Buying and selling property in 2023 | Legal Thinking Podcast
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Welcome to this episode. In today’s episode, we are talking about residential property, what the market’s been like for the last year and looking forward to 2023.
Yeah, our guests today are Jo Kent, who’s a senior associate in our Oxford office, and a relatively new starter actually, Sonal Ghelani who joined us as a partner in our London office, and to crack off the interview we have some rather interesting forecasting from The Times newspaper...
There was a Times article recently which went as far as to say, wait until 2024 to buy a house. What do you both think about that; is that, is that an accurate representation of how bad the market could be in 2023?
Jo Kent: Um, personally I think there’s a lot of crystal ball gazing going on at present obviously the market has changed considerably to the market that we were in a year ago, interest rates have increased, lots of mortgage lenders have pulled products from the market, and people are definitely more cautious about moving forward with any house purchases but I think that there’s definitely some positivity returning now and people are starting to make moves where they need to. Um…ultimately people, the need to buy and need to sell will continue to do so and I think as we see, as we see more and more people proceeding with their plans, I think really that, that comment will become a bit null and void.
And Sonal, from your perspective in the London market, is 2022 kind of performance, that the property market in 2022 has that got any bearing on that comment do you think, what happened in 2022 that might lead people at the time to say that kind of thing?
Sonal Ghelani: Well…yeah looking at our overview what happened, I mean one thing for sure we, if anyone was making a bet at the start of the year, they wouldn’t have predicted five housing ministers, three prime ministers and two monarchs during 2022 so it was definitely a year that no one could have predicted. But I think it was a tale of two halves for the UK housing market in 2022.
The first half of the year I think the market was quite buoyant, the economy was still trying to recover from the effects of the pandemic, I think stock levels were quite low still, there were a lot of our clients that were struggling to find a property to buy and I often had clients that even though they found a property to buy, they were having to wait for the rest of the chain to be ready, as others in the chain couldn’t find anywhere to buy and I had clients telling me that they were often entering into sealed bids, but it was one of those markets that was still proceeding, people still wanting to buy and it was…there was still a strong demand from buyers.
The second half of the year, I think it was still quite busy but it was starting to taper, I personally had billed the most in August and September, but it was the mini-budget I think on 23 September that changed things, what the government called The Growth Plan, I think it was delivered against a backdrop of the cost of living crisis, the inflation was at a high and then obviously the energy levels were rising sharply, so this was obviously immediately followed by the sharp fall in the value of the pound, sterling against the US dollar and we could see that the world markets were reacting quite negatively to the increased borrowing that was required as a result of the government’s announcement, so we had a lot of clients at that point panicking that transactions were taking time, they were concerned about their mortgage offers expiring, not being able to get the same rates if that did happen and then that could jeopardise the whole deal and I think with the Bank of England Base Rate, which I think was raised, it was 0.5% in February 2022 and then it was raised to 3.5% and I think today we’ve got an announcement again where it’s likely to be raised to 4% so I think towards the end of the year, we…the interest rates did influence the Base Rate and the interest rates did influence the market and obviously with interest rates offered by banks and building societies going up it affected mortgage repayments and loan repayments, which became more expensive, so I think at the end of that year the transactions were less, it was certainly less busier, due to the uncertainty of the high interest rates which did slow down the market and the cost of living and affordability being a factor as well so that’s I think how I sum up what happened in the market in 2022.
Well, that all sounds rather gloomy. Is there any hope for first-time buyers?
Jo Kent: Yeah absolutely. We are obviously coming to the end of the Help to Buy Scheme which runs until 31 March this year where historically first-time buyers have been able to purchase a new home with a 20% Government loan to assist them which isn’t repayable for the first five years of that loan, as I say that’s coming to an end at the end of March but whilst the media are…there’s whispers that that may or may not be extended, I think personally it probably won’t be, there’s obviously the…there’s still the Shared Ownership schemes that are available to first-time buyers where they can purchase a share of a property and effect…pay rent on the other half…the other part of the property, but there’s a new first…first homes scheme that is being introduced where first-time buyers are able to buy a new build property for 30-50% less than the market value, there’s obviously various conditions attached to that as there were with the Help to Buy Scheme. It has to be a property built by a developer or it has to be the re-sale of a property that was originally purchased as a first home scheme property, but the government are certainly doing things to try and keep that first step on the ladder very much available for first-time buyers.
