This week, we will unpack some finer details of the proposed Leasehold and Freehold Reform Bill and how unforeseen issues are already being foreseen. These are the unintended consequences of noble endeavours that may seek to derail the plans; however, firstly, a hasty jaunt around the good news stories of the day, as we never waste an opportunity to press home a good news story.
According to a report in the Guardian, UK house prices rose 2.5% in the year to January, which would account for the most significant increase since January last year. This data has come from Halifax, who, in their latest reporting, indicate that mortgage rate reduction is now directly increasing completions. This is a positive indicator, as in prior months, we have worked under the assumption that supply constraints have been the overriding factor in stabilising prices. Nationwide has also adjusted its seat position on the proverbial fence to whisper things are "more positive" in the ear of Fleet Street based on a 0.7% price increase in January. With the media hanging on every word the chief economists say, the challenge is to attempt to be neutral, so of course, something as outlandish as "more positive" is taken as "we are out of the woods and off to the races once again".
Finally, fantastic industry commentators' The Intermediary' reported this week on the latest set of RICs data, their January 2024 reporting showing buyer demand and agreed sales have increased, with buyer demand increasing by over 7%. This again highlights our earlier point: we don't want to see an artificial market where asset prices are high because of limited supply and no bid; we want to see asset prices bidded up in a busy customer-led market, which there are now initial indicators of that returning. The article also references easing house price declines, focusing on London, where increased buying activity has begun stabilising prices.
Onto the day's main story, our attention was drawn this week to the written evidence submitted on behalf of the Pensions and Lifetime Savings Association regarding the potential issues surrounding the Leasehold and Freehold Reform Bill. In a published letter, the PSLA outlines that they currently curate 1.3 trillion worth of pension schemes in the UK and abroad. They make the point that a yet undisclosed portion of these pension funds has been invested into what is described as the "residential ground rent market", hunting for returns, and in removing that market, there will likely be a shortfall in pensions and danger of significant reputational damage around the globe. This poses a fascinating and challenging ethical dilemma. As we shuffle onto the fence with the economic commentators referenced above, we will attempt to address both sides of the dilemma fairly. The concept of pension fund managers seeking returns in that sort of market plays directly into the public fears around the abstract idea of neo-feudalism and an economic ruling class becoming the land barons of the shire; it also fuels the exploitation narrative and raises questions about sovereignty and ownership when it comes to leaseholds without any form of benefit.
However, as always, the argument is infinitely more complex than that; in recent years, liquidity demands, high interest, and rising inflation are forcing pension funds to diversify, yet they face simultaneously conflicting regulatory pressures for diversifying into alternative asset classes. These funds have had to take positions in something, and the people they represent are everyday working people, arguably the same people the proposed legislation is trying to protect. There is a danger in demonising fund managers attempting to find a market when their primary concern is getting the returns they need for the pension holders. Given the profitable nature of that kind of industry, some will read that last sentence visibly wincing with cynicism; however, a fresh start approach rarely works in the interwoven world of complex finance, so we must consider past events pragmatically when deciding what to do next.
Whichever side of the debate you come down on, our primary focus is assisting our clients in building the best product and best houses for the market, and we also agree with the government that if nothing is done, it will leave millions of leaseholders in an unequal and skewed regulatory environment, and with limited access to redress. So, ultimately, our point here may be that we agree with reform, of course, but there must be some considerations for the unintended consequences.
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