“As market changes began to roost in Q3 we saw behaviours align with the house price index slowing from double- to single-digit growth. It’s clear buyers are now considering their purchases in light of the cooling of the market, but vendors continue to be – as you may imagine – keen to sell.
This represents for us, in part, the fact that as the market is impacted by economic changes far-and-wide, the gap between supply and demand remains.”
Charlotte Hogarth, Associate Director, Robb Residential, Sales
Quarter 3 – 2022
Throughout the year inflation has been a topic of discussion and concern. It’s now gone from shadow to spectre to full-blown bogeyman, sweeping across Europe and beyond, as the table here illustrates.
A key problem in the UK is the Government’s (mis-)handling of events. First there was the long hiatus between Boris Johnson’s ousting and the appointment of Liz Truss via a Conservative Party leadership election; Truss’s ascent was then (sadly) interrupted by the passing of Queen Elizabeth II; then we had the beginning of intervention, addressing the cost-of-living crisis via the imposition of an energy price cap for domestic customers. That cap initially ran from October 2022 for two years, allowing many to rest well in bed at night, some no doubt tucked-up with their water-bottle and bed socks – however, it has since been cut to a cap lasting only six months, before the next review.
There followed the farrago of the “mini-budget”, the “mini-” element being a piece of sophistry to allow it not to be called a “budget” and therefore subject to actual financial scrutiny. Cue outcry over tax cuts for the rich and the subsequent near doom loop as pension funds had to shore up their debt by selling UK gilts.
The markets detest uncertainty, so the new Sunak-Hunt nexus’s handling of forthcoming events is key, one aim being the ploughing of a clear furrow to manage prudently the economic challenges.
This is what will determine the short-to-medium term future for UK mortgage rates and the stability of the wider economy. Even the IMF waded in with criticism for Numbers 10 and 11 Downing Street.
In Q3 we reported that, for our market, sales up to and around £500k were still progressing nicely, but beyond that figure matters were slowing, whilst £1m and north witnessed a gradual dwindling of potential buyers.
We also experienced other changes in behaviour. We see both some frustration as certain properties which would have sold very quickly six months ago are now taking what, in relative terms, feels like a few weeks to find a buyer, as well as the number of new instructions decreasing. However, at this time of year in our middle-to-prime market that features many country, coastal and other remote properties, a general slowdown is typical as Autumn starts to have us all looking towards Winter. This makes it difficult to see the complete picture of the current market; but as professional estate agents we recognise things are changing, and we need to adapt to meet our vendor and buyer demand – negotiators are seeing slightly less urgency coming from the viewing audience, and there are fewer buyers coming to market just now.
There is still that material gap between supply and demand, and our slice of the market has many keen buyers still, we suspect, a product of some fallout and lifestyle changes from the pandemic, as well as the more traditional movers seeking a change of pace and lifestyle. It’s still a good time to sell and take advantage of fewer vendors in your sale space.
However, the change in behaviours remain, and it’s the experienced, quality estate agent’s role to recognise this transition and present a knowledgeable, safe pair of hands to guide both ends of any transaction.
We are also seeing more chains emerge, and whilst previously vendors would not sanction conditional offers, these are becoming more common.
Quality Estate Agency
In April 2022 we wrote (here) of the benefits of true estate agency, as opposed to – say – providing a shop front and a smart business suit for the vending of property.
In times of a hot market, it’s not unusual to see in the press reports at half-year and year-end of agencies whose turnover and profit is up by x. It’s also not uncommon to check those figures against the rise in house prices and see a direct correlation, i.e. there’s little growth beyond the rise in the overall market.
This doesn’t mean estate agency is easy, but when the times are good it’s not very difficult to sell a house, and with not much work some properties can go for a song. We heard recently of one five-bed property that sold well above its valuation report simply, in the agent’s view, because a family home with that number of bedrooms was near-impossible to get in the summer market of 2022. This also highlights the point of the gap in demand and supply – that remains. However, as times become tougher and that gap closes, experienced agents will come into their own.
As we say in our blog referenced above, it’s now going to be more important than ever to be able to leverage true estate agency skills of
- Experience & Market Knowledge
- Personal Touch & Delivering Our Promise to You
- Accurate Valuation (valuing is not a sales pitch)
- Marketing & Negotiating Skills
- Wider Network & Property Contacts
- Full Service & Peace of Mind.
In times of uncertainty and stress, the experienced and wise estate agent will 100% focus on every part of the end-to-end transaction as key, from accurate pricing, quality marketing, efficient and charismatic viewing through to the clean, efficient conclusion of missives: nothing taken for granted, every sale needs to be converted for everyone involved.