And why do you think that’s limited to new-builds, out of curiosity?
Jo Kent: That’s a very good question and I think ultimately that we need to…the government are obviously trying to encourage new build to take place, we do have a housing shortage and by offering these new-build properties to first-time buyers and putting them in part of the scheme encourages the developers to continue with building and gives them a revenue stream.
That makes sense. So, to do our own bit of crystal ball gazing, do you think this year will be the year that house prices start to stagnate?
Jo Kent: Yes I think, we’re already seeing evidence of that and certainly a lot of the economic forecasts from some of the big estate agents like Savills and Knight Frank are predicting sort of an 8% to 15% drop in house prices nationally and I think whilst there are certainly going to be variations across the country, I think it is possibly not going to be quite as big an impact in certain areas and certainly in our area in Oxfordshire, there’s still a lot of demand for property, there’s about a third of the stock levels that we would expect to see for this time of year that are currently available, so local agents are telling us that there are bidding wars going on when they’re putting properties on the market, whilst everything is very much price-sensitive, there is still a lot of demand and therefore that is going to have an impact on…on the property prices and potentially not dropping as much as people are necessarily predicting.
And Sonal, Jo mentioned Oxfordshire there, you’re based in London, what’s your view from the London property market?
Sonal Ghelani: Well, I think the London property markets often tend to not be as effected in terms of price but there’s still a lot of buyers out there, there’s still a strong demand out there in the market so, they may try and chip the price but they’ll have to offer a good price at the outset and you know, I’ve often had clients that will try and chip during the transaction but I doubt think that it’s going to be effect, I think it’s going to be similar market to last year in terms of the demand’s always going to be there in London and so yeah I think that’s what it’s going to be like.
Okay let’s look at - just keeping it with you, Sonal - what do you see as potential issues in conveyancing that we’re likely to see this year? Like the end of Help to Buys as Jo mentioned is coming to an end in March?
Sonal Ghelani: Yeah so Jo mentioned the Help to Buy Scheme is coming to an end on 31 March and the new applications actually did close on 31 October last year so that’s one thing, and there’s a lot of talk about climate change that I’ve been reading as well and we’ve recently seen some extreme effects from climate change with the heavy rainfall flooding and we had the 40 degree heatwave that no one can forget because it was something that we’d never seen before, so climate change is becoming a concern, there’s likely to be a greater focus on the environmental impact on buildings and material used in their construction. This could leave to changes in building regulations and the way homes are built as well as an increased demand for energy efficient and sustainable properties and there are new searches out there actually to deal with this, environmental searches that deal with climate change and the risks that properties could be exposed to because of climate change, for example the effect on future value of the property as well as the ability to obtain future borrowing or obtaining insurance on standard terms, so it will cover things like flooding, undefended flooding, natural ground instability, which can be caused by extreme heat and coastal erosion so…that’s one thing I think that…and I read up on the updates that I get on conveyancing that’s talked about. We are going to get going on the back of that the EPC is changing from 1 April 2023 where property owners must not continue to let properties that have an EPC rating of F or G so from 1 April all let properties with an EPC rating will have to have a minimum rating of E. One other topic that’s…is still…we’re all…
Just to interrupt you before you can finish your thoughts, is there any estimates on how many properties are in that… you said F and G rating?
Sonal Ghelani: Yeah, well there probably are quite a lot, especially in London area where you’ve got…it can affect listed buildings, historic buildings where it’s more difficult for…oh and more costly, especially if you’ve got a listed building to try and carry out works to bring it to the rating that it needs to be, so I think that there probably are quite a lot of historical buildings and old buildings that landlords will have to work out where to get the money to sort that out because they haven’t got that long to make sure that the minimum rating is an E and I think in the future they’re going to change that so it will eventually reach a C in the future, in quite…you know a few years’ time in the future, so I think it’s just…it goes with all the other things where, you know, environmental issues and climate change, it all links together but we’ll have to see how it impacts on landlords coming into that deadline of 1 April.
