Markets

With continuing rising house prices making home ownership increasingly unaffordable, it is predicted that by 2025, 1.8 million additional households will be looking to rent, rather than buy.

2016 was an eventful year for the property industry, especially for letting agents and landlords. Changes to tax allowances and buy-to-let (BTL) mortgages as well as ever increasing regulation have put extra strain on landlords, and the property sales market has been extremely volatile throughout a year of political and economic uncertainty. The announcement of the banning of tenant fees in the Autumn statement then added another challenge to our lettings business. Notwithstanding these changes, there is a great deal to be positive about in the markets in which Belvoir operates and a lot of further opportunity.

With continuing rising house prices making home ownership increasingly unaffordable, it is predicted that by 2025, 1.8 million additional households will be looking to rent, rather than buy. In fact, the size of the Private Rented Sector (PRS) has more than doubled in the last 15 years and now accounts for almost one-fifth of all dwellings in the UK.1

Growth in the PRS until this point has come from a number of areas:

  • an increasing number of people needing flexible or temporary accommodation such as students, migrants, professionals;
  • reduced access to home ownership due to affordability reasons; and
  • increased economic uncertainty and debt amongst potential first‑time buyers.

1 Taking Stock: Understanding the effects of recent policy measures on the PRS and Buy-to-Let. Kath Scanlon, Christine Whitehead and Peter Williams, LSE London.

Market trends

Dwelling stock by tenure, UK, 1980 to 2014

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Source: Live tables on dwelling stock (including vacants), Table 101, DCLG.

2016 saw a marked increase in legislation for landlords to ensure a good standard of living for tenants. To date, there are 145 rules and regulations for lettings. The latest updates to lettings legislation include additional steps to test for Legionella, checks imposed to ensure a tenant is eligible to live in the UK (Right to Rent and Immigration Act) and increased fire safety regulations, all of which have added to the workload and responsibility of a landlord. Using a reputable lettings agent takes away much of the burden from landlords and, as such, we expect to see the role lettings agents play become increasingly important.

Although the raising of standards within the PRS are welcomed, some smaller independent lettings agents, without the support of a national brand with legal expertise, are starting to struggle to maintain a profitable business. As a result, our central acquisition department is being offered, on average, one competitor business per day for sale. Where appropriate, we are supporting our existing franchisees in buying these additional portfolios to boost their growth and to increase their market share. We are also identifying new territories for brand new franchisees to acquire as a going concern to make the Belvoir product even more attractive.

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Despite increased Government focus on the PRS over recent years, certain issues still remain part of the industry as a whole: the level of supply and regulation and the conditions of some rental housing. One potential solution is institutional investment into build-to-rent schemes. The benefits anticipated from such schemes are increased supply; built-for-purpose housing; a better standard of living for tenants; and a more professional approach to lettings. Although institutional investment in the PRS is not new, recent Government incentives seek to use it as a way to stimulate additional new house building.

Irrespective of whether institutional investment into the PRS increases in the coming years, its representation of the overall PRS is comparatively small. The most recent Private Landlords Survey conducted in 2010 found that 89% of landlords were private individual landlords responsible for 71% of all private rented dwellings, with a further 5% of landlords being company landlords responsible for 15% of dwellings.2 More importantly, the investment in new technology and processes for these schemes is likely to influence the PRS as a whole, potentially revitalising the industry, which would be positive for all concerned.3

2 October 2011 Department for Communities and Local Government. Private Landlords Survey 2010
3 Building the new private rented sector briefing paper - Parliament.

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Average house prices increased by 7.2% in the year to December 20164, continuing the growth pattern seen since the end of 2013. Transaction levels in the first quarter were strong, peaking around March, as many BTL transactions were brought forward to avoid the additional Stamp Duty Land Tax. However, annual growth was weaker in the second half of the year, resulting in transaction levels for the year increasing by 0.4%5 overall.

The Group sold 31% more properties in 2016 when compared to 2015.

4 ONS Statistical Bulletin: House Price Index, UK: Dec 2016.
5 HMRC: UK Property Transaction Statistics.

Market trends

Mix-adjusted House Price Index (HPI), UK, 1980 to 2015

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Source: House Price Index – February 2016, (Table 22), ONS.

 

Total UK residential property transactions

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Source: HMRC: UK Property Transaction Statistics.

Although the sales market is likely to be unpredictable for the coming years, Belvoir’s market share of the sales market is so small that there is only opportunity for us. The smallest increase in market share would have a meaningful impact on our business. In order to achieve this, we aim to apply the learnings and principles of Newton Fallowell, a very successful estate agency brand, to our other more lettings-focused brands.

 

Belvoir’s market share of the sales market is so small that there is only opportunity for us!

Market trends

Number of residential property transaction completions with value £40,000 or above

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Source: HMRC: UK Property Transaction Statistics.

The latest comprehensive research into the franchising industry was carried out by the British Franchise Association and Natwest and was published in January 2016. The report shows that the franchising industry is going from strength to strength and is estimated to be worth £15.1bn to the UK economy, an increase of 46% over the last ten years. The reason for the increasing popularity of franchising is likely to be the greater chance of financial success. Franchising offers a relatively low-risk way for entrepreneurial people to get into business, with one in five franchise owners launching their business in the last two years being under the age of 30. It also offers opportunity for scale with 29% of franchises running multiple outlets.6

A record 97% of franchisee-owned units reported profitability, with 56% saying they are “quite” or “very” profitable.

6 The BFA: Franchise Industry Research.

Market trends

Franchising’s contribution to the UK plc is now estimated to be in excess of £15 billion

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Source: The BFA.