"Inflation is the one form of taxation that can be imposed without legislation." - Milton Friedman
The quote pertains to the cycle that we are now back in, very much - and as I’ve said many times over recent years, the biggest beneficiaries of inflation are the Government (with property investors in a distant second!).
As we charge headlong through the biggest change in housing law in 38 years, our next Property Business Workshop is live and tickets are already selling. This is about due diligence - and REAL due diligence - performed on you by lenders and prospective investors, as well as what you should be doing on potential business partners and - most importantly - property deals. Book in on the next Property Business Workshop with myself and Rod Turner - Wednesday 1st July - Central London - https://tinyurl.com/pbweleven
Welcome back to Trumpwatch. I wonder if this section will ever be a quiet one? I strongly suspect not. The past seven days have seen a frankly exhausting pendulum swing in US-UK relations - veering wildly between high-ceremony backslapping and blunt-force economic extortion. The "special relationship" is in the toilet - not quite round the U-bend, but currently defined by a schizophrenic carrots-and-sticks approach from the White House, and Keir Starmer is the one getting bruised.
Let’s start with the carrots - or rather, the liquid gold. In a rare win for the UK, Mr T announced on Friday, May 1st, the complete lifting of the 10% tariff on Scotch whisky. This levy has drained roughly £150m from the industry since last year, so it's a massive relief. The interesting part? Trump explicitly credited the "soft power" of King Charles III during the recent state visit for the move. The King and Queen Camilla wrapped up their US tour this week, with Trump hailing the monarch as "the greatest". It was a royal charm-fest.
But here is the unsurprising part: the jovial tone with the Palace doesn't translate to Number 10. Trump recently mocked Starmer as "no Winston Churchill," and UK officials are deeply skeptical this regal diplomacy will thaw that incredibly icy relationship.
Because right next to the whisky carrot is a massive, tech-flavoured stick. Despite the concession, Washington is now threatening a brutal new "big tariff" - potentially up to 25% - if the UK doesn't immediately scrap its Digital Services Tax on the US tech giants. It is classic face-up poker from The Donald. The British Chambers of Commerce (BCC) are so panicked they’ve urged Starmer to develop an EU-style "trade bazooka" - a legislative weapon to retaliate against economic coercion. What are you going to do about it, to quote the vernacular?
Interestingly, Reform is talking about scrapping business rates for retail and loading it all onto online retailers with a doubling of the digital services tax (I’m not sure that all adds up, but nonetheless - you can understand what they are trying to achieve. The tax regime in bricks and mortar versus online is definitely wonky). Doubling the tax would - you would think - upset Mr Trump twice as much. The likely scenario is that Mr Farage and Mr Trump don’t cross over in terms of their terms, if indeed the former is the winner at the next election - and there’s plenty of other scenarios to explore yet.
The real-world economic damage of this protectionist era is already baked in. New ONS data released on Friday revealed that UK goods exports to the US have cratered by 25% since "Liberation Day" (the start of the 2025 US tariff regime). Slumping car and machinery exports mean that, for the first time in recent history, the UK is running a sustained trade deficit with the US. "Won affordability," he claims. Tiring, isn't it?
Then there's the geopolitical brinkmanship. Tensions have spiked over London's reluctance to throw the kitchen sink at US-led military operations in the Middle East. Trump issued a series of rhetorical broadsides this week, blasting the UK for not being "muscular" enough in the Strait of Hormuz. To underscore the threat regarding burden-sharing, he ordered the withdrawal of 5,000 US troops from Germany as a direct "warning" to Europe.
If that wasn’t enough to rattle the diplomats, a leaked Pentagon memo surfaced suggesting the US should reconsider its support for "European imperial possessions" - explicitly naming the Falkland Islands. The State Department tried to brush it off as "just an email," but for a UK government already anxious about a highly transactional US foreign policy, it is a nightmare scenario.
The macroeconomist in me looks at this transatlantic chess match and sees one thing: instability. The US is dictating the terms of global trade and security, and right now, those terms are fundamentally protectionist and incredibly expensive. The yields, for example, are not only rising but they are also volatile on the back of all of this.
Phew - stepping away from the transatlantic macro-storm, let’s get back to the brutal reality of the real-time UK property market…
As is customary, Chris Watkin has been relentlessly crunching the portal numbers and then publishing them at Property Industry Eye. His analysis for Week 16 of 2026 is where the rubber meets the road. If you want to know how the macroeconomic gridlock translates to the local high street, look no further.