But going on again another topic as I said, is the Building Safety Act which came into force on 28 June this year - sorry, last year - which means that qualifying leaseholders in England can no longer be charged to remove unsafe cladding systems and there are legal protections in place and non-cladding costs. The sort of implementation of that legislation will be by October this year but the one thing that’s changed if you go on the lender’s handbook and look at all the different lenders, they’re all…have changed all the requirements they have and it’s quite onerous what they expect their legal advisors to do now. We’ve got to look out for leaseholder deed of certificates and landlords certificates which were introduced by the Building Safety Leasehold Protections informations etc, regulations, (that’s a bit of a mouthful isn’t it?) which basically helps landlords and building managers identify which leases qualify for the maximum protection under the Building Safety Act. So it’s all as a result of the Grenfell Tower incident that happened, so these regulations will only really affect buildings that are five storeys or eleven metres high but in London, it will…we see that more because of the amount of buildings and the development’s that going on and it will affect us I guess more in London but there’ll be certain regulations that you need to check. Certain criteria that you need to check to make sure that a lease does qualify and yeah that’s something that we’re still learning as I said, it’s all quite recent and we’ll see how that affects thing but I can already see discussions from solicitors where they’re a bit concerned about acting on transactions where this will apply because they’re not sure how, you know, what questions to ask, how the impact…what they need to out for, and so we’ll see what happens with that.
I haven’t come across such a transaction just yet and we had a discussion today in our team about if anyone else had and none of us had so far but I’m sure we will see it in the London market so…and the other thing that’s also talked about at the moment is the Economic Crime and Transparency and Enforcement Act which was rushed through parliament last year and I think was just over two weeks, and that was in response to the war in Ukraine and the deadline for overseas owners of UK real estate that had acquired property since 1 January 1999 was to…31 January was a deadline for them to submit their registration on the Register of Overseas Entities at Companies House so…once registered there is a restriction that then goes on their title and for those people that are buying from an overseas entity or taking a lease for more than seven years from an overseas entity, we’ve now got to deal with these restrictions and all the extra work that goes with that but that was a recent deadline that just passed so I guess that will impact on transactions going forward and again it’s another topic where lawyers are just not sure how to deal with all of this or concerned about it but then I think there’s obviously going to be a lot of small changes but those are the sort of topics in discussion at the moment.
Ah I think will be quite interesting, your last point from the transparency point of view, I remember…maybe about ten years ago, Private Eye put together a map of the UK with all the kinds of property and land that was owned by overseas owners, anyway…so we’ve touched upon…is there any hope for first-time buyers or potential first-time buyers? What about people who have just bought a house, so say if we were to make up a character called Ned Bootton who bought a house somewhere in the south-west, what effects will the current state of the market have on them?
Jo Kent: If they have only just bought a property, if they’re a home-owner, the chances are very little. The majority of people tend to purchase house, I think the current average is once every ten years, so by the time that average comes around for Ned, the property market will be doing entirely different things and this…this situation that we’re currently experiencing will be…will probably be very long forgotten. I think really the impact is going to be on people that are…have mortgage rates coming to an end this year, or people that are looking to buy and sell this year, and it's those people that are going to feel any impact of…the current market conditions but Ned can probably relax in his new home and just watch with the rest of us to see what happens this year.
Very good to know! So…I think onto kind of more real-world examples, I was just wondering if Sonal if you had any interesting cases recently that might illustrate some of the things that we talked about.
Sonal Ghelani: Well, there was an interesting, not personally, but there was an interesting case, well recently in all the media I guess, to deal with knotweed, Japanese Knotweed which comes up quite often but there was a recent case where a seller had misrepresented the presence of Japanese Knotweed on their £700,000 London home and they were successfully sued for over £200,000. The seller stated at the time that they weren’t aware of Japanese Knotweed and the buyer had planned to build a workshop in the back garden and discovered some knotweed canes behind the bush next to the shed, so the seller was sued for misrepresentation and I think one of the things that was mentioned is that in the property information form there is a question specifically about Japanese Knotweed and you can either say ‘yes’ ‘no’ or ‘not known’ but he’d ticked the box which said ‘no’ so it was…it was… he’d positively asserted that there was no knotweed at the property and it could be assumed that he would have had to carry out a survey of some sort because he wouldn’t have otherwise been 100% sure to have ticked the ‘no’ box so…I think that was a case and as one of my colleagues was saying, you know when clients are filling out forms, just making sure that they’re aware…that they’re 100% sure when they’re ticking that box, that they’re certain that there definitely isn’t because of….I mean obviously there are certain facts and this entire case that we don’t know the ins and outs of but that sort of came across in that.
