Is the forecast improving for Britain’s property sector?

With the resolutely sullen skies creating a damp and drizzly summer, you might be forgiven for thinking that the forecast for the UK property sector is similarly gloomy.

After all, we now have the base rate at a 15-year high of 5.25%, fixed-rate mortgages are averaging around the 6.3% mark and Nationwide recently reported the steepest monthly house price fall in 14 years.

However, while no-one is pretending that the current economic climate is particularly sunny, there are reasons to be optimistic about the outlook.

Interest rates: not all bad news

Higher interest rates make borrowing more expensive, which makes people less able to afford to buy goods and services, particularly when it comes to property.

However, higher rates are better than uncertain rates – it’s easier for everyone to deal with a stable environment of higher rates than an unstable environment where no-one can guess where rates will go, as happened last autumn.

Mortgage rates are starting to stabilise and there are thousands more mortgage products available now than there were last autumn – around 5,000 different deals are currently out there compared with around 2,500 in October in the immediate aftermath of the Truss/Kwarteng budget.

Higher interest rates for borrowers also means higher interest rates for savers, making savings accounts more attractive in terms of returns.

This is certainly something which we have seen with our own savings products, which have attracted over £330m in deposits since the start of the year. This in turn helps us to provide more lending solutions to the SME property developers and investors which form the bedrock of our customer base on the lending side.

Lending on the rise

Talking of lending, our enquiry, approvals and completions tallies are all increasing, despite the well-publicised challenges in the property sector.

Our range of short-term and long-term financial solutions are being used for everything from building much-needed residential housing to remodelling commercial units at a business park or transforming retail units on a town centre high street.

Unmet needs – of all kinds

While interest rates are higher and mortgages more expensive than they have been for some time, the fundamental truth about the UK property market is that there are currently not enough homes for the people who want to live in them.

This mismatch in demand and supply – a classic unmet need – helps to increase both the cost of buying a home and the cost of renting one. The Office for National Statistics has reported a near 4% average annual rise in rents, with properties in popular urban locations attracting larger rises.

Rising rents spell potentially larger returns for landlords, helping to fuel investment in the Build to Rent (BTR), which reached a record £6.4bn last year, a total expected to be surpassed in 2023.

Planning for growth

For the first time in a long time, the political direction of travel is starting to look more favourable for property development.

Levelling Up Secretary Michael Gove has admitted that more homes are “desperately needed” in the UK and recently announced plans to relax planning regulations converting empty retail premises and betting shops into flats and house.

Labour leader Sir Keir Starmer has also vowed to “back the builders not blockers” by building more homes on green belt land and bringing back housing targets.

As ever, political promises come with a caveat of ‘wait and see’ but the direction of travel from both main parties is encouraging.

So while the rain may continue to put a damper on the Great British Summer, the outlook for the property sector is starting to brighten.

* Stephen Lancaster is the Co-Founder and Chief Executive Officer at GB Bank, which offers flexible finance solutions to SME property developers and investors.

Category News