Sunday Supplement 27 Jul 25 - Adjustment time?

“Prediction is very difficult, especially if it’s about the future” - Niels Bohr, physicist (and comedian, it seems) This week’s quote is one about the subject matter of the deep dive - it is the time of year where the large forecasting houses make adjustments to their predictions - and I take a close look at some of them. Before we go into this week full hammer - Rod Turner and I will be running our next Property Business workshop on Wednesday 1st October, in London - subject matter this time is Investment, with an emphasis on what metrics you really need to be considering to run your property business properly, and building your business to scale. We’re digging into the real fundamentals of property investment for growth—from proper valuation and strategic debt structuring to the investment metrics serious pros use (hint: ditch ROI and yield). Learn why some deals work for some and not others, how to manage risk as your portfolio scales, and when to shift gear from side hustle to scalable business. We’ll break bottlenecks, build strategic pillars, and unpack real-life case studies of fast company growth. How have we done so many deals? We’ll tell you! Book the SUPER EARLY BIRD tickets with 20%+ off, now: http://bit.ly/pbweight Ah, Trumpwatch. Getting a closer view as “the Donald” goes to check on his golf course portfolio. I don’t play golf, but no-one would mind doing their own inspections if it was a golf course portfolio, let’s face it? There’s also a sniff of an EU deal setting the tariffs at 15% (down from 30%, the latest quote) - but in the same sentence, a hint that negotiations are still ongoing with the UK. A bit disquieting for those who had banked on him meaning what he said, when a deal was already done (or was it?). Always so difficult to tell. In many ways, I guess negotiations are always ongoing! Tariff deals done this week included Japan at 15%, and the Philippines and Indonesia snagging 19%. The IMF (more on that later) published their expectation that Trump’s tariffs cost us 0.3% of GDP in 2026 - a huge slice of our probable growth, such is our anaemia. On the bright side they revised their UK growth forecast to 1.2%, which is quite brave in a sideways economy and a volatile environment. I rarely concur with the IMF, it should be noted! The flame war with the chairman of the Federal Reserve, Jay Powell, continued; most who are watching think that Powell will be able to see out his term before being replaced by a Trump stooge who presumably will have one brief - get the interest rates down. If that means breaking stuff - do it. How? The smart money says yield curve control and the Fed buying bonds in whatever volume it needs to, wherever it needs to, to get the price down. Japanese tactics, basically. Over to our main subject matter - the real time UK property market. Chris Watkin was back - Week 28 is now reported on. Listings printed 34.3k, a slight drop from last week’s 35.9k, and are still 4.4% higher than 2024 YTD and 7.2% higher than the pre-pandemic market. My “10% more stock than a normal market” ready reckoner is getting stale. We are 13.6% ahead of the 9 year average, but that does include 2020 which pollutes the figures somewhat. We are limping around the mean for this time of year, not forging further forward into even more listings than historically precedent - but we are still listing more than we are selling. 25,600 price reductions, 14% reduced in June, compared to last year’s 12.1%, May’s 13.4%, and the 5-year average of 10.6%. More stock, more reductions - absolutely and relatively. 33% more reductions than the 5 year average, if you take the difference between 14.1% and 10.6%. “25% more reduced properties than a normal market” also works as a ready reckoner. One in seven properties on the market are being reduced each month (so we are currently running at a little over ONE HUNDRED THOUSAND price reductions per month, to be clear!). Can’t find a deal? Just keep the legwork up and you’ll get there. 26.3k homes sold subject to contract. Healthy is still the watchword. SSTCs are up 7.6% year on year and 14.6% on 2017-19, and still nearly keeping pace with 2022 (which to this point was a very hot market indeed). We went into July with 758,064 homes on the market - a tiny increase on June’s number. For context, as the market got stickier before the pandemic that number was c. 660k, a sellers’ market is more likely to be under 600k. At the end of June 2024, 700k were on the market. These are more “higher high” numbers and so the “flat” feeling as I’ve been saying for some time now will likely manifest in a steady market without much excitement as we get through the school holidays. It’s very close to June’s number and nearly a pullback - we’ve had weeks of the listings not being as high as they were in 2024 - are we nearing or at the peak? We can’t read too much into August anyway but there’s always an extra surge in September when the school holidays are over, so we likely need to see those figures before drawing conclusions. Chris also looks at the per square foot on sold STC properties - it has a very strong correlation with prices that hit the land reg in 5 months’ time. This time round - June was at £346.45/sqft and that was 2.46% higher than June 2024 but only 1.48% higher than June 2022 (which was the previous peak). I think we are holding on to about a 2.5% up market for 2025, a little under prediction and also below inflation, wage rises and the likes. Fall throughs nudged above the long-term average of 24.2%, printing 24.7% and 25.9% the week before - however it seems relatively normal “noise”. The net sales are still playing ball - 5.8% up on last year and 10.5% higher than 2017-19 - not quite at 2022 levels but the stamp cliff will have forced a few more transactions out of bed of course, and as the year progresses then in the absence of any more shocks, things will likely catch up because transactions were significantly “disturbed” by the 2022 budget and the bond markets, of course, in comparison. I always give Chris a weekly shout out here because he’s more prolific than “just” this epic tome he releases weekly on the UK property market - he comes up with some great stats on a regular basis. Drop him a like, subscribe, and all the rest of it and some kind words for his content creation. If you are in the industry and want support in growing your business or to be a more effective communicator/be more in touch with your local market - that’s his core business - give him a shout. The article gets published on the Property Industry Eye website, and the video on his YouTube channel - @christopherwatkin

