The recent sales of Stirling Ackroyd, Alexander & Co and Chestertons represents a huge vote of confidence in the UK lettings market.

Despite endless articles about the decline of the buy-to-let market, it seems that a private equity fund and a large European property conglomerate still have enough confidence in the sector to spend a nine figure sum on three large acquisitions, and I believe that this confidence is fully justified.

Whilst over 200,000 buy to let properties were sold in 2023 , most of these sellers had bought their properties quite recently and had large mortgages on them. Many were forced to sell because their mortgage payments tripled after Liz Truss’s disastrous budget.

However, landlords who have owned their properties for longer bought their properties at much lower prices and have smaller mortgages or own their properties outright. These landlords are much less likely to sell because, if they did, they would incur a huge Capital Gains Tax bill.

Enormous market

Despite the recent disposals, the size of the buy-to-let market in the UK is still enormous. According to HMRC, 2.79 million landlords filed self-assessment tax returns in the tax year 2021 /2022, which showed that they earned £48.8 billion from property investments. And this figure excludes all the landlords who operate through limited companies.

Against this backdrop, the loss of 200,000 properties, whilst a tragedy for every tenant that was made homeless, hardly spells the end of the BTL sector.

Within five to 10 years, the lettings market will be dominated by a small number of mega businesses.”

My expectation, therefore is that the consolidation of the letting industry will continue unabated. We are still dealing with record numbers of business sales and our clients are achieving record prices for good quality managed letting businesses and portfolios.

The pace of the consolidation is so rapid that I would forecast that within five to 10 years, the lettings market will be dominated by a small number of mega businesses with independent agents becoming increasingly rare.

If I am right, I may have to start thinking about the next industry sector that is likely to consolidate!

Adam Walker is a business sales broker who has worked in the property sector for over 40 years.

www.adamjwalker.co.uk

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Residential estate agency marketing, traditionally reliant on physical staging, is undergoing a digital revolution and at the forefront of this change is the introduction of virtual furniture staging powered by Artificial Intelligence (AI).

The evolution of estate agency marketing has been significantly influenced by the transition from physical to virtual staging. Initially, property marketing relied heavily on physical staging, where spaces were furnished for in-person viewings and photography.

In the United States, estate agents reported a number of benefits from this, most importantly a 1% to 5% increase in the sale price of a property.

SURGED IN POPULARITY

However, in recent years, virtual staging has surged in popularity, particularly following the global pandemic when clients were unable to view properties in person.

Unlike physical staging, virtual staging primarily involves enhancing photographs of empty rooms using software like Adobe’s Photoshop. This task is traditionally performed by human graphic designers but the advent of AI technology means that this process is rapidly changing.

AI virtual staging has brought about a significant reduction in costs and a remarkable increase in speed relative to traditional virtual staging.

AUTOMATICALLY GENERATED

These efficiency gains are primarily due to the fact that the virtual staging work is automatically generated instead of being developed manually by a human. This is why the industry is trending towards a future where most property images seen online will likely be AI-staged.

A kitchen before AI staging.

From my interviews with estate agents and real estate photographers it’s evident that staging practices vary significantly depending on the property’s value.

A kitchen with AI furniture.

While nearly 90% of the agents I spoke with use some form of staging, those dealing with properties above $1 million (USD) typically prefer physical staging. In contrast, I found that agents handling properties in the $400,000 to $1 million (USD) range usually opt for classic virtual staging.

SIMPLE STAGING

Properties below $400,000 (USD) often go unstaged, despite evidence suggesting that even simple staging can significantly impact the property’s perceived value.

So while online images of properties above $1 million (USD) will likely continue to show real furniture, you should expect that online images of properties under $1 million (USD) will soon only show AI-generated furniture.

Asset managers and property managers are also impacted by these forces. Historically, large high end apartment buildings have used a physically staged model unit or classic virtual staging. On the flip side, less expensive properties have not had a cheap enough solution to stage a property and may reuse the same virtually staged images across different floor plans.

TECHNOLOGY SOLUTIONS

But now with costs becoming far cheaper, asset managers are increasingly looking  to their property managers to find technology solutions to attract prospective renters.

