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Mortgage Affordability Tests, The Cost Of The Average London Home, Rents See Supply And Demand Out Of Step And Other UK Property News

Man doing a Mortgage Affordability test
04 July 2022

By UKinsuranceNET In News

The latest UK property news reveals the reform of two thorns in the side for many homeowners – ground rents for leasehold property and the stress used by mortgage lenders to assess affordability.

Meanwhile, the rising tide of average property prices continues unabated; the cost of the average home in the capital tops half a million pounds; and an imbalance of supply and demand distorts rents in the private rented sector.

Leasehold Changes Take Effect

On the 27th of June, Propertymark – along with most of the UK media – reported that the Leasehold Reform (Ground Rent) Act of 2022 would come into effect at the end of the month.

This is the eagerly awaited legislation that prohibits developers and freeholders from charging anything more than a token ground rent for any new residential leaseholds granted in future. In other words, it effectively abolishes any financial value in the ground rent.

The new law now applies to all residential leaseholds for longer than 21 years for a single dwelling and includes those occasions when a lease has been surrendered and regranted without any additional financial transaction taking place.

Mortgage Affordability Rules Relaxed

The second significant reform of the property market will be especially welcomed by first-time buyers.

On the 21st of June, online listings website Zoopla reported the Bank of England’s decision to lift the requirement for residential mortgage borrowers to pass stringent stress tests designed to assess the affordability of the mortgage for which they have applied.

The changes come into effect from the 1st of August 2022. They remove the borrower’s requirement to demonstrate that they would still be able to afford their monthly mortgage repayments even after a 3% increase above the lender’s standard variable rate.

The stress test has been especially difficult for many first-time buyers to meet – since their available resources are already stretched to the full in order to apply for a mortgage in the first place.

No Sign Of A Slowdown For UK Property Market

Commenting on the latest statistics released by HM Revenue & Customs (HMRC), the Buy Association on the 23rd of June noted that there appeared to be no let-up in the continuing upward trend of house prices in the UK.

The figures for property transactions in May showed an increase of 1.6% over those completed the previous month – and remain almost as numerous as those at this time last year when the post-pandemic release of pent-up demand was in full flood.

Rather than dampening any confidence in the attraction of investing in property the pandemic only seems to have strengthened that traditional allure, argued the Buy Association. It which pointed also to historically low rates of mortgage interest – even with the base rate recently raised to 1.25% this still substantially below the average 7% that has been maintained over the last 50 years or so.

Average House In London Will Now Cost You £534,977

Illustrating that steady upward drift in house prices, the Metro newspaper on the 25th of June revealed that the cost of an average home in London has now reached £534,977.

That £534,977 represents approximately 9.7 times the average monthly salary (some £55,255) earned by those working in the capital. If you want to own a home in London, therefore, you will be paying a significantly larger part of your earnings for the privilege – the Metro revealed that the average national house price for the whole of the UK now stands at £279,431, which is some 7.1 times the current national average monthly salary of £39,402.

Even more alarmingly, in some parts of London and the southeast, the ratio of house prices to average earnings stands at an eye-watering 12.9%.

Rents Still Rising As Demand And Supply Remain Out Of Kilter

Landlord Today on the 27th of June shone the spotlight on the continuing imbalance between supply and demand in the private rented sector.

Despite a modest increase since the beginning of this year in the number of homes for rent, the number of tenants looking for such accommodation continues to grow at a still steeper rate.

Because the demand for rented accommodation continues to outstrip the available supply, there is an inevitable upward pressure on rents – with almost eight out of ten Propertymark members saying that their rents were increased during May.

While demand and supply remain out of kilter, the debate surrounding the long-awaited Renters’ Reform Bill continues to exercise both parliamentarian’s and landlords’ and tenants’ pressure groups.

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