Into the MacroBrewery, to see what flavour output we deal with this week. The flash PMIs were with us and regulars know just how much I like to look at these. We have to look at Rightmove’s monthly House Price Index from this week, as it caused another big fuss when it was released on Monday. UK Finance also released one of their new format reports on Buy to Let lending insights for Q1 2025, which we will take a look at in spite of its relative lag in terms of release times. We will round off, as usual, with the gilts and swaps in what was a relatively miserable week for the Treasury in general.

Flash PMIs. The “first look” for July. Last month we saw a large revision upwards after the flash numbers - and we are left hoping for more of the same again. The composite index - down to 51 from 52. Services only printed 51.2 - the big driver - down from 52.8, which looked like a miraculous recovery. Manufacturing limped to 48.2, which, in spite of being contraction territory, was a 6-month high. The tale of the tape - as you can likely tell - is well summarised by Chris Williamson, the Chief Business Economist at S&P Global. The economy is struggling to expand, the growth rate is congruent with a +0.1% quarterly GDP growth rate, and he sees the risks tilted to the downside on that front. What were the basic problems? Subdued confidence, deteriorating order books, and rising costs - and the last budget is still taking the blame before the next budget (in my opinion) starts to have further impact on confidence. July’s impact on employment headcount is described as “sharply reduced”. He always finishes with telling the Bank of England monetary policy committee what to do, and his comments this month look particularly sensible - pressure is on to cut rates in August (now being priced around 80%, down from the 90% racing certainty that was priced more than a week ago). Low growth, labour market going the wrong way - and so those trends become more important than the inflation narrative in the short term, because price rises can be written off as “transitory”, effectively, thanks to the employers’ NI rise amongst everything else. Risky business, as some of the MPC committee will no doubt comment (including the chief economist, I believe). One more piece of the jigsaw screaming “sideways”, I’m afraid. Rightmove, then. Month-on-month asking prices dropped by 1.2%, meaning an increase in their index of only 0.1% year-on-year. Let’s just pause a second. Asking prices. We know - and I’ve been saying for a long time - that to sell houses in this market, price is a big driver. There is significant supply - more than for a decade. Rightmove asking prices - sitting above £370k - are miles ahead of anyone’s idea of the average house price in the UK (still below 300k on the “big 3”, the ONS, Nationwide and Halifax). Not to be construed as panic stations, I’d suggest. Where drove this chunky adjustment? Where you might suspect. London asking prices were down 1.5% this month, with Inner London down 2.1%, as those who want to sell start to look motivated. Also noted in the summary - sales agreed are up 5%, buyer demand (measured by future buyers contacting agents) is 6% up year-on-year, and affordability has once again definitionally improved (inflation and wages comfortably outstripping house price growth). They cite the 2-year mortgage on their tracker (which is one of the more accurate ones in the market) at 4.53% for buyers, versus 5.34% last year - as those who want or prefer a shorter term benefit from the flattening of the front end of the yield curve. Rightmove predicted +4% this year, at the beginning of the year, and have now cut that to +2% for houses. As I said in Chris’ section, I think 2%-3% now looks like the 2025 range (my own prediction was 3.75%). The prediction was for 1.15 million transactions (about 50,000 more than 2024) - and they are sticking with that one. RM also points to the fact that markets expect two more interest rate cuts this year, and that would be expected to stimulate activity (I’m not so convinced here, the swaps and gilts have got this priced in, the swaps are trading at a healthy discount already, and those curves have been pretty flat for the past year or so - and this is with the market expectations already priced in). It would instead take a change in the language from the Bank of England - in my view anyway. Let’s not gloss over the bit that made the headlines though. This drop of 1.2% for July was the largest in over 20 years of RM data. Their analysis suggests this is more “pragmatic”, about getting sales done, rather than it being a slower market - because it isn’t. This is the fastest market for transactions (ignore the stamp blip) since the same time around 3 years ago, before you-know-who did what-you-know-she-did. Plenty of motivated buyers - as so often - is the report on the ground. This is a market driven by making the right choice and maximising the opportunity, would be a better way to frame it. They cite non-doms et. al. stalling in Central London, but point out that the rest of GB is 90% of the market. The North East for example has an increase of 1.2% in asking prices this month - so, once again, the macro headlines are better striated regionally for proper analysis. Every other region is flat (East Midlands/Yorkshire) or down, I should clarify, with the North West and the West Midlands both dropping 1% or more. Perhaps some steam is coming off the top of what’s been an incredible bull market in the North West - the recent figures are suggesting that, and I will be monitoring carefully.

