Up next in 10
The continuing uncertainty over the UK’s leadership is compounding inflationary effects of the war in Iran.
Tom Bill, head of UK Residential Research at estate agent Knight Frank joined City AM to explain all the factors affecting mortgage rates and rents, including the Renters Rights Act.
Plus, what effect would a potential mayoral bid from Left wing MP Dawn Butler have on the super-rich leaving London?
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0:00
Now, welcome back to business as usual.
0:03
There has been a pretty clear uniting
0:05
theme connecting a lot of what we're
0:07
talking about today, and that is, of
0:08
course, volatility. And the mortgage
0:10
market is being sucked into the vortex
0:13
of uncertainty sparked both by
0:15
Westminster machinations, but also by
0:18
the ongoing war in Iran. So, joining us
0:20
today to get to the bottom of a bleak
0:22
time for house buyers and renters alike
0:25
is Tom Bill, head of UK residential
0:27
research at Knight Frank. Welcome Tom.
0:30
Thanks very much for having me. I
0:31
suppose first off, can you give us an
0:32
overview of what mortgage rates have
0:34
been doing over the last few weeks? Last
0:36
few weeks, not not particularly good
0:37
news. I mean, if you go wind back to the
0:39
start of the year the year, it was all
0:41
looking pretty good. Um, there were one
0:43
or two base rate cuts on the table, but
0:45
since then, obviously, we had the war in
0:46
the Middle East, which has pushed rates
0:48
higher due to the energy price shock.
0:51
Uh, and I suppose also on top of that,
0:52
you have a premium around uh, a risk
0:54
premium around who is going to be the
0:56
next Prime Minister,
0:58
uh, what they could do for um, what they
1:00
could mean what they could mean for the
1:02
economy, inflation, which all feeds
1:04
through into swap rates, which feeds
1:07
through into mortgage rates, which feeds
1:09
through ultimately into a into sort of a
1:10
fairly muted housing market at the
1:12
moment, which we saw last week with the
1:13
latest RICS numbers. So, it's I'm not
1:15
asking you to put a specific percentage
1:17
number on it, but feel free to if you
1:19
wish. How much of this added kind of
1:21
inflationary premium is coming from this
1:23
labor infighting, and how much is coming
1:24
from external geopolitical factors?
1:27
>> Gosh, it's tough to put it's probably
1:28
tough to put a number on it. I mean, you
1:29
if you want to look at the spread
1:31
[clears throat] between UK gilt yields
1:33
and US gilt yields or German bonds, for
1:35
example, you could probably, you know,
1:37
if you wanted to put a number on it, you
1:38
could you could go down that route.
1:40
Most of it, I would say, is coming from
1:42
the Middle East. Um, but a little bit on
1:44
top is coming from this ongoing
1:46
uncertainty, not just around, you know,
1:48
the latest bout of infighting that we've
1:50
seen, but also that ongoing certainty of
1:52
uncertainty around Rachel Reeves's lack
1:55
of financial room for maneuver,
1:57
uh, and what might what the autumn
1:59
budget might bring this year in terms of
2:01
increasing the tax burden.
2:03
And so, I think just this latest bad
2:04
in-fighting has just pushed things a
2:06
little bit higher. So, we now have
2:07
10-year gilts trading above uh 5%.
2:11
Um so, tricky to quantify, but most of
2:13
it I'd say is coming from the Middle
2:14
East. I suppose the rental market has
2:16
already been hit quite hard, at least on
2:18
the supply side, by some of the renters'
2:20
rights reforms we've seen. But
2:21
obviously, mortgage uh mortgage problems
2:24
and the sort of lack lack of liquidity
2:25
in the market there also has a knock-on
2:27
effect. I suppose what can renters
2:29
expect from this sort of latest bout of
2:31
volatility?
2:32
>> Yeah, I mean, if [clears throat] if you
2:33
are a landlord, you are now, you know,
2:35
you're and you are renewing your
2:36
mortgage, you are now going to be paying
2:37
more every month. So, that's going to
2:39
put that's going to make it stack up for
2:41
fewer and fewer landlords, and we've
2:42
seen a number of them leave the sector
2:45
over recent years, and that's obviously
2:46
reduced supply. That's pushed up rents.
2:48
So, that's the biggest story. On top of
2:50
that, I suppose, yes, you have the
2:52
uncertainty around what is going to
2:53
happen with the renters' rights act.