A living room before staging.

By harnessing generative AI models like Stable Diffusion, companies can now create realistic and visually appealing images of properties.

A living room with AI furnishings.

Stable Diffusion, released in August 2022, is trained on the LAION dataset, which contains a library of interior designs and furniture styles, enabling the AI to generate images that resonate with a property’s character and potential buyer preferences.

The next wave of AI image editing innovations in residential estate agency marketing is poised to transform how properties are showcased, yet there is still quite a bit that requires a human touch.

BEST QUALITY

First, property photographers will still need to continue taking photos of properties. Second, higher end staging jobs that require the best quality will still require a human to strategically place furniture in a manner that is consistent across all images of a property.

Besides the image quality, real estate platforms will start to explore dynamic staging techniques, where the furniture used in online images can be altered based on the prospective client’s preferences.

This personalisation extends even further, with the potential for renters or buyers to stage images themselves, rather than relying on the platform, estate agents or property managers.

CONVENIENCE AND CUSTOMISATION

Imagine the convenience and customisation of being able to virtually place your own furniture, or pieces you’ve found online, into an online property listing with a single button click.

The integration of AI into residential real estate marketing, particularly through virtual staging, is a major trend that will continue to grow.

As we look ahead, we should expect that images of properties online will largely be staged with AI, helping a greater number of prospective buyers and renters to find their dream property.

Lakshman Mody is Co-Founder of Virtualstaging.Art

The post BLOG: The surprising way AI can help agents sell homes appeared first on The Negotiator.

Homeowners who are considering moving on to a new property in 2024 are in a powerful position to influence the market, which shouldn’t be underestimated.

While the springtime is traditionally seen as a more favourable time to sell, it’s becoming apparent that choosing to list a property earlier in the year can have huge benefits for homeowners.

Cottoning on

It’s something that buyers and sellers are cottoning on to; ESPC saw higher levels of activity year-on-year during the first days of 2024, hinting that buyers may be engaging with the market in higher numbers, perhaps compounded by the lack of rental properties available, pushing people to buy instead.

Stock levels have increased on espc.com annually by 27%, showing how much choice there is for buyers at every level.

Despite this, according to our latest House Price Report, there is currently lots of competition in the market, even at a typically quieter time of the year.

We can confidently assume that this will only increase as we get closer to the spring.”

We can confidently assume that this will only increase as we get closer to the spring, and as we potentially begin to see lower interest rates and mortgage rates coming through.

In the current climate, and at this time of year, buyers tend to be more serious about making the right purchase. It might take slightly longer for buyers to make an offer, but as a seller, you can feel confident that the offers you receive have been carefully considered and that the buyer is very serious about your property.

Homeowners

There are clear signs that there are first-time buyers coming into the market in higher numbers too; our latest figures show that October was the busiest month of 2023 for flat sales, so sellers should capitalise on the opportunity of having plenty of interested buyers ready and waiting in the market.

Over the past few months, our data has been showing that the figure over valuation that buyers are paying is falling, and while that doesn’t appear to be good news for homeowners looking to sell, those who are vendors looking for their next property should think about it in terms of getting the best deal for their next home.

Our data currently looks very positive for sellers.”

In terms of marketing your property and the price you can expect to achieve, our data currently looks very positive for sellers.

While there was a trend towards fixed-price properties towards the latter half of 2023 which might deter some sellers from acting, our recent data suggests that over 80% of sellers chose to market their home using the ‘offers over’ pricing model during October-December, and on average they achieved 7.2% above their property’s asking price at sale.

Great time

Also, the number of closing dates is currently falling, indicating that sellers are happy to accept a good offer rather than wait for competition to build – meaning that now is a great time to buy.

And of course, the market is a cycle – there are only properties on the market if sellers choose to put them there. So, sellers need to show faith in the market to keep things moving.

Primed

Much of the market is made up of homeowners looking to sell their current home and make an onward purchase, even if the headline focus is always tilted towards first-time buyers.

While the market likely won’t reach the heights we saw post-Covid, it is becoming increasingly stable, and homeowners primed to act quickly can make the most of that with their onward property purchase.