Panic postponed, all the sensible analysis below the surface is detailing a healthy market, and not one that people are going to sit around waiting in. Unless you are selling “typical” properties in Westminster or Camden, both down over 2.5% in a month in asking prices, I would not worry too much. Just remember - it is a price driven market, even more than usual. We could also be close to peak supply - it is feeling more and more like that as the weeks roll on, as listings slow down compared to 2024 in week-to-week comparisons. Will we see a flurry to end the year? Likely not, because seasonal factors take over, but you do get the feeling that 2026 could open rather bullishly, the way things are shaping up. All this market needs is some momentum to drive some FOMO, and prices will be on the way up up up in my view.

Let’s flip over to BTL only, and what UK finance had to say about BTL lending in Q1 2025. This report was met with a fanfare of “resurgence” - from a very miserable 2024 Q1, loans were up a massive 38.6% in number, and 46.8% by value. This wasn’t yield driven though, according to UKF - seeing yield at 6.94% versus 6.88% one year before. Was it rate driven then? They report rates down 0.1% from Q4 2024, and 0.41% down from Q1 2024. That won’t hurt. Average interest cover ratio, in that case? 202%, up from 190% one year before. There are 1.44 million fixed rate BTL mortgages outstanding (or were in Q1), and now only 500,000 outstanding variable rate BTLs. Arrears were down, once again, by 780 cases to 11830 (cases over 2.5% in arrears). As per last time out as well, repossessions were up as they lag behind arrears - and when arrears were rising a year or two back, possession cases usually rise a year or so afterwards. There were 810 possessions of BTL properties, to put the whole thing into context, in Q1. Sounds fantastic, right? Not really. The summary just provides a significant lack of context, because it is following a boiler-plate “year-on-year” report. The longer form report contains much more of interest - showing that we are still below 2019’s new BTL loans - let alone the peak of 2022. That’s just in value, as well, and bear in mind prices are up at least 20% in that time pretty much anywhere in the UK - so the number of loans is actually looking more like 20% or so lower. Context, as always, is so important and BTL still has its wings significantly clipped compared to recent history.

Let’s get into our gilt-y pleasure for the week. Another miserable month’s figures in the can for the Treasury, as we continue to borrow more than any economic consensus as noted. I have been following the OBR monthly commentary as well, to see where we sit with “the only forecaster that matters” - and this ugly-looking June took us to exactly where the OBR forecast we would be by now. We did - if you recall - have a few billion of headroom against the OBR forecasts before June was in the can - but now it is, we are smack on forecast/that headroom is gone. It isn’t as bad as it sounds in the press - but we’ve also had no luck. Strangely - when you look at the OBR forecasts - we are actually getting quite a lot less in VAT than they expected (perhaps consumer confidence) but more than expected in corporation tax and national insurance (in spite of the rise in the latter, which of course would have been baked in).