2:55
It's just, you know, it's a few weeks
2:57
old, but already there's a sense that
2:59
some landlords are There's a greater
3:00
risk for landlords. Landlords have to
3:02
That has to be reflected in the rent
3:04
that they collect. And so, if you are
3:06
more concerned about your tenants'
3:08
ability to pay, or whether they might
3:09
just leave at a moment's notice, that'll
3:11
have to be reflected in the rent. So,
3:12
rents, generally speaking, particularly
3:14
in London, where it's so prevalent,
3:16
rents are are sort of heading up. Um so,
3:19
a bit of legislation that was designed
3:20
to ultimately, you know, be for the
3:23
benefit of tenants, I think probably end
3:26
up hurting them in the pocket. There are
3:27
some voices in London and in the UK who
3:30
say maybe we should look to Scotland for
3:32
ins- inspiration on a rental cap
3:35
>> Mhm. on rent prices. Would that work?
3:37
Well, it was floated, wasn't it, a
3:39
couple of weeks ago, and then I think it
3:40
wasn't floated for even 24 hours before
3:42
the government had to come out and deny
3:43
it. So, uh so left field, uh excuse the
3:47
pun, was that idea. So, no, I I I'd like
3:50
to think we're beyond the of
3:52
realistically weighing up whether rent
3:54
controls are a good or a bad idea. I
3:56
mean, there's sort of it's come a little
3:58
bit via the back door with the Renters
3:59
Rights Act in terms of how much asking
4:01
rent and where you can set your asking
4:02
rent. I think rent controls per se
4:05
I'd like to think there's broad
4:06
agreement across the spectrum they're
4:08
not a good idea.
4:09
>> We've been obviously talking about that
4:10
sort of renting at the market and and
4:12
people struggling to get on the housing
4:13
ladder, but if we were to flip it over
4:15
to the uh sort of top 1% of the market,
4:18
what sort of impacts have the super rich
4:20
seen? Well, a lot of them actually
4:21
borrow more than you might think in
4:24
terms of what happens to mortgage
4:25
markets. So, what happens in the
4:26
mortgage market does set the tempo for
4:28
the property market across sort of all
4:30
price bands. Uh a lot of them will
4:32
borrow um because it's you know, it's
4:33
it's a it's efficient for them in some
4:35
ways and you can offset against you
4:36
know, I think it's inheritance tax.
4:38
Uh generally speaking, um the the the
4:41
you know, it's got tougher for them and
4:43
that's probably over the last 10 years.
4:44
I mean, stamp duty is not a hugely sexy
4:47
subject to talk about, but in the
4:49
background
4:49
>> this podcast.
4:50
>> [laughter]
4:52
>> Oh, okay. Well, I'll say then it it in
4:54
the background It's getting steamy in
4:56
here. It's kind of just put it's this
4:58
constant perma drag on the market, I
5:01
would say. And it's been ramped up over
5:02
years and if you're an overseas buyer,
5:04
there's an extra 2% surcharge. That
5:06
really just makes people think quite
5:07
hard about what they're going to do,
5:09
particularly at the top end when stamp
5:10
duty bills become quite eye-watering.
5:12
Plus, you've had the non-dom tax status
5:15
that's now being withdrawn. Nothing
5:16
viable was put in its place. Plus,
5:18
there's the prospect of you know, the
5:20
question mark is what next? What's this
5:22
government going to do next? All of
5:23
which is added up to a market at the top
5:25
which is pretty muted. I mean, there are
5:27
deals that are going through. Uh London
5:29
almost benefits to a degree by as a
5:32
default option for some people. They
5:33
look around the world and they think,
5:34
well, not there, not there. It'll have
5:36
to be London. Education system still
5:38
strong. You know, it's the least least
5:40
ugly one. And so, it it it's ticking
5:42
along, but obviously it's it's more
5:43
muted at the moment like like most of
5:44
the market.
5:45
>> Yeah, we had our Felix on to talk about
5:47
the RICS figures recently, didn't we?
5:48
And I said, is there absolutely anything
5:50
anyone can do to reduce the housing
5:51
market at the moment? And he didn't have
5:53
any ideas, but do you have one? Gosh,
5:55
we'll see. I mean, if if
5:56
we have a new well, probably it's a
5:58
question of when we have a new prime
5:59
minister. Do they, for example, think
6:01
about resurrecting help to buy? Do they
6:03
think about some demand-side incentive?
6:06
Cuz we're going to hear a lot we're
6:07
going to hear a lot about the planning
6:09
system and about how we need to build
6:10
more houses.
6:12
The people that build houses, typically,
6:13
are is the private sector, are people
6:16
are companies with shareholders.