Paul Hilton is CEO of Scottish property portal ESPC

Read more about the housing market.

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The start of 2024 has seen a slew of more positive news on the housing market. Over the last month, we’ve seen further signs that house price falls are slowing, alongside a further drop in average mortgage rates for new borrowers with some very competitive deals at 60% loan to value.

This reflects what we reported in our most recent house price index: a 17% increase in new sales agreed as buyers sought to lock down new deals at the end of 2023.

This improvement in market activity looks to be rolling over into the start of 2024, driven by improving mortgage rates.

LONDON AND SOUTH EAST

The first full week back after the new year has seen buyer interest jump out of the blocks faster than last year and the pre-pandemic period in 2019.

It’s early days but our data shows demand at the end of the first week of January was more than 10% ahead of the same period a year ago.

Demand has jumped most in London and the South East, where house price gains over recent years have been much lower than the rest of the UK, which has helped improve housing affordability.

MODEST FALLS

Our UK house price index shows that prices are 1.1% lower than a year ago, with signs that the scale of price falls is slowing and sales volumes are now starting to improve with buyers returning to the market.

While the Zoopla house price index has recorded a modest fall in UK house prices over the last 12 months, the profile of price changes varies widely across the UK.

The largest price falls are up to 4% and concentrated across southern England in markets which saw the greatest demand over the pandemic, including those in the East of England and Kent. Prices are also falling in areas where there has been strong demand for second homes, such as North Wales and the South West.

House price inflation remains positive in many areas across northern England and Scotland.”

In contrast, house price inflation remains positive in many areas across northern England and Scotland. The rate of price gains has slowed quickly from double digit growth at the end of 2022 to close to 0% now but prices aren’t falling everywhere.

The greatest downward pressure on prices has been in southern England, where higher house prices mean a greater impact from higher mortgage rates. This is where sellers are having to accept larger discounts to the asking price to achieve a sale, averaging around 6%.

While house prices are highest in London, they aren’t leading the fall. That’s because the London market has lagged behind the rest of the country in terms of price growth over the last six years, making homes slightly less expensive and more accessible to buyers.

SITTING ON GAINS

House price falls have been modest, despite higher mortgage rates, because of the mortgage regulations introduced in 2015 by the Bank of England.

These regulations stopped the development of a bubble in house prices and are a key reason why price falls have been small over 2023.

The net result is that most areas have house prices still well above the levels they were before the pandemic hit the market, which created a boom in demand for housing.

The average UK home is now worth more than it was at the start of the pandemic.”

The average UK home is now worth 18% (or £41,000) more than it was at the start of the pandemic in March 2020.

Price gains have been more modest in and around London, where affordability pressures and mortgage regulations have limited the scope for price gains.

So for those looking to sell and move in 2024, the vast majority of homeowners are sitting on price gains compared to the pre-pandemic period.

It’s a much better position than many people – not us! – predicted we would be in a year ago.

BUYERS AND SELLERS

We certainly expect news of lower mortgage rates to boost buyer demand and bring more interest into the market over the coming months.

Buyers understand that there is more room to negotiate on pricing with sellers but many will also still need to sell a home to unlock their next move.

Sellers will need to remain realistic over the value they expect to achieve from their property and be prepared to negotiate on price.

We saw a steady reduction in asking prices over 2023, as sellers worked with their estate agents to get the pricing right to attract demand and increase the chances of securing a sale.

Richard Donnell is Executive Director, Research, at Zoopla

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On the back of a successful career in estate agency, I wanted to help and support buyers who wanted both a premium and valuable service.

I saw many hopeful buyers who had failed to find a new property or kept missing out on their perceived ideal home, leaving them hugely frustrated with the property system, such as it is.

Home movers are increasingly valuing the premium service buying agents (also known as search agents or property agents) provide recognising that it saves them both a considerable amount of time and money.

Harnessing our access to the very best off-market properties through a list of hard-won estate agent contacts is seen by the buyer as their gateway to success.

We’re also experienced negotiators who secure the right home at the best price.

Understanding true value

Without a buying agent our clients have to find time to talk to and update agents or struggle to place their sealed bids in time because they’re caught up elsewhere.