We - and Rachel Reeves for that matter - certainly need a reversal. The bad news was compounded this week as we issued more index-linked gilts at a 1.588% yield above inflation (what are we playing at?) - and then some 15 year bonds sold at a 5.066% yield (compared to 4.85% last time out). Bond investors are enjoying juicy returns, for what they are, what the risk is, and what the effort required is - that is for sure. The shocker - and what caught everyone out - was the gigantic payment on the index-linked component of the gilts this month, which was a huge uptick from £1.9bn to £10.9bn (clearly the forecasters don’t look at the months that the index-linked gilts are actually paying interest!). What we’ve done - basically explained - is when we’ve needed significant debt in recent years, we’ve issued inflation-linked (index-linked) gilts. We’ve backed ourselves to return inflation to low levels. This is - and you won’t be surprised to hear me say it - inherently stupid. This is proof, if it were needed, that not enough Government advisors are reading or listening to the Supplement. Had they asked someone who had done sufficient (!) inflation research and analysis, they would very much have been issuing fixed price bonds, nominally, not linking them to inflation. How stupid can you be - when the UK has blatantly been looking like a 3%+ environment for over 4.5 years now - not using that to your advantage, but instead being disadvantaged by it? A huge, huge, huge waste of taxpayer money and another gigantic multi-billion £ opportunity missed. If in doubt - to be clear - this is the fault of the Tories, 90%+, but Labour are continuing to compound the mistake by issuing more index linked debt (as proven by this week’s issue). STOP IT. Remember as well - index linked gilts are linked to RPI, not CPI - so it has been even more damaging! We paid for Awful April, and turned ourselves over more than anyone! Miserable stuff. How about the 5-year gilts, then? A fairly volatile week, with the summary from the S&P Global chief business economist framing things very well, it seems. We opened at 4.062% and in spite of a real push to get the yields below 4% (we touched 3.984% on Tuesday), the market was mostly sideways and closed to 4.046%. Thursday’s close was 4.031% which compared to a 5-year swap rate of 3.701% (down to 33 basis points discount this week, although it is only one snapshot remember), and that compared to 3.649% one month ago and 3.842% one year ago. Our ready reckoner for 5-year mortgage debt looks like 5.7% or so, for limited company buy to let. Overall, a drop of 0.016% in the 5-year gilt for the week is nearly nothing - let’s check in on the longs. The week opened at 5.478% and closed at 5.453%, so the yield curve happily got a little shallower this week, although only by a tiny amount - that being 0.025%. We gained a whole basis point versus the 5-year! Still, it isn’t in the wrong direction, as the 30s stay particularly high and the yield curve still looks ominously steep. A bit of a “nothing” week in the gilts market - but nothing in the right direction, rather than the wrong one! This week in the deep dive - after a month on the spin of keeping a very close eye on the Chancellor at a critical time - there’s actually a chance to review a few recent industry reports, which I am going to seize with both hands. Firstly I want to catch up on some recent Hamptons International research, which is usually good quality - about renting, and also about generational divides - there’s also another one on flipping which I’d like to comment on as well. Next up, I will also take a look at Savills revised house price forecasts, which I’ve more sympathy with than quite a few of the other purported forecasters out there! SCUBA masks on, fill up the oxygen tanks, here we go. Three Hamptons reports, starting with the most recent - rental growth forecast downgraded from 4.5% to 1% this year, across GB. Sounds like a pretty knee-jerk reaction to me, although there was a very clear point earlier this year where rents really found their level, properties were being advertised at prices that were just too high, and tenants simply did not look interested. Most portfolio landlords I’ve spoken with have agreed with some or all of that. Hamptons saw a 2% rise in rents for newly let properties to December 2024. The first point of order that I need to make - as always in these circumstances - is that is “new rents”. Not the rate of existing rents, which have been increasing a lot faster (as evidenced in the ONS statistics, reported on each month). Hamptons have London rents down 2.5% for new lets, Wales down nearly 1% and Scotland down 0.5%. They saw rental increases on new lets at 8.1% as recently as June 2024, but in June 2025 that had clipped right back to 1.8%. Hamptons’ explanation for all this? First time buyers driving the shift. They point to a record 33% of homes sold to first time buyers in the first half of 2025; this has lowered tenant demand by 11% and put tenant demand down to 20% below 2019 level. This looks out of place with the Zoopla, Rightmove and RICS residential market survey reporting, which is not showing anything like that level of drop. I have in the past accused Hamptons of being too Southern-focused, and I’d love to see how they control their data based on the inherent geographical bias within their office locations. Supply of homes to let was up 8% in H1 2025 as well, Hamptons say - not because there has been an increase in investment (although it is clear that it was much larger than Q1 2024, as per the UK Finance data shared before) - but