Watch: UK house market trends explained

Speaker (00:06.488)

Why am I here? I’m a data geek for anybody who doesn’t know. I spend an awful lot of time reading source data, mostly so people who follow me don’t have to, and write and usually record a video on my YouTube channel about what’s going on in the wider market at the moment. Why do I do that? I started doing it more seriously during COVID because I came to the conclusion that everything that was in the media was nonsense and I needed something so I could sleep at night because at the time I had several hundred mortgages.

and didn’t really know what was going to happen. So I thought, right, it’s the old, if you can’t trust anybody else to do it, you’ll have to do it yourself. And I consumed data for fun, really. I know that sounds strange, but why else would I be in a 43 degree room talking to you lovely people about it, right? So what’s going to happen towards 2030? And it’s a critical day. It’s not just an arbitrary end of the decade thing. There are some things that I have been watching for last 10 years, ever since sort of George Osborne’s budget.

very anti-landlord in 2015, introduced Section 24 and all the rest of it. Some of those trends are really starting to bite and they’re really informing some of the conversations I’m having because these days I spend my time trying to buy portfolios, blocks, limited companies, things like that and also talking to funds who have got basically unlimited firepower to buy property. And I’ll tell you one of the things they’re most interested in is HMOs. So…

You might remember this talk in five years’ time or something when you think about exiting because there are going to be more and more buyers for neatly organised HMOs in limited companies. That much I can tell you without a shadow of a doubt. So where are we heading towards? The population projections are 71 million by 2030. That’s where we’ll get to. 80 % plus of that population will live in an urban area, which makes HMO much more workable.

And actually, although all you hear at the moment normally is that people are getting older and we can’t afford pensions and we can’t afford all these other things, the fastest growing demographic in terms of numbers at the moment is actually the 25 to 39s. So that’s ultimately your market, largely speaking. Obviously, if you’re doing undergraduate students, not so much, but this is largely the market. And more than 50 % of that population, that urban population in…

Speaker (02:21.293)

A number of secondary cities in the UK are in rentals. They don’t own. So that is very much your marketplace. Now, obviously we had a bit of a blip. I mentioned Covid as what really pushed me into doing my own statistics or interpreting the official statistics that are out there. And that urbanisation reversed in 2020 and quite a few people made some maybe slightly impetuous decisions. I’m moving to Cornwall because I don’t need to go to the office anymore.

Brilliant. That’s changed a little bit back as you know, although not as much as certain elements of the press would have you believe. But we’re expecting two million more people in urban centres just by 2030. And given that we’re into the second half of 2025, that’s a lot more housing to be done. Will we be building two million more units in that time? Anybody think that we will be? No. I think it’s fair to say I’d be stunned if anybody thought we could do even 25 % of that realistically in that time.

in those areas. One and a half million, well that’s there for the one and a half million homes. I think I saw something in the last week that said they’ll probably miss that target by eight years. Do think Labour will still be in charge in eight years? Difficult to say, but you know, incumbents always have an advantage when it comes to the next election, but I wouldn’t be betting the farm on them winning again in 2029 or whenever it comes around. And then the Building Safety Act, a huge blocker if you talk to build to rent house builders.

or urban developers, urban development has absolutely cratered because of the Building Safety Act. This is something that came in on the back of Grenfell, deemed as needed, but has added huge, huge expense. And there hasn’t been commensurate increase in the value of these urban developments. And money doesn’t grow on trees. So lots and lots of Build to Rent developers have either had to ice projects, change the end use of them, do something different with them. And the reality of Build to Rent, if you…

Not that you see this in the press, but if you go and talk to funds, the reality is they aren’t hitting the numbers they were promised. And if you’ve ever looked at Build to Rent, which is your big competition in urban centres, if you’re doing HMO, ultimately, they are, well, I think they’ve been sold a bit of a pup, really, to be honest. The yields weren’t great in the first place, but they were sold sort three and a half percent yields, which is okay if you’ve got all this money to allocate and you think property prices are going to go up, which I’m sure we all do over the next sort of…

Speaker (04:47.757)

10, 20, 30 years, you had something there. But if you can’t even hit your 3.5 % net yield, one of the big problems they’ve got is the interest rates changed. In 2021, if you went into a project thinking 3.5 % net yield, well, the bonds are giving me nothing, it’s workable, right? You’ve got capital growth to consider. But nowadays, the bonds are giving you, if you want to invest in 30 year bonds, if you’re a pension fund, you’re yielding 5.5 % at the moment.

