoln property market last spring due to the Covid 19 outbreak, as the Lincoln property market wobbled on the edge of deep recession, it stepped back in early summer and now it is rocketing upwards as…

15.8% of Lincoln homes are selling within a fortnight of coming to market.

Some commentators have suggested the end of the Stamp Duty holiday together with the ending of the furlough scheme on the 30th September 2021 could be the catalyst for a drop in house prices. Even the Government’s own regulator of finances expects UK house prices to fall around a couple of percentage points in 2022 whilst some others have predicted around a 5% drop as unemployment levels increase post furlough.

However, other property market forecasters believe that property values in 2022 won’t drop against the background of robust British economic recovery in Q3 and Q4 of 2021.

What do I think will happen to the Lincoln property market in the next 12 months?

On the positive side, what I do know is the Stamp Duty holiday enabled Lincoln homebuyers to spend those tax savings on the price paid for their Lincoln home and that certainly accounts for some of the uplift in house prices mentioned above.

Also, the historically low interest rates that have supported Lincoln homebuyers’ affordability for the last 13 years since the Credit Crunch has continued. Secondly, with people spending many months working from home, this has seemed to have polarised people’s inclination to make lifestyle changes. Finally, the Government has recently introduced 5% deposit mortgages for first-time buyers. All these factors will fuel demand and hence may cause house prices to rise.

On a more cautious note, I do not believe these very sturdy Lincoln house value rises of the past year will persist at these levels for the next 12 months. With buyers having to use many thousands of pounds on Stamp Duty, the price they pay for their Lincoln home will be curtailed, meaning property values by definition will ease. 

The simple fact is the British economy has yet to feel the full effect of its largest recession since 1709, and we must remain considerate about the long-term effects of the economy (and unemployment levels) on the property market.

These are interesting times for the Lincoln property market. If the price you want to achieve for your Lincoln home is the most important thing, now as opposed to 2022 might be a good time to consider placing your property on the market.

Don’t forget, you can still put your Lincoln property on the market, find a buyer and then go and see what is available to buy. Many buyers will wait for you to find a property, yet if they can’t/won’t – you won’t be made homeless. English property law means you can still come away from the sale and you won’t be forced to sell. If you would like to know a bit more about that or any aspect of buying or selling property in Lincoln, drop me a message or call me.

Lincoln Property Market: Is it Time to Stamp Out Stamp Duty?

Most people pay Stamp Duty Tax when they buy a property, house, apartment or other land and buildings over a particular price in the UK. The Chancellor, Rishi Sunak (quickly followed suit by the Welsh and Scottish Governments), announced last July that Stamp Duty was partially being suspended on all English property transactions up to £500,000 (£250,000 in Wales and Scotland) – a Stamp Duty Holiday.

That meant only 1 in 8 English buyers would pay any Stamp Duty Tax on their home purchase (if it was over £500,000), saving any buyer up to £15,000 in tax on the purchase. The problem is the property needs to have been purchased and bought by the 31st March 2021. Complete the transaction a day later, and those buyers will have to pay Stamp Duty.

The issue is local authorities are snowed under with local search requests, mortgage companies and conveyancing staff are working from home, so property transactions are taking much, much longer. This means many Lincoln (and UK) buyers who have currently sold (subject to contract) will miss out on the stamp duty saving.

Most (not all) estate agents have been warning the buyers and sellers in their property chains that some deals might not make the 31st March 2021 deadline and pleasingly, most people aren’t moving because of the Stamp Duty Holiday (they are moving because they need extra space because of the pandemic). However, it only takes one person in the chain not to be ‘singing off the same hymn sheet’ for the whole chain to collapse … so keep in touch with your estate agent.

A campaign by one of the national newspapers and an online petition to extend the stamp duty holiday has meant the topic could be debated in Parliament in the next few weeks, after 100,000 home buyers and sellers signed that petition, asking for an additional six-month Stamp Duty Holiday. The home buyers and sellers are worried the property market will collapse after March 31st when the Stamp Duty Holiday is removed.

The last time British home buyers were conscious of upcoming Stamp Duty changes, it distorted the number of properties sold. The bigger question though is, did it change the overall number of people moving home?