Offering also needs to be done after researching and understanding the true value of a property while keeping emotions in check. This can’t be done by simply popping in and out of Rightmove over a few months. Sellers have estate agents to look after their interests whereas smart buyers have buying agents.

Buying a house is an investment, and for all other investments, such as wine, gold or shares we take professional advice, so why wouldn’t we do the same when buying a home?

In reality, our service often ends up free. If I can save 5 – 10% on a £3 million home, it’s likely that my clients will be over £200,000 better off – a huge saving!

Little black book

The very best buying agents have years of estate agency experience behind them. We will have built a bulging little black book of contacts and will have worked through every rise and fall of the property market resulting in unsurpassed experience and an extensive knowledge to navigate difficult markets.

My firm covers South West London, Surrey, Hampshire, Berkshire, Sussex and Kent. I also have an in-depth knowledge of Gloucestershire, Somerset, Dorset and Scotland.

Our typical clients are looking at properties from £1,000,000 and above.”

Our typical clients are looking at properties from £1,000,000 and above.

The HNWIs interested in Surrey want to buy in the private roads and estates near popular locations such as Cobham, Oxshott, Weybridge, parts of Farnham and Guildford and some of the stunning rural locations within an hour or so of London.

These clients don’t have time to look for themselves or are coming to the UK from abroad, (when chartered flights will be arranged) but all value an incredible level of service to ensure that, like all their investments, they are acquiring the very best.

Rowallan Buying Agents

The post BLOG: ‘Why I left estate agency after 30 years to become a buying agent’ appeared first on The Negotiator.

Throughout 2023 we were keen to raise awareness about landlords’ vital role in preventing homelessness and advocating for a ‘Landlords Reform Bill’ to safeguard landlords’ position. Pushing landlords to the limit could lead to serious negative consequences for the housing sector and the individuals it serves.

The concept of the amateur or small-scale landlord emerged in the 1990s as a response to the depletion of the rental market caused by the shortage of council houses.

RIGHT TO BUY

Incentivised by the Right to Buy policy, individuals began investing in properties to help address the shortage and create a supply within the private rented sector. This grassroots movement played a pivotal role in alleviating housing challenges faced by many.

Over the years, numerous changes, including regulatory measures and alterations to mortgage relief, have significantly impacted the position of landlords, leading to some considering selling their properties. These changes have inadvertently affected the private rented sector’s capacity to provide homes and support to those in need.

As homelessness rates continue to rise, evidenced by Prince William’s recent initiative, Homewards, the potential for an even greater increase in homelessness looms if more landlords are compelled to exit the market.

DEVASTATING

Homelessness has a devastating impact on individuals and families and places immense strain on local authorities and charities struggling to manage the crisis.

In a recent survey conducted by Leaders Romans Group, landlords called for a comprehensive Landlords Reform Bill that addresses their concerns and ensures that they are not disproportionately penalised.

This Bill would recognise landlords’ essential role in preventing homelessness and provide the necessary safeguards to encourage continued participation in the rental market.

The Bill could include dedicated housing courts to speed up the legal process, a repeal of Section 24 and an increase of social housing stock.

Section 24 removes a landlord’s right to deduct the majority of their finance costs.”

A repeal of Section 24 is needed, as Section 24 removes a landlord’s right to deduct the majority of their finance costs, including mortgage interest and arrangement fees, from their rental income before calculating their tax liability. It is putting up costs, which puts up rents, which contributes to hardship and homelessness.

Over 29,000 landlords signed a recent petition calling on the Government to reverse Section 24, but the government confirmed they would continue to set mortgage interest relief against rental income only at the basic rate of tax. Due to substantially increased costs (not only of property finance, but of energy and building materials) this change is much needed.

CONTINUING PROFESSIONALISATION

Looking ahead to the rest of the year, I do expect to see the continuing professionalisation of the private rented sector.

This is already apparent in the increasing number of portfolio landlords – 18% of landlords now own 50% of rented homes within the private rented sector alone (ie, excluding institutional and public sector landlords).