So that’s your new benchmark from very little 1 % maybe on the 30 years, four years ago, you’re getting 5.5%. Right, so, and there’s only one way ultimately to make one existing dwelling into a dwelling that can house six or more people. And that is to HMO it, right? So what about types of working? Because that changes things. 28 % of people we’re now told are working a hybrid job. So that could be anything between one day a fortnight in the office and the rest of restaurant home.

So this is really to ask you the question, what do you provide and where do you provide it? That’s two questions, isn’t it? But it’s to ask you those two questions because what do you need to do? How do you need to adapt your product for someone who might be working from home multiple days a week? What about when there’s six people in the house and all six of them might be working from home? How does that change things? 41 % not working from home at all. So that’s all office and 14 % solely working from home.

That’s the current figures as they stand, which might be a bit of a surprise to you, because that probably isn’t what you’d say if you read the press regularly on that sort of stuff. What are the others doing out of interest? They haven’t worked. So the other people in the survey, what’s the difference? 70%, 80%, 85 %? 15 % of people were employed but not at work over that time. I can’t really get my head around that 15 % if I’m honest with you, but maybe they’re just being really honest and they turned up at the office and just didn’t do anything. I don’t know. It’s possible.

Actually, when it comes to the degree qualified and quite a lot of the tenancy types that people who are providing professional HMOs are tending to seek out, 41 % of those are working a hybrid job at the moment and they’re smack bang in your age demographic, whereas only 27 % have no working from home. And that’s when they’re educated to a degree level or above. So hybrids of the future, well look, it’s definitely a growth area. PBSA, purpose-built student accommodation.

Speaker (07:07.808)

Suzanne talks about renters rights, renters reform, renters whatever it’ll end up being called at the end, but renters rights. Ultimately, PBSA is only the preserve really of bigger funds and larger investors. There are some family offices and private individuals who own PBSA, but it’s quite rare. Tend to be blocks of 100 units plus. And again, they tend to trade at yields that make people like me really nervous, know, four, four and a half, five percent.

I just think I wouldn’t be putting my own money in there but when you’ve got hundreds of millions you have a capital allocation problem you don’t have a recycling capital problem or a wealth creation problem. a different problem to solve but student HMOs are going to take a bit of a pasting if the bill does go through in its current form there’s no two ways about it. Increased risk which probably means some people leave the market or people ask for higher returns. There’ll be certain things that you’ll need to do to tweak.

41 and upwards, is the age of the average renter in the UK in a non-HMO. It’s 41. But it’s going upwards because people are staying in rental for longer or people are coming back to rental. Some of the stuff we’re doing is targeting people who are sort pre-pension in certain towns in the UK. They’re very stable. They don’t tend to be needing much more than a one-bedroom flat unit. They are where they are and they’re staying where they are and they’re not particularly geographically mobile.

We look for stickiness in some of the tenants that we’ve got, not literal, not sticky like we are in this room today, to be clear. They stay in a tenancy for a long time, because voids and churn are our biggest problem, really, as a larger operation. But your average HMO tenant’s more like 20A. So what about Article 4 and licensing? There’s been a huge growth in Article 4 in the last decade, 300 % plus, you’ll have seen it. I think it offers opportunity. I think on the outskirts of Article 4 areas.

there can be some really interesting HMO opportunities. And I think, as you know, you often get quite a bit of notice for an Article 4 area. If you know what you’re doing, get your tenants in, you enshrine that value as long as that area is not already oversupplied. Not thinking of anywhere in particular, apart from Derby, of course, which I’m thinking of there quite significantly. Dedencification and quality. Now, this is what…

Speaker (09:26.183)

Apparently we’re heading towards, this is what the councils are driving towards. Now you can probably already start to see there’s a massive disconnect here. How can we have de-densification if we’re having two million more people in cities in the next four and a half years? Where can the de-densification come from? But there is a push towards quality and this is supposed to be being taken into account more and more in the planning process if you’re looking to get planning.