In November 2015, the then Chancellor, George Osborne, announced in his Autumn Statement that buy to let landlords would have to pay an additional 3% in Stamp Duty (over and above owner occupiers) for all property bought after the 1st April 2016. As shown in the graph below, this caused a surge in property buying (which we have seen since this summer with the Stamp Duty Holiday), with many Lincoln buy to let landlords completing their property purchase in March 2016, as they dashed to complete their property purchase before the tax increase.

In the 3 years of 2015/6/7, the average number of Lincoln properties sold (transactions) per month was 143 per month, yet in the month before stamp duty was changed in March 2016, transactions rose to 277, an uplift of 93.6% from the average or an extra 134 transactions in that month alone. Yet, look at the months of April and May, the property transactions numbers slumped, meaning in those two months combined, there were 62 less transactions.

So, if the Stamp Duty Holiday isn’t extended, what will that mean for the UK and Lincoln property market?

London and the South East seem to be particularly exposed to the removal of the Stamp Duty Tax break because it has such a high proportion of property priced between £300,000 and £500,000. These areas benefit from the highest tax savings relative to house price.

Yet, with the average value of a Lincoln home at £214,600, the stamp duty cost if the sale is delayed after the 31st March 2021 is £1,792 – a figure that shouldn’t break the bank

So, if the Stamp Duty Holiday isn’t extended – it might not be such the nightmare scenario as some people believe.

My advice to all buyers and sellers is to be constantly talking to your estate agent, your solicitor and your mortgage broker. With your estate agent to ascertain if they have asked every person (or asked the other agents in the chain to ask the question), “What if we don’t meet the stamp duty deadline?” With your mortgage broker and solicitor to give them all the information they need to ensure there are no delays with any information they request from you.

One final thought, some mortgage providers allow insurance policies to be purchased by your solicitor in case your searches (from the local authority aren’t back in time) … the cost of those will be much lower than the cost of the stamp duty … again, speak with your solicitor.  Irrespective of whether you are a client of mine or not, if you would like a chat about anything mentioned in this article, don’t hesitate to contact me.

2,313 Lincoln Homeowners to be ‘Unchained’ From Toxic Leasehold Agreements in Biggest Shake-up of Property Law in Decades

When William the Conqueror invaded our fair shores in 1066, like all good kings, he needed to buy loyalty and raise cash to build his castles and armies. He did this by feudal law system and granted all the faithful nobles and aristocrats with land. In return, the nobles and aristocrats would give the King money and the promise of men for his army (this payment of money and men was called a ‘Fief’ in Latin, which when translated into English it becomes the word ‘Fee’… as in ‘to pay’).

These nobles and aristocrats would then rent the land to peasants in return for more money (making sure they made a profit of course) and the promise to enlist themselves and their peasants into the Kings Army (when requested during times of war). The more entrepreneurial peasants would then ‘sublet’ some of their land to poorer peasants to farm and so on and so forth.

The nobles and aristocrats owned the land, which could be passed on to their family (free from a fee i.e. freehold), while the peasants had the leasehold because, whilst they paid to use the land (i.e. they ‘leased it’ which is French for ‘paid for it’), they could never own it. Thus, Freehold and Leasehold were born (you will be pleased to know that in 1660 the Tenures Abolition Act removed the need of Freeholders to provide Armies for the Crown!).

4.3 million properties in the UK are leasehold

… and 2,313 properties in Lincoln are leasehold. By definition, even when you have the leasehold, you don’t own the property (the freeholder does). Leasehold simply grants the leaseholder the right to live in a property for 99 to 999 years. Apart from a handful of properties in the USA and Australia, England and Wales are the only countries of the world adhering to this feudal system style tenure. In Europe you own your apartment/flat by using a different type of tenure called Commonhold.

The average price paid for leasehold properties in
Lincoln over the last year is £155,414.

The two biggest issues with leasehold are firstly, as each year goes by and the length of lease dwindles, so does the value of the property (particularly when it gets below 80 years). The second is the payment of ‘ground rent’ – an annual payment to the freeholder.

