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  • Writer's pictureDan Luxon

Monthly roundup - What happened in February

The last month has been one of major change in regards to the UK housing market and to the economy, and whilst this may seem like a worry-some time, the fact of the matter is, we are in a much better position than we have been in for some time! Through changes in the housing market and shifts in the British economy, certain opportunities have started to open up and we're here to help guide you through this seemingly tough time to further maximise your income through different schemes.


To start this monthly roundup, it is impossible to start without mentioning the news that over the end of 2023 the UK entered a recession, as GDP fell an unexpected 0.3%, rather than the 0.1% fall that a Reuters poll had initially indicated. Whilst this may seem worrying for some, there is still positive news through this time, as the Bank of England governor Andrew Bailey played this recession down, stating that this is a “very shallow” recession and that there are “signs that the British economy has turned a corner.” Furthermore, he also established that as the economy is starting to pick up as 2024 rolls through, and that interest rates may fall shortly as ”the market is… embodying the curve that will reduce interest rates during the course of this year” and that “it is not unreasonable for the market to think about reductions.” He further corroborates this by saying that “this is the weakest recession (by historical standards) by a long way.” 

Graph on a tablet starting low but rising up.

Yes, we are in a very trying time, but it is important to remember that whilst we are in a recession, the economy is picking up steam quite a lot and that British business activity has bounced back very strong and the economy is in a better position than we have seen for quite some time. This is shown through S&P’s Purchasing Managers Index which measures private sector activity. February has a 9 month high at 53.3 for the second consecutive month in a row, as January hit 52.2. February follows up stronger than  expected retail sales in January. 

Once again, whilst the verbal acknowledgement of a recession may scare some people, it is important to acknowledge that the British economy is in a much better position than it has been for quite some time an that it is only going to get stronger as the year progresses, suggesting a drop in interest rates to come sooner rather than later.

Spring Budget and the housing crisis.

The Spring Budget that happened the other day, was a chance for the current government to draw voters back after the mess of the last few years both financially and politically, but there will be a large number of people - especially younger and less wealthy voters, who will be left incredibly disappointed in regards to the lack of change in regards to the housing market. It was thought that the early withdrawal penalty on Lifetime ISAs would be reduced and the limit on the value of a home one could buy would be increased, but none of this happened. Instead we got a few tax tweaks that may result in a small marginal boost for the market. 

Here’s what happened, and how it may affect the property market: 

Capital gains tax cut.

Handing house keys to someone

If you currently own a residential property that isn’t your main home and you sell it, you pay 28% tax on the profits if you’re a high earner. This has been cut to 24%, hopefully encouraging more people to sell property and increase the supply of homes, without putting into writing a definite plan to supply homes from the government. This allows some more properties to be put onto the market, whilst further helping wealthier property owners to keep more of the money they make when they sell. 

Whilst this seems like a good idea, it does not address the root issue of a complete lack of housing, affordable or not, within this country and merely adds a small boost to a dwindling market. 

Holiday lettings tax breaks abolished. 

The better tax breaks that owners of furnished holiday lets get over those who own BTL properties will now be abolished, making holiday lets a less attractive proposition. This could allow for more homes available to buy for locals for a specific area or could result in more long-term rental properties becoming available. 

Whilst this can allow first time buyers to compete with investors in regards to the property market, this impact will be felt almost wholly in tourist areas, but is “unlikely to have a big impact on the wider market in these areas” (Executive Director of Research at Zoopla). 

It can help boost the market a little, but it is not something that will massively change the housing crisis that this country is currently reeling from; a theme within the spring budget.

Funding for homes in Barking and Canary Wharf.

Birds-eye view of a construction site.

The Chancellor pledged over £242m of funding for nearly 8,000 homes in Barking and Canary Wharf, and a further £20m in social finance for construction of up to 3,000 homes within the UK. This, coupled with the increase of VAT registrations for

SMEs, up from £85,000 to £90,000 may seem like it allows the property market to step out the inertia that it has found itself in, many industry professionals were left displeased with the lack of proper commitments to helping the housing sector. 

There was no mention of stamp duty cuts, and the idea that was floated,

a 99% mortgage scheme was not even mentioned, further emphasizing a lack of support for less wealthy first-time buyers, and the only mention of housing within the budget was supporting investment via CGT cuts and holiday letting tax cuts. No solid commitments, however, were mentioned on how the government would address and support the housing market. Whilst there were suggestions of

‘unlocking’ brownfield sites within PMQs, there was no information for how this would actually work, and there has been no genuine belief in a catalyst for change, be it through brownfield sites or even the idea of more and better affordable housing. The few ‘changes’ and tweaks that the chancellor has made do nothing to actually address the problems that this sector is facing, and a lack of affordable housing and a lack of help for SME developers has further hamstrung housebuilders and makes it economically unfeasible to build houses in certain areas of the UK. There is a lack of funding for a supply of new homes, especially for younger, less wealthy first time buyers as they are being further pushed away from climbing the property ladder. 