No net new HMOs. That’s a phrase that is now going through some more of the councils, particularly in London and the South East sort of area. No net new HMOs. Now, of course, you might turn a four bedder into a 14 bedder. That might be possible with an incredible extension, but if you want quality, and quality also means space, right? It means size apart from anything else. How are you going to do that? So you end up with a massive conflict. You end up with a huge conflict between what the law is saying,

And we all know this, but it’s days like today when we can step back and look at that rather than thinking, oh, another Article 4 area. Another Article 4 area. How much is that all increasing? And what opportunities is it taking away? And what opportunities are going to bring on us? And of course, with the National Landlord Register or whatever you want to call it, target practice or whatever it’s going to be when it finally comes out, it’s all change again. So what about quality and age of the stock? So there’s 100,000 plus HMOs.

that have been HMO since before 1980. Now, depending on where you come from in the world, you might consider that just completely, we might not really blink at that, 25 % of the PRS stock is still older than 1919. So 1980 sounds really, really quite recent. But if you come from China or somewhere, many other countries in the world, you consider properties over about 10 or 15 years old to be absolutely ancient, because everything is new. So it’s quite difficult to get your head around, that’s 45 years ago.

over 100,000 HMOs have been going for. I wonder what sort of condition they’re probably in to this day. You know, probably not the best, but offering plenty of opportunity there. We’ve got compliance to think about, obviously ever-changing landscape and is changing as we’re speaking, but we’ll probably continue. I personally believe things like fire regulations are on the up at the moment, whether they’re stopping building happening or not, we’ll probably be at a stage at some point in the next decade where even single lets will need fire doors throughout.

Speaker (11:47.944)

I wouldn’t be surprised to see that. It depress a few people or maybe you’re just going to go off and retrain to be a joiner because it might be better than being an investor or a landlord, I don’t know. Fire, absolutely. Information, insulation and energy performance. There’s a lot going on around this at the moment and HMO is a little bit trappier. Single X is a little bit easier but I’m still stunned by the number of people who haven’t educated themselves on this.

If you don’t know and understand what the energy company obligations are, Eco4, which will become Eco5, I would highly recommend that you go and look into it, because we’ve had over 100 properties upgraded and so far we’ve spent no money at all. Now the difficult bit with this can be you might get £30,000 worth up to, you’re going to be able to if you’ve got a detached property that’s got no gaps, you’re going to be able to get up to £30,000 worth of improvements. But surprisingly enough, when these grant schemes come along,

Suddenly you’ve got a £15,000 grant for a heat pump and there’s a queue of people who can do it for between £14,999 and £15,500 quid if they’re good at sales and they can squeeze that extra £500 quid out of you. When really what’s the real value of the heat pump to you? Well actually costs a bit more to maintain, warranties are a bit shorter, probably need a service plan. Who captures that value? And that’s really tough. is one of the biggest problems with Net Zero that doesn’t actually get talked about.

who captures the value, right? Even in social housing, you can make a really good case, who captures the value, society, and then ultimately the treasury captures the value. But who captures that 30,000 quid worth of value? Well, the tenant saves 600 quid a year. Great, okay, so that’s got a value, a few thousand quid worth of value to whoever the tenant is over that time. Your house price will probably increase if that 30 grand worth of work is done by at the moment, somewhere between two and four grand. So there’s a bit of leakage there, isn’t there?

There’s 20 grand plus, there’s two thirds of the money or more being lost in the cause to net zero. Big, big economic problem that people don’t like talking about because it upsets people quite a lot. Quality, we’ve got that drive towards it. What will that quality look like? What does it look like of existing stock in your area? I’m sure you often have a look at what’s there on spare room. And as always, when you think about things like built to rent or urbanized stuff or brand new HMOs, there’s always that premium for the new room. I’ve seen some phenomenal room rents.

Speaker (14:12.711)

garnered in various places. So as I mentioned, Caroline, she gets some incredible rents up in Chester, rents that are comparable to down in the southeast. But she’s setting her own market. Sometimes that can cause you multiple problems, because apart from anything else, if someone else does a platinum tap, because you’ve only done gold taps, you’ve got to go to the next level to stay at the top of the game. But also, some of the valuers don’t agree that the room rents you’re getting are sustainable. That can cause you bit of a problem.

