INTEREST RATES

There is little doubt that the macro‑economic and policy outlooks were critical to the relative strength of the residential auctions market in 2024. And with all eyes on the path for interest rates, and the pace at which government regulation is introduced, they look set to be the main drivers of supply and demand in 2025.

Last year the taming – if not complete conquering – of inflation, along with two cuts in bank base rate and a relatively stable mortgage environment, all contributed to relatively healthy mainstream house price growth of 4.7% (according to the Nationwide) as overall buyer demand stood up well to the uncertainty that invariably surrounds a general election.

POLITICAL MANOEUVRING

At the beginning of last year, our fear was that an autumn general election would restrict the positive impact of prospective cuts in bank base rate upon sentiment in the second half of the year. Those fears were eased as the country went to the polls much earlier than expected.

However, as Labour’s first budget approached, so too did the political rhetoric around budgetary black holes and the need for the new chancellor to make “difficult financial decisions”. The success rate in the auction room mirrored this. It was slightly higher in the first five months of the year than the last seven, though without really showing much sign of being the ailing canary in the housing market coal mine.

BUYERS SURVEY

Our inaugural auctions survey, conducted in the final months of 2024, suggests that appetite to buy remains fairly finely balanced as we enter 2025 – particularly among residential investors and redevelopers.

That reflects lingering economic uncertainty following a budget that has done little to stoke business or consumer confidence. It also reflects a budget that brought forth an additional 2% stamp duty land tax surcharge for those buying an “additional home”, which, if nothing else, is likely to mean that serial buyers at auction retain their laser‑like focus on what represents good value in 2025.

Looking forward to 2025

A TIGHTER REGULATORY FRAMEWORK FOR INVESTMENTS

Political change means private landlord investors are bracing themselves for a tighter regulatory environment. This reflects both the swift passage of the Renters’ Rights Bill through parliament and government aspirations to increase minimum energy efficient standards on let properties. Both measures are likely to bring stock to auction this year from those looking to cash in on historical investments that, despite the recent burst of rental growth, no longer deliver the returns to warrant their retention – thus widening the divide between smaller amateur investors and larger, more professional landlords.

We expect to see institutions and corporate investors favour single family houses over larger blocks of flats. Houses are likely to attract more stable longer-term tenants and are easier to build within the prevailing restrictive planning system. Whilst this may add depth to the pool of buyers for development land, institutions and corporates will be unlikely to buy existing units in a granular way at auction.

We are more likely to see existing portfolios purchased privately and then pruned, resulting in surplus stock entering auction catalogues in individual lots.

THE RENTERS’ RIGHTS BILL

The Bill is expected to become law by the summer of 2025 and understandably, whilst tenants delight, landlords are concerned about how the proposed changes will affect their ability to manage and/or recover their properties. When enacted, the Bill will challenge the sector with the removal of rental bidding wars, the introduction of rent caps for one year and no-fault evictions.

In addition, landlords face cladding requirements, penal ground rent structures within existing leases – and their impact on funding – and higher living costs impacting tenant affordability.

With the private rented sector becoming increasingly regulated, it is likely that many landlords will leave the market or turn to less regulated and more profitable sectors, such as Airbnb. This may impact the housing crisis further as there will be fewer properties available for rent. In addition, whilst section 21 notices still exist, we may see an increase in possession actions in the short term.

PUBLIC SECTOR & SOCIAL HOUSING

Local authorities and housing associations are likely to continue to bring to the market stock which compromises their commitments to reach net zero or meet building safety obligations without substantial investment.

MORTGAGORS AND MORTGAGEES

We do not, however, expect to see much of an increase in stock from lenders, whose mortgagees have benefitted from the tightening of mortgage regulation in the mid-2010s. Their proactive approach to help borrowers work their way through a period of elevated interest rates has kept a lid on repossessions. And, as we move into 2025, we are going to see a fall in the numbers facing an increase in mortgage costs as their fixed rate deal comes to an end. While those coming off a five-year fix will still face an uncomfortable increase in outgoings, they have now had some time to plan for this.

Meanwhile, the prospect of further rate cuts will ease some of the pain. And those coming to the end of a two-year fix are likely to benefit from an easing in mortgage costs, having already had to face up to the financial implications of higher housing costs at their worst.

PLOTTING FOR DEVELOPMENT

Development opportunities will remain sought after but will be very sensitive to pricing.

On a positive note, although 2024 continued to see the land market affected by higher costs of building materials, indices show that costs have begun to stabilise or fall.

Meanwhile, the government’s ambition to increase substantially the delivery of new housing – primarily through reform of the planning system and local level housing targets – will bring more small development plots into play, as opportunities to unlock the ‘grey belt’ are pursued. Whether they deliver the value aspirations of their owners is perhaps less certain, given the prospect of higher affordable housing requirements and corresponding viability challenges that the auction ‘room’ is uniquely placed to price in.

Moreover, 2025 will see land values – and therefore demand – affected by more onerous section 106 and CIL (Community Infrastructure Levy) requirements as the government seeks to increase the affordable housing supply.

INCREASING INTEREST RATES

Housing policy has the potential to shape the composition of supply and demand in 2025 but, above all, the strength of demand is likely to be determined by the underlying economic environment.

Whilst our buyers survey tells us that there is an abundant supply of cash purchasers, the path of interest rates remains crucial to the depth of demand in 2025. Although further rate cuts are expected in 2025, the extent and pace of rate cuts remains uncertain. As they occur, they will widen the pool of mortgaged buyers and their buying power, with a knock-on impact on the commitment of other buyer groups. As things stand, it is more likely that this will progressively increase the flow of demand for residential property over several years rather than open the floodgates. Against this context, we are forecasting general house price growth of 4.0% in 2025, gathering pace into 2026.

HIGH YIELDERS POPULAR

For the time being, in this comparatively elevated interest rate environment, higher-yielding assets are likely to be sought after. Buyers will find ‘yield’ for example in houses in multiple occupation (HMOs), hostels, and single or multi-let buildings in lower-value locations.

VACANT SINGLE HOUSES & FLATS

This category of asset has always remained popular at auction and interest has been fuelled by TV shows such as the Homes Under the Hammer. First time buyers, downsizers, second home seekers, private developers and dealers are the leading players on this stage. The opportunity to add value is critical, so realistic pricing is key.

The seller’s capacity makes a huge difference to appeal and bidders will continue to respond to sales advertised on behalf of housing associations, local authorities, executors and mortgagees. These sellers understand the impact on demand of realistic pricing and a demonstration of commitment to the auction process.

Failing REITs (Real Estate Investment Trusts) will continue to swell the supply of single units as asset managers and administrators seek an efficient exit for distressed stock.

GROUND RENTS

This has become a challenging market for sellers due to recent and impending legislative reform. The Leasehold Reform (Ground Rent) Act 2022 abolished ground rents for most new residential leasehold properties in England and Wales. The Act came into force on June 30, 2022. The Leasehold and Freehold Reform Act 2024 has been passed but is not in force in its entirety. It will ban the sale of new leasehold houses and remove marriage value in the calculation of leasehold enfranchisement pricing. Reform firmly favours tenants. Investors have been deterred and values are consequently impacted. That said, investor demand remains – but lower YP multiples are here to stay.

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_{Read the articles within Auctions Review 2024 & Outlook 2025 report below}