because there has been a slowdown in tenant demand. Tenants exiting the rental sector (to become FTBs) are not being replaced at the same pace, we are told (which, putting everything together there, does sound correct). Hamptons also consider that the pressure put on by higher interest rates has abated, and thus there isn’t as much need to pass on the higher cost to tenants. It will be definitionally true that anyone who secured a rate before about July 2022 is 60% or more of the way through that mortgage by now, so 40% may well have a shock to come (of the 5 year fixers), but the other 60% have already had their shock. The 40% have had time to absorb things and raise rents in the interim, as well, if they have any sense. Hamptons on their own figures have rental stock down 34%, with tenant demand down 20%, from H1 2019. This is measured by the number of applicants (hopefully the number of applicants per property, rather than just the number of applicants, but that isn’t made clear). Hamptons also make the point that the loss of jobs in hospitality and also in the graduate sector (the lower number of opportunities, perhaps it should say) feeds directly through into the rental market because both of those tend to be households that rent rather than own. They also say that earnings growth has cooled “more than anticipated”. This is, I’m afraid, abject nonsense. The number for average weekly earnings growth first broke 4% in December 2020, and spent a lot of time between 6% and 8% - it first printed below 7% in November 2023, and dipped to 4.1% in August 2024 - it has been back to 6.1% in the interim, and is hardly languishing at the moment at 5%. This is absolutely not “more than anticipated”. The dropoff in wage growth has been much slower than the Bank of England or any of the economic forecasters have predicted. They then cite that the Bank of England expect it to cool to 3% next year - again, not quite true - the 3.5% figure from the decision makers panel, which the Bank use to inform themselves based on real time market intelligence - has actually flitted between 3.5% and 4% for at least 9 months now. Nevertheless, let’s press on. They then get regional. London down 2.5% year-on-year leads the way, they say, in rent reductions. In May 2022, though, remember - on Hamptons’ figures the London rent rise for new rents was 20.6% year-on-year, clearly unsustainable. London - as so often - shows a similar pattern to the rest of GB but with more amplitude, more “noise” in the waves, so is often the highest (or the lowest) increase and doesn’t spend much time in the middle. The Midlands, for example, is still at 3.3% increase year-on-year according to Hamptons. Hamptons renewals are coming through at 3.9% up year-on-year on rents, compared to 7.6% 12 months ago. A renewed tenancy is showing a 6% average discount compared to 12% in June 2023 - a significant difference. Excluding London, Hamptons have GB up 1.9% year-on-year and up 4.8% on existing rents. This is not as stark as in the ONS figures, for example, but nevertheless provides us with some insight and some data as one of the larger players in the market sees it. Next up, the Hamptons “Flipping Index” from Q1 2025. This was - as often - an interesting report that was badly analysed by the commentators that I saw have a go at it. First up - the key is the definition, a home bought and sold within 12 months. A few things to say. The advent of different types (additional homes for example) of stamp duty and then the subsequent ratcheting up of those rates (from 3% to 5%), and also the overall freezing of the 2014 thresholds plus the brief hiatus on SDLT on properties between £125k and £250k for 2.5 years or so will all distort this picture. Then you have to consider the speed of conveyancing - although you couldn’t say it is slower today than at some points during Covid, it is certainly not faster than it was in say 2019. Bearing all that in mind, however, there’s a definition used in the report and that definition is congruent since 2008 when they started reporting on it, even if the market conditions have and do change. The low number of properties that hit this threshold - 2.3% - is the lowest it has been since 2013, which is - miraculously - the low in the “real house prices” series that Nationwide publishes on a quarterly basis. A market with very little confidence (although 2013 did see an absolutely roaring London market). How many flips by this definition were there - in the context of a market doing around 1.1m - 1.15m transactions per year? 7,301. The 10 year average for Q1 of a year? 10,000 flips. That’s a 27% drop in volume. Why? Pretty easy when it comes to motives - lower margins. Or, in more detail, a larger share of the pie going to the Government. Before we even get to how the pie breaks down, though, the average gross profit on one of these 7,301 flipped properties was £22,000. That’s just the difference between the bought price and the sold price. This is actually the highest since 2022…..but the graph including the average SDLT tells an interesting story. I’ve included it as this week’s graph - just look at the gap. Bear in mind as well - on many of these sorts of transactions as well - there will be lawyers fees on the way in and out, and sometimes auction house fees and the likes. Then an agent to sell on the back end. You could have a rough stab at these costs - I’d be stunned if they didn’t, on almost any flip, come to less than £5k and that’s with none of the auction house business. Then - you might need to remember - most often these properties need to be improved? There’s no room