So…we’ve had a look back, we’ve had a look at some cases in the present and we’ve had a look forward, but to kind of throw the last notion on its head, would you say it’s even wise to make predictions about the year ahead, so for context, according to RightMove a sale now takes on average five months up from three, therefore do you want to know what’s happening with house prices in your area today, there’s no reliable data as it’s already kind of five or six months behind, there’s a half a year lag time. What do we think?
Jo Kent: Yeah absolutely I think making any kind of predictions on the property market is…is unwise not only because of the data lag but also because as we’ve seen over the last few years, we don’t know what’s going to happen, no one could be predicted the pandemic, and then the subsequent impact that had on the property market, we saw huge… huge peaks in activity followed by….which followed obviously a complete standstill in the market during the pandemic so we’re obviously coming off the back of a very turbulent…turbulent time because of those things and obviously the way that the government often intervene in the property market and the economy generally by making tax changes to either get things going or…or you know restoring confidence so we don’t…we didn’t know that the stamp duty holiday was going to come and we didn’t know that they were going to implement the mini budget when they did and we’ve obviously all just discussed the impact of that so it’s entirely possible that there may be some legislation coming that will make some changes this year to er… to….to even things out or restore confidence and as you say, the…one of the issues that we are facing in conveyancing at the moment is the delay in getting transactions through which is also making people nervous, it’s having an impact on chains potentially falling apart if people have to move within a certain timescale and then there’s this…what a lot of data is stating as five to six months’ time delay, that definitely definitely has an impact. The data that we have of transaction volumes is generally gathered from HMRC, stamp duty records, and also from the Land Registry who are really struggling to get registrations through so what we’re looking at in terms of transaction volumes is only a best guess at the current time so ultimately, you know, if you’re making an offer on a property now, in five or six months’ time we don’t know where the property market’s really going to be and making any predictions as to…as to that is….well….very very unwise indeed.
Okay. Well, now we’ve kind of shown that it’s unwise to make predictions I’m going to ask you both to make some predictions! For 2023, I’m just gonna slightly, kind of take…sort of amend on a question that we’re thinking of about offering advice to buyers and sellers. Given everything that’s happening in the market, what do you both think will be the most regular kind of area of advice you will be giving to buyers in 2023? So, for example, if as Help to Buy has ended, all that kind of stuff, what do you foresee will be the common issues that you think will come up over the year, or is it just completely open?
Jo Kent: I think what I was going to say in response to just sort of general advice to buyers and sellers is, is to get good advice, get good representation, not necessarily from just lawyers but if you’re…if you’re looking to buy, it’s…I think it’s predominantly going to be focused around your mortgage if you’re…indeed if you are a buyer that needs a mortgage, and with huge changes every day in what mortgage products are on the market and what mortgage interest rates are doing, I think people should ensure that they have a very good experienced independent mortgage advisor to guide them in the best of products available to them at any given time because it is…it is going to be a moving feat and equally for people that are selling their properties, you need a good estate agent, someone who’s got their finger on the pulse, they know their local market, they can see what house prices are doing and not doing and what the common trends are within the area and so I think from a conveyancing perspective, inevitably there’s going to be all of the things that Sonal touched on in her…in her previous statement about the new, about the changes in legislation, we’re going to have to figure all of those out as we go along and give advice on those things, but I think really people are just looking to the market in general on whether they should be proceeding at X price or Y price or with this mortgage or that mortgage.
Sonal Ghelani: I think that’s correct Jo, and I think the only other thing I can say is people just need to check affordability at the moment with all the extra costs and things to prices and energy prices and everything else, affordability and just checking that you can definitely afford what you’re going to be buying but obviously as Jo said also, making sure you’ve got all the right people there and if it’s a long-term purchase, there will be wobbles in the market and then it will recover and I think you’ve just got to…if they’re going to sell and buy, they will sell and buy but if it’s a long-term investment then yeah just checking you’ve got all the right people to give you the advice that you need and all your paperwork in order but I don’t think there’s anything else that we can do, it’s just one of those ones where we can’t predict what might happen, there’s so many things that have come our way that we just couldn’t have predicted, and so yeah I think we’ll just have to wait and see but that’s all we will be able to say on that one.
So the moral of the story is – expect the unexpected! Jo and Sonal, thank you very much for your time.