And that’s the spend they think on average it’s going to be for the average HMO to be upgraded between 8 and 18,000 worth of upgrades. But of course with construction inflation where it is and the more grant money that comes in, the more we’ll be talking about that money that will just inflate because the grant money gets salted away and the contractors make the profit. I’m afraid to say it’s as simple as that. I’m not going to say tons on legislation because Suzanne’s already said quite a lot there, but ultimately if you think about buy to let…

as a rule and the Housing Act 1988, Suzanne referred to 1996, the birth of the buy to let mortgage 30 years ago next year. Just the age of the people who started buying in 1996 and when the real boom was in the PRS are coming to a point in a life cycle where they may well want to dispose. It’s not easy to hand down portfolios to the generation below you and quite a lot of the generation below you doesn’t want them because they’ve seen when you have to fix the leaky tap on Boxing Day and they think I’m not doing that dad, but I’ll have the money.

Love the money. Yeah, that’s okay. So, something I think about relatively regularly, but I just tell my children they’re not going to get anything because it’s much easier. if you ever see any of my children, don’t tell them. Okay, thank you. And then there’s a real secondary market that’s emerged now in HMO. Right, that wasn’t the case. At the first one of these awards that I came to, that wasn’t the case, right? There’s a real secondary market now. People like Rich Nichols, you know, really

driving that market forward. There are lots of comparables. There are things changing hands. There are people who are three or four years into a cycle and have realised, cool, this worked well when interest rates were 3%, but I’m not so sure now we’re in the sort of 5.5 to 6 % era. It’s tougher to make it work. Where have yields been? So I spend a lot of my time worrying about the mortgage rate because I’m continually buying property and then wondering what interest rate I’m going to be paying in six months’ time when I come off the bridging finance that I tend to use when I do a purchase.

Speaker (16:35.624)

The last 15 years, yields have been very low and they were falling. Now was automatically increasing the value, especially if you’re using commercial financing, commercial valuations of your HMOs. We’ve then been in a big reversal of that over the last few years and now the yields are just about again starting to compress again. But the likely path at the moment is compressing very slowly and the really bad news is if we believe what the yield curve says, then in 10 to 20 years time,

we’ll be paying more for our mortgages than we are today. So if you still think we’re going to go on a nice path downwards back towards 3 % and things like that, it’s highly unlikely. It would take a really significant financial, it’s not impossible, but it would take a really significant financial event. the outcomes of that significant financial event might be something you were careful what you wished for, realistically, because it’d make 2008 look quite small. I don’t think one of those is on the horizon in the next few years, not that I can see.

and I do spend my time worrying a fair bit about this stuff. this is my graph, or it should be more graphs really because I can say I’m a data geek, but this is the yield curve. The black line or the dark line, if you can see that, that’s what it looks like today and the blue line is what it looked like a year ago. So what that is effectively saying, if you look at that, that’s 20 years where it starts to reach its peak. It’s saying that if you lock your money away for 20 years, you’ll get nearly five and a half percent return paid by the UK government, who never goes bankrupt.

even though arguably they are insolvent, which is a report that was released the other day if anybody saw that this week. But what has the market done in the past year? Really, simply, it’s absorbed the news that inflation is probably here to stay for quite a long cycle. And because there’s more inflation, bonds need a higher return because you put £1,000 away and in 20 years’ time you get that £1,000 back. If inflation is 2%, you can factor that in. If inflation looks more like 3 % or more…

That’s going to change what sort of percentage return I want as an investor. These markets have hundreds of millions traded every day. They’re very sophisticated. And how to read that is to say, that’s what the market thinks today with its best intentions. In a year’s time, that curve will look different. Will it be steeper though again, or will it be shallower? I don’t know. But that is saying to us in five to 10 years time, we’d probably be paying more for our debt, not less. So if you’re sticking around, banking on the old days coming back.