This has been brought about as a result of many already-well-aired factors – particularly but not exclusively as a result of the gradual emergence of the Renters (Reform) Bill and an increase in regulations.

FINANCIALLY ASTUTE

Economic circumstances have also necessitated landlords becoming more financially astute and to make adjustments – from structural changes to their portfolios to physical changes to their properties (specifically in relation to energy efficiency) – to deliver a better return.

It is now not uncommon for us to receive new instructions from landlords with as many as 50 properties. Just a few years ago this was rare.

While we do have reservations about elements of the Renters (Reform) Bill we welcome and encourage improvements in standards across the board and are pleased to help our landlord clients, whatever their size and situation, in implementing them.

Allison Thompson is National Lettings Managing Director of Leaders Romans Group

The post BLOG: ‘We’ve got the Renters (Reform) Bill – now we need a Landlords Reform Bill’ appeared first on The Negotiator.

In September Prime Minister Rishi Sunak announced that landlords will no longer be required to meet the minimum EPC minimum energy rating of C by 2025 (for all new tenancies) and 2028 (for existing tenancies).

Kim Lidbury, Leaders Romans Group

Despite a consultation starting back in 2020, the proposed legislation hadn’t progressed through Parliament and no doubt many landlords who faced increased costs and a shortage of tradespeople to carry out the necessary work heaved a sigh of relief.

But it is important to realise the respite may only be temporary: whatever the outcome of the next general election, there is a strong likelihood that the Minimum Energy Efficiency Standard (MEES) or something similar will reappear.

Furthermore, energy efficiency is increasingly becoming a necessity both due to the cost of living and the climate emergency.

We know from our own research that it’s something our clients take seriously, whether they’re buying, selling, letting or renting. According to our recent survey, almost three quarters (70%) of respondents nationwide would like their property to be more eco-friendly.

More than half (56%) said that they would specifically seek out a property with these qualities, while two-thirds (66%) revealed they would choose a property with eco-friendly features to buy or rent over one without.

LONG VIEW

Although landlords may welcome the opportunity not to spend on substantial work while mortgage rates remain high, in many cases it will be prudent to take the long view: any work carried out now will help with future EPC regulations, as well as reducing your carbon footprint and providing a more energy efficient home which could attract a higher rent.

Green Building Renewables, concerned that fewer than half (43%) of landlords were prepared for the proposed introduction of MEES, carried out some research which indicated the changes being considered by landlords. In order of preference, these included new boilers (37%), insulation (36%), solar panels (29%), LED lighting (29%) and heat pumps (23%).

ENERGY EFFICIENCY

The Energy Savings Trust provides some very useful information on the various means of achieving energy efficiency with information bespoke to the size of a property. It advises in relation to a range of potential improvements what a typical installation would cost, how much can be saved annually in energy bills and how many kilograms of CO2 emissions can be saved; based on a detached house, semi detached house, mid-terrace house, detached bungalow or mid-floor flat.

The number of options available, along with the knowledge that accompanies it, is constantly growing. For example, did you know that there are at least eight types of heat pumps available for use in houses? They include air source, air-to-air, cascaded, exhaust air, ground source, hybrid, solar assisted or water source.

EPC options

The relative benefits of the range of options available (which include cavity wall insulation, double glazed windows or energy efficient doors, draught-proofing gaps and cracks, energy efficient boiler, LED light bulbs, loft insulation, smart meters, solar panels and solid wall insulation) depend on technical specifications such as wall types and planning restrictions (such as the building being in conservation area, or the property being listed), your reasons for making the change, your budget and whether you intend to carry out the work yourself or use a professional.

As the National Residential Landlords Association (NRLA) said shortly after Sunak’s U-turn, with energy use in residential properties accounting for around a fifth of UK carbon emissions, the private rented sector has an important role to play in reaching Net Zero.

PRUDENT

And making those changes can be financially prudent too. Legal & General research shows that 13% of renters are willing to pay a premium for a low carbon property – allowing landlords to recoup the costs. With tenants’ bills reduced by £276 a year on average (according to The Economy 2030 Inquiry  Hitting a Brick Wall) landlords can recoup the initial outlay and derive longer term benefits from their investment.