Let’s start with the supply side, which remains frankly astonishing. 40,200 new properties came to the market in Week 16. The Year-to-Date (YTD) supply pipeline now sits at an enormous 593,000 listings. That is roughly on par with last year, but a massive 16.9% higher than the pre-COVID 2017–2019 norm. My year-plus adage of “10% more stock than a normal market” ready reckoner is rising, if anything. Homeowners and exiting landlords are exceptionally eager to sell.
But are they actually selling? That’s the £64k question.
On the demand side, Gross Sales (Subject to Contract) held incredibly firm at 26,400 for the week, beating the 10-year average of 23,200 comfortably. YTD, we’ve seen 394,000 gross sales, 12.3% above pre-COVID norms. People are still moving. The underlying demographic drivers - the classic 'Five Ds' of death, debt, divorce, downsizing, and diddy ones - continue to churn away, entirely indifferent to Iranian naval mines. Net sales are also playing ball, printing at a very healthy 20,600 for the week.
However, the friction between these willing sellers and eager buyers is immense, and it’s captured perfectly in two glaring metrics: the pricing gap and the withdrawal rate.
The gap between the average listing price (£455k) and the average sale agreed price (£363k) has widened to a frankly absurd 25.2%. The long-term historical average is 16% to 17%. Sellers are coming to the market high on 'hopium', facilitated by desperate estate agents who are buying instructions with overinflated valuations.
Chris highlights this exact toxicity, noting that a staggering 46.6% of homes that left agents' books in March were withdrawn unsold. Almost half the market is failing. Agents are locking vendors into draconian 20-plus week sole agency contracts based on fantasy valuations. As Chris rightly points out in his commentary: a long contract doesn't protect the seller; it simply protects the agent while they spend months chipping away at an unrealistic asking price with "salami style" reductions.
The mechanism resolving this friction, as always, is price reductions. There were 25,600 price reductions in Week 16 alone, which at that pace sees well over 100k/homes/month reduced in price.
We are also seeing some of the macroeconomic tension bleeding into the pipeline. Fall-throughs jumped to 5,793 this week, pushing the fall-through rate up to 25.8% (breaching the 24.5% long-term average). As swap rates twitch and mortgage lenders reprice upwards, buyers at the margins of affordability are being forced to pull the plug.
The Takeaway: As Chris concludes, buyers have choice, and when buyers have choice, pricing gets exposed quickly. The market is functioning well, but power remains firmly with the buyer. As an investor, that massive 25.2% listing-to-sale price gap is your hunting ground. Do not overpay. Let the delusional sellers withdraw, and focus your capital on the motivated vendors who understand that the 2026 market demands strict, brutal realism.
One piece of bonus content from Chris this week which didn’t make the main article was also a piece on the price and sales prospect of flats. As of March 2026, 27% of all homes for sale were flats. 18.1% of homes SSTC were flats. Now - we need a little bit of caution here. We know London is performing poorly and the sales rates as a percentage in London are far lower - it's absolutely where overpricing is at its most rife. Still - this is the biggest gap in this number for over 3 years. Flats are limping and making the figures look worse than they are.
Chris - this is my weekly appreciation paragraph. Thanks for what you do! If you want some help positioning yourself as a local market expert - as an estate agent or any form of property professional - give Chris a shout! Either way give his channel www.youtube.com/@christopherwatkin a follow and some love, please!
The macroscope opens its sights one more time, then. We had the Nationwide House Price Index and the Bank of England Money and Credit Report - both are mainstays. Zoopla’s House Price Index was also out - so I cover that in the Nationwide section. Given the seismic week in terms of the history of housing law in the UK (alongside anything else) - we look to Scotland and their Landlord Register data as well, to see what 8.5 years post-section 21 removal is looking like up there. Then - you know it - the gilts and swaps, and another tough week to report on.
Let’s kick off the Macro section, then, with the indices. If you want a perfect example of why you should never just read the headlines, this week's data drop from Nationwide and Zoopla is exactly that.
First up, Nationwide. Robert Gardner and his spreadsheet warriors reported that UK annual house price growth actually picked up to 3.0% in April, a noticeable jump from the 2.2% recorded in March. The month-on-month figure nudged up 0.4%, putting the average UK house price at £278,880. Gardner sounded almost perplexed in his commentary, noting that the housing market has continued to regain momentum despite the geopolitical chaos in the Middle East and the subsequent rocket strapped to wholesale energy prices.