Speaker (18:59.676)

Don’t torture yourself is what I would say. And then look, the economics of the business model overall. Does supply always equal demand? Not in all areas, but of course demand also and supply get segmented by do you want to produce rooms that are at the top of the market? Are you at mid-market? Are you providing the cheapest stuff for people who are on very low budgets, generally speaking? How does your management, your operational expenses, right, how do they work? What do they look like? Do you cost your own time?

if you self-manage. You absolutely should do. And if you start doing that, you’ll work out how many minimum wage jobs you’re doing and what you should be outsourcing apart from anything else. A very, very useful exercise to use. What is the intensity? And again, I don’t mean the intensity of the heat in this room. I mean, what’s the intensity in terms of where the HMO is placed? How much is there nearby? What’s the competition look like? I often think it’s dead easy to go and write movie with Zoopla for me.

and look at what price a rental property should be, a two bed or a three bed. Really easy. It’s really hard, in my opinion, to do a proper comparable on an HMO. And I can say that I know there are some people today who are basically setting their own markets. So to those people I say keep pushing because every 25 quid in rent you push is worth a huge, huge amount to the leverage you can get on your portfolio if you use it intelligently. And then what about products as they get older? How much does it drop off? What is the premium?

for a new rent. We talk about new build premiums all the time, but for some reason we don’t really talk about new rental premiums, but they definitely exist. They definitely exist, see, them all the time. And ultimately, net yields come down. That’s the traffic, and that’s not to do with the yield curve, that’s to do with increased costs all the time, which means net net, you’re getting less bang for your buck. So, gotta be cautious of that. So, super HMO.

is a phrase I’ve started to be seeing used probably over the last six to nine months a bit. I wanted to say a little bit about that, the build to rent demographic. So if you don’t know, in a build to rent building, you would tend to get maybe Costa downstairs, there’s a gym, there’s a cinema, there’s all these lovely, whizzy things. And that’s why the build to rent people aren’t making the money they were, because guess what? It costs money to run those things, surprisingly enough, and it costs them more than they were told it would cost. But that’s the demographic you’re trying to aim if you’re in those urban areas and providing a top quality.

Speaker (21:20.935)

product, I think, right? I talked a little about the pros and cons of the top of the market. I’m a big fan of space. I don’t mean like Elon Musk stuff, right? I mean, you can’t compete with space. Right now you can intelligently design rooms very well. And if you look internationally, you see some pretty incredible design in places like Japan for very small spaces, places like Hong Kong, things like that. But you can’t compete with space. And if you need more space, because you work from home three or four days a week, right?

This is what you’re thinking about, especially if you’re doing things like conversions. And I mentioned the funds earlier on. They will look at what rent they think they can achieve. And those numbers can be quite high. And so they look at these on the basis of, right, we’ve got a massive operation. Our operational expenditure is actually lower. Now you might spend less money, but you’re putting your time into it. They’re not putting their time into it. But the more scale they’ve got,

the more advantage they can get on that side of things. And as I say, I think you’re going to see more and more people knocking on the door, potentially trying to buy HMO portfolios. If you’re not, you might already be seeing that. And if you are, come up and have a chat with me afterwards, because I’d love to get some of the inside track on all of that, right? Okay. Non-secrets really in property. If I start in the middle here, local authority partnerships, we’re doing more and more of that. So of the HMOs we’ve got, which is about 40, 38 of them,

are on leases to registered providers of housing, generally speaking. might be, Simon mentioned some of them, asylum, might be Ministry of Justice style stuff, it might be temporary accommodation. All of these are huge growing areas. If you’ve got a government that says, right, we don’t want asylum seekers in hotels, and then you have a one in one out scheme, but it’s 50 people a week. So I think the ratio that was quoted yesterday was 17 people into one out, which is, maths still doesn’t work realistically, does it?

then if they’re not in hotels, where are they going? They’re going into houses. Now this has been released to the press and there’s been a fairly acerbic backlash really about all of this, but this has been going on for many years. I was working with G4S before Serco got the contract back in about 2018, I think. So they’ll go into HMOs. And some people, I believe, especially if they’ve got student stuff and think, well, student stuff’s got a bit more risky now, I might…

Speaker (23:42.585)

just revert over to providing HMOs in some kind of local authority partnership indirectly or directly. My experience of directors is pretty tough. It depends on the local authority, but it’s not for the faint-hearted and I wouldn’t recommend it. I’d definitely make sure you’re on full repair and ensure leases if you’re even going to contemplate it. But working with the right providers can be really, really, really good. You speak to most them, they’ve got requirements lists in the hundreds and the thousands in the larger councils.