There is evidence, too, that investing in energy efficiency is a wise investment.

According to Buy Association over half of portfolio landlords use EPC ratings as an investment tool, buying properties rated D or lower and using the EPC structure to determine the necessary renovations to generate a higher resale or rental price. The figure is higher among those with the most properties, decreasing in line with the number of properties owned.

ENERGY-EFFICIENT

And it’s backed up by research from Hamptons in 2022 which revealed that property investment trends are leaning towards more energy-efficient buildings, with 50% of investors buying properties rated A-C, up from 39% in 2021 and 33% in 2020.

Similarly, green mortgages can be an astute financial investment due to the preferential rates that they offer.

Whether your clients wish to put additional investment into their portfolio, gain a higher monthly income, help their tenants or the increasingly necessary and widely acknowledged aspiration to meet net zero, increasing the energy efficiency of a property is undoubtedly of value.

Kim Lidbury is Group Director (Property Management) at Leaders Romans Group

The post BLOG: Tougher EPCs have only gone for now – expect their return soon appeared first on The Negotiator.

With theSpring Budget looming on March 6 there are theatrical whispers about the prospect that the Chancellor will either reform or scrap Inheritance Tax altogether.

No doubt this is an attempt to garner support from disaffected Tory voters as they have become disillusioned with the unprecedentedly high tax regime environment imposed by government over the last 13 years.

Despite this, the Prime Minister and his merry men have hardly managed to change the stubbornly ingrained negative poll predictions of a 16-20% deficit to the Labour Party and just maybe this is the last hoorah before the General Election, where the fate of the Tories will be decided. Oh dear! The sight of political blood makes me feel queasy.

TOO DRACONIAN

Common sense dictates that the wealth you accumulate by the time of your demise should be post tax and for the Chancellor to take a further hefty 40% slug of one’s net worth, after allowances, could be far too draconian for many stomachs to bear.  Some would argue that this is mean spirited and Scrooge-like, to say the very least.

Why should this not be aped in the UK?”

The trend across America and Europe is either to reduce this liability by very generous allowances or, get rid of it altogether, which seems to sit well with the broad band of political environment in these countries, which range from centre right to centre left. Why should this not be aped in the UK?

The wealthy and sophisticated cognoscenti make provisions well ahead of time to reduce this liability by using cunningly devised methods inspired by clever accountants and lawyers, therefore, any positive effect of wealth distribution is effectively neutralised by these measures.

The problem is that Mr and Mrs Middle to Upper Middle class, who do not have access to sophisticated advisers, will have to part with a big chunk of their wealth – mainly due to increased residential property values of their primary home (usually their single largest asset) into the IHT net.

MEDDLING HANDS

Having worked hard throughout one’s life, and paid all the taxes along the way, surely your last wish to try to enrich your surviving family’s lifestyles should be granted? Some of these family members would certainly need the money to purchase their first property and this vital process should not be interfered with by the thieving and meddling hands of the Revenue, gorging themselves on the family ‘booty’ before anyone else.

I’m not in favour of scrapping it altogether.”

Bizarrely, I’m not in favour of scrapping it altogether since, understandably, I feel in this economically troubled environment, exacerbated by the energy crisis, high inflation and the credit crunch, reducing the IHT tax band to 20%, (rather than the hitherto 40%), is far more socially palatable and therefore, preferable.

ARTHUR LAFFER’S TAX THEORY

As a fervent believer in the US economist Arthur Laffer’s fair tax theory, “if a tax rate is interpreted by the public as fair they will pay it willingly, but not if they don’t”, his view, for instance, is that the prevailing income tax rate should not be more than 20%.

At this level, he believes that the government would raise far more money for the Exchequer as a result, since the populace would declare more of their income and would not bother to circumnavigate the liability, which at present is up to the 40-45% level, in the UK.

In fact, you could find that the fiendishly clever IHT avoidance schemes could be rendered un-economic if the rate was 20%.

Given that only 6% of the tax paying population would be affected by this tax exchange, I am not sure it would have a profound effect on residential property values but it would certainly improve sentiments.

Trevor Abrahmsohn is Chief Executive of Glentree International

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