left in the budget for that! So - the far right hand side of the graph is the forecast. The average SDLT paid on a flip goes from £6,375 to properties sold in Q1 2025 (most of which, but not all, will have paid the 3% rate of SDLT, before the October 2024 changes), to £11,920 SDLT on the 2025 average flip (with more to come in 2026, because the lower SDLT transactions before the April 1st 2025 changes will still be in Q1’s figures for 2025 and 2026 on sales). So - on a gross profit of £22,000 the Government wants £11,920 of that - more than 50% tax. Oh - bear in mind that’s BEFORE tax of course, whether it be income tax or corporation tax. And I didn’t mention bills, holding costs, double council tax most likely…..goodness me. There just won’t be any flips any more will there? Trading, subsales and the likes wouldn’t show up in these figures, bear in mind - although if you’ve settled on it, then it will show up. To put that into percentage context - as Hamptons do - the average return (gross profit minus SDLT) was 7% of the purchase price. This compared to a 16% return (calculated the same way) in Q1 2015. SDLT will just end up killing the market altogether, certainly when it comes to houses in the £250k+ bracket, and increasingly in the £125k+ bracket. This shows itself in London - 1.5% of properties sold were bought within the past 12 months in Q1 2025. 10 years ago that was 3.2%. 2 of the top 20 local authorities for flips were in the “South” of England - Great Yarmouth (which, pricewise, behaves as though it is geographically North) and Torridge - the most deprived area of Devon - and again sitting below the line in average house prices when it comes to the economic North and South divide. Flips - on the back of this analysis - will surely fall even further in Q1/Q2 2026, and sit in the doldrums until the market is particularly active or buoyant because there is one thing that will be clear to market participants - without the wind behind you, you have a very limited chance indeed of making a profit! One more piece from Hamptons before we move on. I write with remarkable frequency about the media tropes around house prices and the fallacy baked within them. As discussed and analysed - the data shows house prices at a 12-year inflation adjusted low - and that low 12 years ago was an aberration after a 2008 beating for the housing market, the true “last low” was really 2003 - which coincides with when houses were trading at the same multiples of earnings as they are today, with a more favourable tax system in this day and age for income tax. 22 years of not getting harder. There are differences though, of course. In mortgage rates? Not so much, between 2003 and 2025. Mortgages at higher LTVs are easier to get, simply because they exist (although the high LTV stuff had already kicked off in 2003, it was still pretty nascent). Mortgages as a whole are harder to get, because the regulatory environment is much tougher in terms of underwriting on mortgages. Mortgages are also more expensive than they have been in the years 2010 - 2022, it is fair to say, as rates have normalised. So - even if you don’t point to the price itself - there are other factors that do make it hard, today, to own a home. Harder than other points since 2000. However, we are a full generation (or arguably a bit more) away from the last time house prices, in isolation, looked this good for buyers. How about pre-2003? If you didn’t already own, you didn’t really ride that wave - if you bought in 2003 you’ve ridden it up and back down such that inflation has taken all of your paper profits. Still not a problem if you’ve used leverage, because those loans have been at nominal values, not real ones. Geographically there would be differences - owning in London between 2003 and 2013, in spite of the national figures, would have been very profitable - whereas owning in London between 2015 and 2025, say, won’t have had anything like the same impact on your wealth. Hamptons go a little bit further. They open their piece on “the generational divide in house price growth” by claiming that the first time buyers of 2020 are the first generation to see house prices fall in real terms during their first five years of ownership. This evidentially isn’t true, of course, but is according to them because they pick a “year of first purchase” to make their point (rather than analyse every 5-year period). It’s very obvious that nationally, if you bought your first house in 2006, 2007 or 2008, you likely lost money in nominal terms, let alone in inflation adjusted terms. Hamptons have the 5-year HPI, from the ONS, at 27%, but inflation-adjusted house price growth at -3%. Their numbers: £73,866 in average mortgage payments over the 5 years, £58,986 of HPI growth, and £34,308 paid in interest only. So - on the basis that the average home in 2025 prices costs c. £1,300 per month to rent - the alternative would have been £78k in rent. That is not the argument they are making here - but is useful for context. The overall point is valid, though. After inflation, the average baby boomer deemed to have bought in 1979 saw a 35% real return after inflation in the first 5 years of their home ownership. The average Gen Xer who bought in 1996 saw a 44% return. The average millennial buying in 2011 only saw a 13% return after inflation. However - the boomer paid 98% of that 5-year rip in mortgage interest, due to interest rates at the time. The Silent Generation paid 79%. Those figures are before capital repayments. That makes the 2020 purchase, at 58% of the HPI gain paid in interest, not look too bad at all. There