It’s something of a cliché to quote Confucius or Albert Einstein at moments like these, the latter having been (wrongly) attributed as saying, “In the middle of every difficulty lies opportunity”. But the incorrect attribution doesn’t make the quote less meaningful.
For the established family home seeker, cash buyer, long-term and / or professional property investor there will be opportunities ahead.
For many reasons – life events, changes in circumstance, career progression, a move into a new phase in one’s life – sellers are sometimes compelled to market their house, so for these and other reasons it’s likely that we will see more distressed sales. Those on the lookout for a foothold, bargain or other opportune purchase would do well to register their general interest with an agency now. And, of course, one other source of opportunity would be from the over-leveraged investor who can longer sustain his or her debt obligations in the lettings’ market.
“In Quarter 3 tenants were so focused on finding accommodation we saw them multiple times and heard of them visiting many, many different letting options. It wasn’t unusual for any given property to receive 100 enquiries within 24 hours of marketing.
As her daughter had started her studies and was sleeping on a friend’s floor, one lady flew from South Africa to assist in the flat hunt. Another flew up from London to try and find a property for a family friend arriving from Hong Kong.”
Rachel McQueen, Associate Director, Robb Residential, Lettings
The market for rental properties in Scotland continues the model of very high demand and, for now, the impact of rising interest rates and the withdrawal of mortgages (specifically buy-to-let) has yet to meaningfully impact the wider market place.
All agents continue to report record lack of stock, leading to properties being snapped up, in many cases, unseen and with tenants offering to pay rent upfront to secure the right property. As a result, we’ve seen some rents rise up to 25% meaning all landlords, from those hanging on to their first property to serious investors, are riding the wave of unprecedented rental yield.
This a double-edged sword, of course. We envisage this model continuing into and beyond Q4 2022, as some landlords expand their portfolios, allied with the fact that some budding tenants, including students who’ve embarked on their studies, are still looking for established accommodation. This BBC story (here) emphasises the above, and it’s hard to imagine, given that during the author’s time in tertiary education the model was the converse, i.e., students had rich pickings.
Although because and in spite of the fact we cannot bring on landlords fast enough to service demand, this strain on the lettings’ model has a bearing on legislation.
Scottish National and Local Government Legislation
In Scotland two key pieces of legislation have been passed. The rent cap until March 2023, and Edinburgh’s short-term-let controls.
Despite these, we are still seeing investment landlords come onto our books, the scale and set-up of their investments not being hampered by government interference. But, for the smaller landlord things are likely to differ – new laws and the cost-of-living crisis mean we are seeing some landlords leave the market, and this itself (in the short term) is contributing to a further trough in letting availability.
We expect the short-term controls to put off some landlords from market entry, and we can expect some withdrawals from the market where landlords’, say, Airbnb set-up is not scaled, efficient or, frankly, worth their bother. However, most landlords in that space will probably just see the controls as the price of “doing business”. We have also written about how we have quite a few landlords who short-term let in the peak months, then over the winter convert to a secured tenancy – we expect an increase in this trend as landlords seek the best of both worlds.
Both new laws need to be seen in the context of the cost-of-living crisis, both for tenants and for landlords, the latter being largely demonised for trying to make a living via a sound investment model that delivers steady yields allied with capital growth.
We can expect more developments in this space in 2023, not least as some landlords may challenge rent caps as infringements upon their human rights.
Between finalising the first publishable draft of this report and sending it out, Liz Truss resigned as Prime Minister after 44 days in the job. Tumultuous times. I’ve had open jars of Branston Pickle that lasted twice as long. Now Rishi Sunak picks up the mantle.
Hopefully, now, Sunak’s ascent will not add to the mortgage interest rate uncertainty or further delay expectations around more clarity and a coherent, short-to-medium term approach to addressing the challenges ahead. One thing seems assured, it cannot be as bad as the last two months.
The severe supply-and-demand issues in lettings will remain for the foreseeable future and we’ll keep all our landlords and tenants up-to-date with relevant developments in the legislation.
In sales, Robb Residential continue to have many properties that deliver value. Our core offerings of city, coast and country are ever in demand, and we will continue to provide the same professional services driven by years of experience and an eye for the details.
Robb Residential are an Estate Agent based in Glasgow who deal in a range of unique and beautiful properties in the middle-to-prime market in Scotland. For more information, please contact us, email or call on 0141 225 3880.
Note: statistics, percentages, references and Prime Ministers are correct at the time of writing.