So definitely worth looking at it. Commercial conversions can, now I put there the qualifying difference between a super HMO and a mega HMO. So a super HMO is more of that, more facilities, larger rooms, better quality product, however you measure that. It doesn’t mean it’s got 58 rooms. And I’ve seen many a mega-mo over the years, and I’ve seen the truth of many a mega-mo when I’ve been offered them at significantly discounted prices, a lot of them don’t work. They’re really, really difficult to manage.

really difficult to manage. The ones that I’ve seen that work are effectively six HMOs in a row that are really six sixes. It’s not really a 36 bed HMO, it’s just six sixes compartmentalised nicely. They can feel a bit institutional, as you can imagine, if you ever walk around one of them. So they can be difficult. And social, Simon mentioned the surge in experts that we’re having in that area. We are definitely seeing that and have been for the last 12 to 18 months, I would say. But huge amount of growth. What I would say on that…

is that Angela Rayner’s been in the press this week for saying, we don’t want to put LHA up because it puts more money in the pockets of the landlords. Political statement, right? Problem that Angela Rayner doesn’t realise. We’ve been doing this for a long time. Years ago, we would be told, look, it’s got to be based around the LHA rate. We might be able to give a 10 % premium. This was probably 2020 conversations. 2023 conversations, we know it hasn’t gone up for a long time. We still need to use LHA as the benchmark. LHA plus 35%.

we can give you. Now when you’re 35 % above the benchmark, it’s not really much of a benchmark anymore, is it? But it’s still where we were being anchored. 2024 beginning, lots of disappointment because they collect the data in September and they process it in January and it comes in in April and rents were going like that. So when the 2024 rise happened, it wasn’t really a rise. Immediately, the conversations were back to LHA plus 10 or 15%. But when they froze it, the acronym LHA got dropped from all of those conversations. And the only conversations we have now

Speaker (26:08.002)

are around market rent. And mathematically, when I’ve looked at the data, the market rent is actually at the 85th percentile in a lot of places. People don’t realise that. They think it would be the 50th percentile. And LHA is set at the 30th percentile. So it’s one of the most stupid things I’ve ever seen in politics and economics. And this is why politicians shouldn’t do economics, even if they studied it. That’s been proven many times over the last few years. And at Housing First schemes, I also wanted to mention, right?

So what are your smart solutions? Absolutely get 20, 30 ready. I think that’s been said by everyone I’ve listened to so far. Automation and AI. We’re still in a bit of a world where people go, yeah, yeah, there’s AI. Yeah, there’s AI. The AI does this, the AI does that, the AI does the other. It doesn’t really work like that, right? Most of them are, you know, chat GPT based or whatever. And they’re really, you can find out a lot of stuff yourself. But it can, the good stuff can make your life easier. And it is coming along. And I think…

you know, nine to 12 months time, it might be a completely different conversation. We get offered triage stuff and things like that. Flexibility. So what can this HMO be to me? I’ve sold HMOs over the years and then come to regret it because I should have repurposed them. And as time goes on and there’s more and more frictional costs for buying stuff, 5 % stamp duty, this, that, the other, all the rest of it. I think I should have just repurposed that and held onto it. Never mind. And supply, although we’re on the right lines now, thanks to what Labour’s done as far as the planning.

which is pretty much the only good words anybody normally has to say about them. That doesn’t fix the supply problem before about 2027. So this is where we are. Death, or evolution? I don’t suppose you fancy the first one apart from anything else. Not much of an exit strategy, although it is the ultimate one of course. Talked bit about the trends going forward. I think we’ll be standards driven in the industry and I think that’s what we’ll be going towards. Politicians like to think they know what’s best for the tenant even though they’re spending the tenants money.

When they spend a pound of what they think is the landlord’s money, between 60 and 80p goes on the rent in the medium term. That’s what the academic studies show and prove. If they realise that, they might think twice before they spend all the money that they do. And then always think, kui bono, right, legal phrase, who benefits? Yeah? Well, I think the people who will benefit will be the ones who are data driven. It won’t be a big surprise to hear me say that. The ones who are focused on efficiency, and that certainly includes your own time, and the ones who are compliance ready. So, that’s me.

Speaker (28:32.215)

Thanks everyone.