There is good news for the property sector

Business Insights

It can seem that investors in high rise properties are being hit by one problem after another.

First came the need to ensure that properties were adequately insulated under the Energy Performance Certification Scheme (EPC) whereby properties to be built, sold or rented in the UK required an Energy Performance Certificate showing how much a building will cost to heat and light, what its carbon dioxide emissions are likely to be and what improvements you can make to improve its energy efficiency. An EPC rates a property in bands from A (most efficient) to G (least efficient) and is valid for 10 years from the date it's issued.

Landlords and sub-letting occupiers need to achieve an EPC “E” rating from an accredited energy assessor before they can sell, rent or lease out their properties, be they residential or commercial. As a result, there was a rush to insulate properties which led, in some cases, to substandard materials and shoddy processes being employed.

We are all aware of the terrible Grenfell Tower disaster when in 2017 a fire which broke out in the 24-storey Grenfell Tower block caused 72 deaths, including those of two victims who later died in hospital. The building’s cladding and methods of attaching the external insulation meant that the fire spread rapidly up the building's exterior, bringing fire and smoke to all the residential floors. The enquiry into the disaster affirmed that the building's exterior did not comply with regulations and was the central reason why the fire spread.

Ever since, flat dwellers in high rise buildings with cladding have been trapped in potentially unsafe buildings, unable to sell their properties because mortgage lenders are not prepared to lend until remedial work is carried out, and as a result, facing bills of many thousands of pounds which they are unable to meet if they are to escape. The dispute over at whose cost the work should be carried out rumbles on because of a clause in many contracts that states remedial or maintenance work is the responsibility of the owner or lessee. Plainly very unfair, causing difficulties across the market, and impacting transactions.

The RICS, having taken the problem under review, have instituted a system for assessing the safety of high-rise buildings over 18 stories, EWS. (External Wall Survey) This will be used by valuers, lenders, building owners and fire safety experts in the valuation of high-rise properties, with actual or potential combustible materials to external wall systems and balconies. The EWS will require a fire safety assessment to be conducted by a suitably qualified and competent professional, delivering assurance for lenders, valuers, residents, buyers and sellers.

Combine all of this with the difficulty of evicting unsatisfactory tenants, and it is not hard to see why so many property investors have been feeling hard done by. However, there is light at the end of the tunnel as the property market begins to pick up again.

The recession has proved an opportunity for many to take advantage of buildings left vacant due to business closures, those who can afford to waithave been building their property portfolios while prices are low. While according to the latest Halifax price survey, house prices are rising, prices in January 2021 were 5.4% higher than the same month a year earlier.

Job uncertainty, has seen the rental market perform particularly strongly, especially during the final half of 2020. Throughout 2021, renting will likely continue to be on the rise. Job uncertainty is expected to lead to people renting for longer.

Indeed, 2021 is shaping up to be a big year of the UK buy-to-let sector. In the UK, the number of buy-to-let landlords recently hit an all-time high of 2.7m. This shows this form of investment remains appealing. Hamptons has just reported a record number of new limited companies incorporated in 2020 with the specific purpose of holding buy-to-let properties. 41,700 such companies were incorporated in 2020, meaning that the number of them has doubled since 2016.

From an investment point of view, property remains a good bet. While stocks and shares have been volatile, property has remained a more stable form of investment. And the buy-to-let market will likely remain strong even through upcoming challenges and uncertainty.

A survey from online mortgage broker Property Master revealed 45% of buy-to-let landlords feel optimistic about the state of the market this year. Additionally, only 10% of the landlords surveyed plan to exit the sector. And nearly 70% said they are not planning to sell any of their properties in 2021.

So, while yes, it has certainly been a challenging time for property investors the outlook is bright.