All in all, not a financial budget that we believe will genuinely help the property market, and one that seems rather limp, especially with a general election (seemingly) around the corner. 

Housing Market. 

The housing market is now building up momentum, with average house prices up 0.9% in February compared to last month, and have an annual increase of 0.1% according to Rightmove. The average asking price of a house across the UK now is £362,839.  This, compared to the consecutive annual decrease each month since August 2023 shows that not only the economy but the housing market is starting to be buoyed as we slip out of the recession of last year. This increase, driven by more sellers and buyers coming into the market shows listings increasing by 7% and buyer enquiries following suit, with Zoopla and other HPI’s reporting a 12% increase in buyer demand.

Table showing the changes month on month and year on year between house prices.

Whilst things look like they are turning a new leaf, there is always a cause for concern within the UK housing market and the wider market as troubles in the middle east and the threat of inflation staying at a steady rate could stall interest rate cuts, but that very much depends on how the market shapes up for the next month or so. 

Now, whilst there is still some buyer sensitivity around pricing, with mortgage rates lower than before; an average for a two-year fix being 5.57% compared to 6.68% in July 2023, this may take some getting used to. Combined with higher living costs and the belief that rates will drop soon, buyers are being cautious. Average selling times have increased and with buyers having more choice with more properties on the market, the properties that are priced correctly will sell fastest. 

What may help Developers,

Michael Gove announced a string of new measures on February 13th to help boost housing developments across England. These proposals include a new round (£3bn worth) of funding to the Affordable Homes Guarantee Scheme, targeting councils who are failing to hit their locally agreed house building targets and directing them to brownfield development and an expansion of permitted development rights. 

Affordable Homes Guarantee Scheme provides longer term and lower cost fixed rate loans to housing providers who are registered to build affordable housing, which allows them to provide more affordable homes or facilitate investment in already existing affordable housing. The £3bn allocated is believed to help result in 20,000 new affordable homes being built. These loans can have terms of up to 30 years and for the first time, can be used to upgrade already existing properties, including the removal of dangerous cladding. 

House being built.

Brownfield sites will now be priorities and be "less bureaucratic and more flexible in applying policies that halt house building on brownfield land”. If house building drops below locally agreed targets within Englands 20 largest cities, councils will have to adopt ‘brownfield presumption’, which makes it easier to achieve planning permission for brownfield sites and makes it harder for councils to reject plans. 

There is no real argument against this plan, as it is key to help housing demand in urban areas where the infrastructure is already in place. 

The relaxing of Permitted Development Rules unlocks plenty of opportunities for developers, such as: 

Using Class E: from next month converting buildings in Class E (such as offices, gyms, doctors surgeries etc) will be easier, as the waiting period of three months before submitting a PDR application will be scrapped. This allows anyone who wants to buy a tenanted commercial space to generate income until development begins. 

Class MA: what is also changing is the upper limit on how much square footage you can convert from commercial to residential. Currently its 1500 square meters (around 25-30 flats) but from 5th March this will be scrapped, allowing developers to make use and create more flats from larger office areas, allowing them to generate more income from the same space. 

Further changes to PDR and HMOs: The demand for HMOs has risen drastically, and the proposed changes to PDR allows developers to take advantage of this rise in HMO’s. 

The proposals includes: 

  • Increasing the extension limits from 4m to 5m on single story properties 

  • Removing restrictions on certain boundaries 

  • Removing restrictions on height alterations when not visible from street level 

  • Allowing wrap-around extensions 

  • Increasing cubic meters allowed for loft extensions 

  • Less restrictions on dormer windows 

  • Allowing a roof to be raised 30cm 

If passed, this will allow developers to take advantage, and freehold properties with good connectivity will be ripe for HMO conversion. If these proposed changes do go through, HMO conversion is a niche in the market that you should really keep an eye on.

So, what are the opportunities that arise from a dwindling private rental sector and how you can best grab this opportunity to best ride the waves of the BTR market. 

Renters nowadays are incredibly eco conscious, due to both the current living crisis, and also the ever-ongoing environmental issues , and so your development should confirm this. Environmental, Social and Corporate Governance (ESG) practices are vitally important, and will help influence the long-term value and profitability of these investments. 

It is far more cost effective to build up multi-unit developments rather than single BTR properties, as they will benefit from the economies of scale in regards to management and maintenance costs, allowing these investments to be more profitable long-term. 

Cranes on a building site.

There are government initiatives that help support the development of new BTR properties, such as tax incentives and funding schemes, allowing developers to better profit and manage costs when creating new BTR properties rather than refurbishing old ones. 

One last note 

On lenders, we are starting to see lenders becoming more competitive, and rates are slowly but surely coming down from more and more lenders, as Brickflow have already seen nearly 50% of the total number of searches in just January this year, than they did the whole of last year. 

This signifies that borrowers are becoming more aware of better CRE finance deals out there, and when the margins are tighter (like they are now) they want to find the best deals that they can, allowing lenders to drop rates steadily in order to become more competitive. 

Clarity Development Finance logo.

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