are further nuances though, as you might imagine. Longer mortgage terms - means much more interest paid. It is the “second half” of the mortgage where that really bites. Shorter terms in the days of yore meant a front loading to the tune of about 60% of payments paid in the first half of the mortgage, and 40% paid in the second half. These days that looks much more like 50/50, or even 48/52. Millennials it was much worse, as it goes, ratio wise, but the high nominal prices alongside the now normalised interest rates are a lethal cocktail for Gen Z, is Hamptons’ primary point. So what? Hamptons describe this as the end of the era for using house price growth as a cash machine to pay for cars, holidays and home improvements, particularly in the early years. This filters through, they argue, into lower GDP (certainly booming house prices in the 80s fueled economic growth, and in the 2000s until it came crashing down…..) The natural conclusion is people staying put. If you layer SDLT on to this - the transaction tax that almost every sensible analyst absolutely derides and criticises - that’s two very good reasons not to move. Not moving then drags on the activity in the real estate sector in general, and also means people settle and stay in jobs rather than being geographically mobile, all else being equal. Another drag on economic growth. Hamptons close this article with a throwback to the 2019 Labour Party who suggested that the house price growth target could form part of the Bank of England’s remit - looking for a low but positive figure, below earnings, but meaning that market conditions don’t trap new homeowners. The lack of this, and indeed the moves made by Rachel Reeves as analysed in the past few weeks, mean that soon we will have a buoyant market which will iron out this problem for one election cycle or so. All it does, though, is kick the can down the road one more time unless the interest rate can be brought down by “good” factors, such as economic growth and confidence in the long-term future of the UK economy, or “bad” factors such as weak economic performance, increasing unemployment and even yield curve control (highly unlikely under this administration, I’d say - much more likely in the US which may have some filtering-through effects to the UK anyway!). There was one more report from the past week that I thought would also be worth sharing in context with all of these - and that was from Savills. They have revised their house price forecasts - the part that made the headlines was the revision down for 2025, from 4% down to 1%. There’s quite a bit more to it than that, though, as they see 24.5% as the number over the next 5 years. With that 1% in mind, they are effectively saying they see over 5% growth on average in the remaining 4 years of the forecast, so that’s fairly bullish. I agree with them. Not on the 1% - I think we will still eke out 2.xx% at the ONS for the calendar year 2025, once the results are in. I think they are still underestimating how much inflation drives house prices forward in a secondary way. This 24.5% is a higher number than the 23.4% they had predicted before, even though they have shaved 3% off this year - they’ve added 4% back on somewhere. This also isn’t congruent with their recent piece that was published around the impact of the relaxation of stress testing and LTI rules leading to the average borrower being able to borrow £28k more than they could before - their analysis there led to them concluding that 5% to 7.5% would be added on to the price forecasts. Or perhaps it is congruent - 3% off somewhere, but 5%-7.5% added on somewhere else. Still doesn’t quite add up, does it, but it is close. Sav’s expectations include another period of speculation before the Autumn budget impacting house prices in H2 2025, but also that having a negative impact on the consumer overall. I agree on the “bad news” part - I also think the consumer will have it harder this time around than businesses did last time around - but I’m not sure the first time buyers specifically will suffer much here, or the second steppers. If pensions and savings are hit - as is widely being speculated upon - home ownership will become ever more important, and the incentive to keep funds in an ISA will be watered down - but that will primarily hit the population over the age of typical home-moving events, apart from downsizing, in my opinion. Savs 5 year forecast year by year: 1% for 2025, 4% for 2026, 6% in 2027 and 2028, and 5.5% in 2029. The Labour Party would be delighted with that, I can promise you. They see transactions at 1.04m this year (which looks evidentially wrong already, the portal estimates of 1.15m will be much closer) and then moving up to 1.15m - 2m in the remaining years of this parliament. They also have the base rate at 3.75% by the end of 2025 (the current market prediction), and then 3% in 2026, and 2.5% in the remaining 3 years of the parliament. That would be a nice following wind for Labour, although I’m not sure the bond yields on the longs will appreciate those sort of lower rates, and they have GDP growth at 1.2% for 2025 (we would take that), 1% for ‘26, and then back more towards the OBR figures of 1.6%+ in the rest of the period. A fairly hopeful economy - or just an economy with the absence of a particular crisis to deal with, even if we have the slow-motion car crashes of ramped up defence spending (not good value for the population, economically, even if necessary), the population ageing, and the alarming trend towards disability benefit claims. They also go regional - with them predicting that the North