Why is he confused? Because the consumer confidence metrics are in the toilet. Nationwide rightly points out that GfK’s headline index has plunged to its lowest level since late-2023. Buyer enquiries are falling off a cliff. Yet, prices are rising. Nationwide’s thesis is that the market is being propped up by resilient household finances - aggregate debt is at its lowest level relative to income for two decades - and the fact that while swap rates are currently bleeding out, they are still comfortably below the panic-stations of 2023. It’s not a booming market; it’s a low-transaction, supply-constrained grind.
What have they missed? As they usually do, and this is by no means constrained to Nationwide - they have ignored inflation. The real terms fact of the matter is - these prices are dropping once adjusted for inflation (on any of the handles you could choose) or once adjusted for wages. The nominal rise is simply a case of not concentrating on the right metric, as we see so often.
Then we look at the UK House Price Index report from Zoopla, which gives us the granular reality. Richard Donnell’s headline number sits at a much more sober 1.3% for UK house price inflation - and it has regularly sat underneath the ONS number - which has to be seen as “the number”, since it includes all transactions - for some years. But the truly fascinating metric is the time to sell: 33 days, which is merely 1 day longer than last year. This tells us a crucial truth about 2026: highly motivated sellers who price realistically are finding buyers at basically the same pace as last year, completely absorbing the twin shocks of global conflict and higher mortgage rates.
But beneath that national average is a brutal, structural North-South divide that I’ve spoken of many times in recent months and years.
Up North, it’s a seller’s market. House prices are rising fastest in the North East at 3.2% year-on-year, closely tracked by the North West at 3.1% and Scotland at 2.6%. Northern Ireland is off the charts at 6.7%. In fact, every single city in Zoopla's index showing house price increases above 3% is in the North. Burnley, Blackburn, Rochdale, Liverpool - buyers here have less time to dawdle because the well-priced stock is shifting fast.
Down South, it is a completely different, thoroughly miserable story. Every city in the index experiencing annual price falls is located in southern England. Hastings leads the race to the bottom at -2.6%, followed by Worthing at -2.0%, with Bournemouth and Cambridge both printing at -1.2%.
The pain is highly concentrated in London’s first-time buyer markets. Across the capital, properties are taking 6 days longer to sell than a year ago. In Harrow, sellers are enduring a staggering 54 days on the market - a massive 65% increase from last year. The commuter belt is similarly choked; Slough is up to 46 days. Zoopla hits the nail on the head regarding the cause: 4 in 5 first-time buyers in London pay stamp duty equivalent to 3% of the purchase price. Compare that to the rest of the UK, where fewer than 1 in 10 pay stamp duty, and it's less than 1% of the cost. Add the newly elevated swap rates to that 3% tax hurdle, and London’s FTB affordability is utterly broken. Stamp Duty - the tax on the South.
As for the broader market plumbing, activity levels are functional but lagging. Sales agreed are down 3% year-on-year, while buyer demand is down 2% - though it did see a notable rebound post-Easter. I once again have to remind you of last year’s stamp duty changes on 31st March, which are still polluting figures up to this point on reports like this one which have a lag in them of a few weeks. We also have 5% more stock sitting on the market, meaning buyers have the luxury of genuine choice, according to Zoopla (Watkin’s number for 1st May will be out in next week’s report). Meanwhile, the flow of new supply has dropped 4% as some sellers clearly take stock of the grim macroeconomic reality.
The takeaway for the ruthless capital allocator? If you are disposing of stock in the South, bin the 'hopium' and price to sell, or prepare to sit on the portals for a very long time. If you're acquiring in the North, the yields might be getting squeezed by that capital growth, but the liquidity and transaction speed are undeniably solid. I wonder just how many landlords in the South of England are somewhat trapped in the “would like to sell, not going to give it away, really don’t want to rent it at the moment but am going to have to and go through at least one more cycle to see if the market improves” trap. More than a few, I’d wager.
Let's crack on with the second macro drop of the week: the Bank of England’s Money and Credit report for March 2026. If the house price indices give us the mood music, this data gives us the actual plumbing of the UK economy - and there are some fascinating pressure points building up.