Looking at the first point on the length of lease, the Government brought in the Leasehold Reform Act 1967, which allowed tenants of such leasehold property to extend their lease by upwards of 50 years. However, this was awfully expensive and as such only kicked the can down the road for half a century (when the owner would have to negotiate again to extend another 50 years – costing them more money, time, and effort).

Ground rents on most older apartments are quite minimal and unobtrusive. The reason it has become an issue recently was the fact some (not all) new homes builders in the last decade started selling houses as leasehold with ground rents. The issue wasn’t the fact the property was sold as leasehold nor that it had a ground rent, it was that the ground rent increased at astronomical rates.

Many Lincoln homeowners of leasehold houses are presently subject to ground rents that double every 10 years.

That’s okay if the ground rent is £200 a year today, yet by 2121, that would be £204,800 a year in ground rent, meaning the value of their property would almost be worthless in 100 years’ time. One might say it allows for inflation, yet to give you an example to compare this against, if a Lincoln leasehold property in 1921 had a ground rent of £200 per annum, and it increased in line with inflation over the last 100 years, today that ground rent would be £9,864 a year.

This is important because the majority of leasehold properties sold in Lincoln during the last 12 months were apartments, selling for an average price of £154,007.

So, without reforms, the value of these Lincoln homes will slowly dwindle over the coming decades. That is why the Government reforms announced recently will tackle the problem in two parts.

Firstly, ground rents for new property will effectively stop under new plans to overhaul British Property Law. Under the new regulations, it will be made easier (and cheaper) for leaseholders to buy the freehold of their property and take control by allowing them the right to extend the lease of their property to a maximum term of 990 years with no ground rent.

Secondly, in the summer, the Government will create a working group to prepare the property market for the transition to a different type of tenure. Last summer the Law Commission urged Westminster to adopt and adapt a better system of leasehold ownership – Commonhold. Commonhold rules allow residents in a block of apartments to own their own apartment, whilst jointly owning the land the block is sitting on plus the communal areas with the other apartment owners.

These potential leasehold rule changes will make no difference to those buying and selling second-hand Lincoln leasehold property.

Yet, if you are buying a brand-new leasehold property, most builders are not selling them with ground rent (although do check with your solicitor). The only people that need to take any action on this now are people who are extending their lease. If you are thinking of extending the lease of your Lincoln property before you sell to protect its value, your purchaser may prefer to buy on the existing terms and extend under the new (and better) ones later (meaning you lose out).

Like all things – it’s all about talking to your agent and negotiating the best deal for all parties. Should you have any questions or concerns, feel free to pick up the phone, message me or email me and let’s chat things through.

Rental market accelerates

  • Tenant demand is rising substantially. For agents in the lettings market, the busy season is approaching.
  • Analysis of tenancy start dates based on data from the past 5 years indicates the market starts to accelerate in June, with nearly one third of all tenancies starting between July and the end of September.
  • The demand for rental properties increased significantly in the three months to April according to RICS, however new instructions remain low, supporting rental price growth.
  • Affordability, outside space and broadband are priorities for renters. 87% of tenants are keen to know running costs and 79% broadband speed; information is not always included in property marketing. (Dataloft, Property Academy 2020).

Supply & Demand

  • Rental values are significantly higher across all regions of the UK, except London, than they were a year ago. Excluding the capital, the average monthly rent is £853, up 6.2%.
  • A shortage of supply and growing demand is helping support rental values. New instructions were 9% lower in the first three months of 2021 compared to 2020.
  • Although London has seen an uptick in rents agreed in 2021, oversupply in the market has seen values fall by over 5% year-on-year.
  • Across the UK as a whole, annual growth is currently 2.9%. This is on par with projections for growth over the next year (RICS). Source: Dataloft, HomeLet, April 2020

Average mortgage rate remains historically low

The cost of borrowing remains historically low according to new data released by the Bank of England, the average mortgage rate just 2.09%.

This rate has remained unchanged since the start of 2021, with gross mortgage lending in March hitting its highest ever monthly total at £35.6 billion.

Mortgage approvals remain over 20% higher than the long term (5 year average), as interest in moving home continues.

The UK base rate has now remained at 0.1% for over a year. With inflation remaining significantly below target and the economy still in recovery there is little evidence this will change imminently.