West (which I’ve described recently as having a bit of a “stall”) moving up 31.2% over the period, and London lagging at 15.3%. I’m really not sure about this at all. I think the loosened mortgage rules benefit people in London an awful lot more - as will the lower rates, if indeed it plays out as Savs think (it’s possible, simply because we need the economic stimulus other than anything else) - and this just looks like a bunch of continuing trends rather than any original thought in this equation. Sure - London is unaffordable. Sure - if every rich person is leaving, blah blah blah. These are not real arguments made with true substance and data, though. They go on to talk about the key drivers here. First up is SDLT, and they say “underestimate a Brit’s love for a tax saving at your peril.” Spot on. However, their analysis really just shows that Q2 balanced out Q1, and notes that we can’t read too much more into it. That’s not out of line with what I’ve suggested over the recent months. They then discuss mixed signals from short term indicators (which has to be related to point 1, as well). Weak demand reported by RICS in the residential market survey (more accurately - not strong demand, just middling demand); if anything, their graphical representation of new buyer enquiries versus new sale instructions, from the RICS report - show things converging very much and setting up for a relatively even market from here, which starts from a base of having a LOT of stock in it, that much is true. Let’s see what the August clearout does, though, if new enquiries are going to start trending above new instructions (which, as noted in the real time section, have been losing steam over the past few weeks particularly) - if I was a betting man, I’d suggest July’s report will contain more enquiries than instructions according to RICS for the first time since August 2024. Savs do note Zoopla and Rightmove’s reports from May that the sales agreed were the highest in number for several years. In terms of beyond 2025, Savs lean as everyone does on affordability. Again, this classic “known truth” that isn’t actually as correlated to house price growth as availability of credit is, is just the sector being the sector. No-one challenges it - it makes sense, so they say it. The rest of the report does rather read like Savs have found the most dovish report they can cite - Oxford Economics saying that base is coming down to 2.5% in comparatively short order - and used it. They do note that Dave Ramsden, Deputy Governor at the Bank of England for Markets, noted that the use of the word “uncertainty” has moved from 20 times in August 2024 to 112 times in the May 2025 report. What they have definitely identified correctly in their analysis, both here and in their specific report about regulatory nudges and changes, is that the conditions are very much now created for a house price “acceleration”, even if it is not a full-on boom. If rates ARE to be dropping, AND that filters through into the 5-year bonds (we are nowhere near as sensitive to the long term bonds as the US market is, remember, because their mortgage rate is set by the 30-year bonds) - conditions for that shorter term look good, which feeds through into the housing market. So what did we learn? The bigger players in the market are bound to look to the likes of Savs, who are one of the very most well respected and very much one of the most prolific in terms of releasing research, to make their decisions. This report will attract yet further investment into UK residential property across the board, because those juicy 6% returns will attract attention. Hamptons made some good points about generational issues in home ownership, but it is fascinating to see just how much of the growth was swallowed up in mortgage payments for the silent generation and the boomers. They essentially all had unaffordable mortgages by today’s standards, but were saved by a booming market - that’s why when the wheels fell off in 1989 it was a long, long time before the recovery really bit (it took until 2002 for house prices, after inflation, to recover to those 1989 levels - 13 long years). We also learned just how stone dead the SDLT regime is killing the flipping market - not that anyone will do anything about that for years, if ever - and then that Hamptons are equally bearish about the 2025 housing market outturn. It is easy to be bearish, but as I’ve been saying, almost all the analysts are forgetting that inflation - last print 3.6%, expected to go upwards not downwards - has an impact, and in a world of 5%+ wage rises, which we have still been in for the first half of 2025, a 2%+ rise would not be unusual. Time will tell, there’s only 5 months until Xmas folks, for example (yes, I went there). Before I do close, don’t forget to book your SUPER EARLY BIRD tickets to the next Property Business Workshop that Rod and I are running on Wednesday 1st October in central London. This time around - investment metrics and how to run your property business at scale. My favourite topic of all! Book here: http://bit.ly/pbweight Above all - please remember to Keep Calm, ALWAYS listen to or read the Supplement, and Carry On; there will be opportunities abound this year and towards 2030 and beyond - the landscape has been set for a surefire bull run. It will be slow(ish), and take a little while longer to get off the ground - and the amount of stock around is still keeping things suppressed at the moment - but as yields currently continue to improve, it is a case of “here we go” in my opinion.

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