UK housing: Remove the mavericks and stabilise the property market
The wave of financial services regulations introduced over the last five years has caused deep changes in the way we invest in various asset classes, from equities and fixed interest securities to cash – yet the property market seems to have escaped the regulation firing line.
According to the Investment Property Databank (IPD), residential property has been the best-performing major asset class in the UK, offering the highest returns and second-lowest risk after government bonds between 2001 and 2014.
The attraction of investing in bricks and mortar is clear and unlikely to change any time soon: demand for property is reaching fever pitch as the population increases, more people live alone and we are simply not building enough homes.
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But whereas those investing in almost any other type of asset would be protected to a certain extent by the fact that their advisers would be conforming to certain standards, there is very little regulation in the property sector.
Just as the introduction of regulation in the financial services sector came as a reaction to the financial crisis, lack of regulation in the property market could ultimately be a contributing factor to a broken property market.
Estate agents have always faced criticism for their conduct but if you dig a fraction deeper, it is not hard to see how, without proper regulation, their behaviour could be causing unnecessary house price inflation.
Even commonplace sales tactics such as holding open days to intensify buyer competition keep pushing prices ever higher.
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The National Association of Estate Agents launched a manifesto earlier in the year addressing the problems of the industry and how there is a need for greater regulation. While the body has the right intentions, such changes need to be embraced by the entire industry, cultivating a healthy, honest culture where buyers and sellers can trust the professionals in the market.
The lettings industry is where the cowboys are really running wild as the private rented sector is so poorly regulated. It is incomprehensible that letting agents, managing trillions of assets on behalf of landlords, have no fiduciary duty not to profit from their relationship with their landlords.
A lack of awareness and understanding of the terms means many investors and amateur landlords are unaware of the small print contained in most agreements which sees them forking out huge amounts on renewal fees, mark-ups on contractors’ invoices, unexplained ‘admin fees’ and what can only be described as ‘secret commissions’.
To make these costs stack up, landlords are pushing rents higher and higher across the country, which in turn is preventing first-time buyers from being able to save for deposits to make that all-important step onto the property ladder.
And ultimately this is where the natural market movements of demand and supply have been distorted. The instability of the property market is partly the responsibility of the industry itself – and similar to the bonds and equities markets, the property industry is now crying out for regulation.
This will bring more transparency and integrity to the market for buyers, sellers, investors and tenants alike, weeding out the mavericks that property investors unwittingly allow to look after the country’s highest-performing assets.
Ultimately it will bring a sense of equilibrium to this disjointed property market.