Starting with the housing plumbing, the headline mortgage approvals for house purchases actually ticked up to 63,500 in March, rising from 62,700 in February. This puts it just above the six-month average of 63,200. Net borrowing of mortgage debt also showed surprising resilience, increasing to £6.2 billion in March, which is comfortably above the previous six-month average of £4.9 billion. I’ve spoken over the recent couple of years about how 65k approvals marks a healthy market - and we are just shy of there, but not quite far enough to be of any genuine concern. Just slightly lower than we would like.
But the truly frantic activity is hidden in the remortgage data. Approvals for remortgaging with a different lender surged to 51,300 in March, a massive jump from 41,200 the month before. Borrowers are clearly scrambling to lock in terms and jump ship to better deals. Interestingly, despite the broader macroeconomic panic, the effective interest rate paid on newly drawn mortgages actually decreased slightly to 4.03% in March. Meanwhile, the average rate on the outstanding stock of all mortgages sat at 3.93%, down a fraction from 3.95% in February. The brokers did their jobs - getting their clients locked in on reasonable rates before the surge in March as lenders withdrew products. The lenders? Still fine, of course, because the funds were secured at “old” rates to offer products, not “mark-to-market” rates.
The irony? Since March’s activity mostly happened at the pre-war rates, the newly-drawn mortgage rate sat at 4.03%, with the outstanding stock now averaging 3.93%. A mere 10-basis point difference. Just as we were getting to the inflection point, this will now be drifting apart on future reports until the war-sponsored enhanced bond yields settle down.
Looking at the everyday consumer, the unsecured credit figures remain a glaring warning light. Net borrowing of consumer credit was £1.9 billion in March. While that monthly figure is a slight decrease from February, the annual growth rate for all consumer credit climbed to a spicy 8.9%. The squeeze is particularly visible in credit cards, where the annual growth rate is sitting at a hefty 12.3%. Net borrowing on credit cards alone accounted for £0.7 billion in March. These sorts of growth rates are not sustainable - Covid saw a huge pay-down of this sort of debt, but Covid has been over for some years now. A sign of the cost-of-living crisis? A factor, of course.
In a classic display of a two-tier economy, those with capital are aggressively protecting it. Households deposited a net £5.5 billion with banks and building societies in March. A massive £4.4 billion of that was funnelled directly into ISAs, with another £3.0 billion shoved into interest-bearing sight deposit accounts.
On the corporate side, businesses are leveraging up. Small and medium-sized non-financial businesses (SMEs) borrowed a net £2.0 billion in March, which is a significant jump from the £0.5 billion borrowed in February. Large non-financial businesses also ramped up, borrowing £5.0 billion.
To round it off, the broader money supply metrics showed some heavy inflows. The net flow of sterling money (M4ex) increased to £22.1 billion in March, a sharp rise from £14.2 billion in February. The flow of sterling net lending (M4Lex) also swung wildly positive, printing at £20.8 billion in March following a £2.8 billion contraction the month prior. These money supply prints lead to one conclusion - inflation. We know it’s back - we know it will be down to the length of the war, more than anything, in terms of just how out of control it gets (and more on this in the Bank of England meeting report section!)
The Takeaway: The UK consumer base is currently a tale of two extremes: aggressively funneling billions into ISAs on one hand, while racking up credit card debt at a 12.3% annual growth rate on the other. For the property investor, the surge in remortgage approvals proves that borrowers are not sitting on their hands - they are taking defensive action right now.
Next up is a bulletin-style section. There isn’t a report associated with this - just the raw data published by Scotland, and my take on it. Scotland showed a trend which I suspect can be lifted towards England as a predictor of when the RRB has truly settled down (and who knows - one Reform promise is to repeal the RRB if they get elected). The YouGov weekly polling shows Reform at 26%, Cons at 19%, Lab at 18%, Green at 15%, Lib Dem at 13% and Other at 6%. Other polls are available - of course - but the Greens have polled as high as 21% (2nd March), and Reform as high as 29% (a couple of times, both in 2025). The Conservative number is steady, and Labour - as you can imagine - have steadily declined since 2024. Their low point has been 16%.
Scotland removed their section 21 on 1st December 2017. There are differences - it wasn’t the full gamut of the Renters’ Rights Act but they did also make every tenancy periodic. It’s by far the best case study “in anger” that we have, especially because it is just on our doorstep. They also have the landlord registration to consider - another delight that’s heading our way as part of the Act. What this does give us is data - and I’ve rented units in Scotland before and after 1-Dec-17, so I also have some on-the-ground real insight to offer.