6:18
Uh and they sort of build to order. They
6:19
don't really just build to stock their
6:21
shelves for the benefit of the
6:23
government meeting its target. So, I
6:25
think what we'll need to see is much
6:26
more of of a demand-side
6:28
stimulus. And normally, that comes from
6:30
the fact that the economy's doing well
6:31
and we're seeing growth. And actually,
6:33
GDP and house price um and housing
6:35
delivery track each other quite closely
6:37
over time. Um so, I think if we do get
6:40
that sense of economic um optimism back,
6:42
and I I can't see why we would get that
6:45
back, particularly in the short term,
6:46
then I think we will see, inevitably,
6:48
more houses being built.
6:49
>> It's It's so depressing, lately. Well,
6:51
it's
6:51
>> [laughter]
6:51
>> it's weird, though, cuz it strikes me
6:52
that there is there is a lot of supply
6:53
in the market. So, it's a it's a strange
6:55
one where like people are trying to
6:56
sell, people perhaps aren't aren't able
6:58
to buy, but I suppose how are we
7:00
simultaneously in a position where it's
7:02
neither a buyer's nor a seller's market?
7:04
That feels extraordinary. Yeah, it
7:06
depends, I suppose, what part of the
7:07
country you're looking at.
7:09
Um I mean, in London, it just it it's
7:11
just you're hitting an affordability
7:12
ceiling, and that's why you're seeing
7:13
with house price the house price growth
7:16
around the country, the house price um
7:19
growth map of the UK, London is lagging
7:21
the rest of the country. Led for so many
7:23
years, the gap is narrowing.
7:25
Uh and I think buyers are feeling
7:27
squeezed on the on the on the sort of on
7:29
the demand side of things. And on the
7:30
supply side of things, it is it's very
7:32
difficult to get stuff built.
7:34
>> I mean, so we had um Charlie Lamden in a
7:36
couple of months ago, who has been is
7:38
yeah, is a very very interesting guy,
7:39
but he was I mean, was saying sort of
7:41
actually on the front of um
7:43
of the estate agents that there is still
7:45
this sort of 15-20% in his mind sort of
7:48
false premium being put on prices. Do
7:49
you I mean, I know you won't agree with
7:51
that at all, but what do you make of
7:52
that critique that actually house prices
7:55
have been artificially inflated and now
7:57
actually people's own affordability is
7:58
catching up with that valuation? Well, I
8:01
don't
8:02
the value of a house is what the buyer
8:04
is prepared to pay for it. So, if you
8:05
set if you set your asking rent too
8:07
high, your property was likely going to
8:09
sit on the market um for longer than you
8:11
like. So, estate agents uh generally are
8:14
not in fact not in favor of ambitious
8:16
asking prices because that leads to
8:18
properties sticking around on the market
8:20
and that leads to a you know a drop in
8:22
transactions. So, the market sometimes
8:24
takes longer
8:25
uh to find its feet and sometimes it's
8:27
more difficult to know exactly where
8:28
supply and demand are. Um but generally
8:31
speaking, I would say, you know, the
8:32
value of a house is what people prepared
8:33
to pay for it.
8:34
>> Right, final question, slightly
8:35
indulgent for our London audience. Dawn
8:38
Butler again this week rumored to be
8:40
making a run for the London mayoralty.
8:42
Would a left-wing
8:45
uh mayoral candidate in London spook the
8:48
top 1% of people who probably buy the
8:51
kinds of properties that Knight Frank
8:52
lists? Or what what kind of effect would
8:55
a left a more left-wing mayor have on on
8:58
your business? I think this is a
9:00
question of how far or how much, you
9:03
know, power she would have or how much
9:05
um how many different, you know, new
9:07
policies that she could bring in.
9:09
Um I think that would be part of the
9:11
consideration. I mean, already people
9:12
are are leaving London because they
9:14
they're looking at what the central
9:15
government's doing in terms of let's say
9:17
around taxation and non-doms and and
9:19
stamp duty and that sort of thing. A
9:21
mayor, I think it's probably more a
9:23
question for the the delivery of
9:25
housing. Um how much she would um you
9:29
know, how much any mayor would be able
9:30
to affect um the different planning
9:32
systems at local authorities, I'm not
9:33
sure.
9:34
Um um a symbolic figurehead,
9:37
perhaps to some degree, but I'm not sure
9:39
it's going to have a material impact. I
9:40
think it's much more probably about what
9:41
central governments do. Well, there you
9:43
go. Thanks very much, Tom. My pleasure.
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