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Insights

The new property battleground – semi-detached homes

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Landlords are targeting semi-detached homes over terraced houses for the first time, but with limited stock availability and strong competition from residential buyers, they face a challenge to purchase. Paragon Bank’s Managing Director of Mortgages, Richard Rowntree, assesses the situation.

According to Paragon’s latest quarterly research, landlords want to buy semi-detached property more than any other housing type this year.

Of those looking to purchase during 2022, four in 10 landlords said that they were targeting semi-detached homes. This is the first time this percentage has been above terraced housing (just below at 39%) since the survey began over 10 years ago and reflects a steady increase from the start of the pandemic when 33% of landlords said they intended to buy semi-detached homes.

Detached property has also grown in popularity, rising from 9% of landlords planning to buy detached homes during the second quarter of 2020 to 18% in the latest survey.

I believe there are three elements to this increase in demand for larger properties. First is the well-covered ‘race for space’; tenants generally want larger homes if they are going to be spending more time in them working. As opposed to setting the laptop up on the kitchen table, they want a spare room that they can maybe convert into an office.

Linked to this, the predicted end of five days a week in the office has freed workers from the daily commute. They don’t have to live so close to a workplace if they are only travelling in once or twice a week.

Second, is that we have seen a growing number of households living in major cities selling up and looking at new locations that perhaps offer a bit more green space. Many families don’t want to immediately buy so they are turning to the rental market to test a new town or city out.

Third, the looming changes to Energy Performance Certificate minimum requirements (only proposals at this stage) could already be impacting landlords’ purchasing decisions. Terraced homes are typically more difficult and expensive to upgrade to meet the minimum EPC C level than their semi-detached or detached counterparts.

As always, there is a difference between intention and action and, proportionally, we have not yet seen a significant swing towards semi-detached homes. Looking at UK Finance data, 17% of new buy-to-let house purchases in the first 11 months of 2019 were semi-detached homes, rising to 17.6% for the same period last year.

Terraced house transactions rose from 42% to 43.5% during the comparable years, highlighting that landlords continue to turn to the classic private rented sector staple home. Flats seemed to be the largest faller, dropping from 32% of transactions in 2019 to 30% last year.

A barrier to purchasing a greater proportion of semi-detached and detached housing is likely to be simply down to stock availability. Semi-detached homes appear to be the new housing market battleground, with Hometrack reporting three-bed properties are the most in demand.

The property market has suffered from a stock drought for over 12 months now, and our inhouse surveyors report there is typically a queue of ready buyers lined up for any decent home that becomes available, including landlords and residential buyers.

The latest Hometrack survey shows there has been some slight improvement in this situation as we enter the new year, but stock levels remain 44% lower than the five-year average.  

The sheer level of activity, with 1.5 million sales in 2021 – the highest number of transactions in any year since before the financial crisis - has eroded supply and it will take some time for that to normalise.

That means that competition for larger semi-detached and detached homes will continue to be intense for some time to come.

Richard Rowntree
Managing Director for Mortgages