So - the numbers that came out this week? The number of registered landlords fell by 6,228 (-2.6%) in the year to March but the number of registered properties increased by 216 (+0.1%).
I often speak of not drawing conclusions from one set of data. This is a classic example of that, of course. However - this has broadly been the direction of travel. One word. Consolidation. Fewer landlords, a very similar number of registered rental properties. Supply not growing, but becoming more concentrated in the ownership of fewer people - or, more accurately, fewer corporate bodies, of course.
Good - that’s what you hear from the uninitiated on social media. Fewer landlords - more homes for first time buyers! Great. This DOES - a bit like right to buy - favour the people in the market right now. Buyers push back against ever-increasing rents by buying their own and getting on the ladder. However - how does this track back to a growing population, or a growing rental market?
This Scottish data goes back to January 2022 - when there were 239,566 registered landlords in Scotland with 339,525 properties. 1.42 properties per landlord. The number in England looks closer to 2 properties per landlord, but the data is less than perfect.
There’s still been supply growth - March 2026’s numbers are 230,250 landlords (down 3.9% in 4.3 years) but 351,370 units - up 3.5%. If these numbers are a fair reflection (and they only go back to 2022, not 2017/18) - then we might be waiting a long time. In the background, the rough population increase since Jan 2022 has been 2% or so. The argument for repealing the RRA weakens in the face of the data……
Finishing up for this week - the gilts and swaps. Fairly fugly as we are through the 4.5% ceiling on the 5-year yield, through the 5% ceiling on the 10-year yield, and through the 5.5% ceiling on the 30-year yield. Having said that, we did close the week at 4.492% on the 5-year gilt, from an open at 4.474% - a tiny increase. The swaps touched 4.3% in the week, and clipped back to more like 4.2%. The current 6-month best guess for 5-year mortgage debt is 6% at its most charitable, and stress tests are indeed wise up at the 7% level.
The reality is that we keep hearing how damaging that the war will be - and it is having dramatically different impacts in different parts of the world - but are still waiting for the next terrible event and then the markets will react. Or - a solution that sees Hormuz moving again. It’s difficult to speculate. The 30s look very much like the 5s, but 1.15% stronger yielding - at 5.65%, I do wonder if retirement beckons (only kidding folks, don’t worry, but that IS a strong return on a genuinely passive instrument, that’s for sure).
As a round-up - oil is up 75% year-to-date. There could be a fair bit more to come. Heating Oil is up 100%. Coal is up 25%, which you don’t see publicised a lot. Gas is up 50%, but of course demand has cratered due to weather in the Western world compared to 1st Jan. Inflationary stuff, but what’s to follow - all I can say is don’t worry about what we can’t control.
OK - deep dive time. We have to start with the Bank of England meeting and the associated Monetary Policy Report. The meeting went pretty much as expected. L&G have launched a partnership model for affordable housing - we will take a look at the report that promises up to 800k new affordable homes over a decade. How’s build-to-rent going? Knight frank report on the first quarter of 2026. Last up - development land values, and Knight Frank’s take on them for Q1 as well.
Bank of England time, then - they held the rate as everyone expected, and only 1 voted to increase - although the 1 is Huw Pill, the Chief Economist, in many ways the most influential member of the committee.
Theme 1: The Energy Shock and Inflation Resurgence
The Summary: In its April 2026 Monetary Policy Report, the Bank of England highlights a sharp reversal in the inflation outlook due to the conflict in the Middle East. Disruption to the Strait of Hormuz has triggered a global energy supply shock, pushing the Brent crude oil price to a peak of $119 per barrel, while UK wholesale gas futures rose by 37%. Consequently, CPI inflation reached 3.3% in March and is projected to climb further in the near term. The Bank notes that this upside news is primarily driven by immediate increases in motor fuel prices and impending rises in household utility bills. Furthermore, these higher energy costs are expected to feed indirectly into food and core goods prices as firms pass on their increased operational and transport expenses.
The Propenomix Perspective: Well, that did not take long. Just three months ago, Threadneedle Street was patting itself on the back as inflation drifted toward the magical 2% target. Now, geopolitics has thrown a massive spanner in the works, and we are back to staring at energy supply charts. The Bank is correctly identifying that they cannot print oil, but their models still rely heavily on futures curves that can turn on a dime. I am looking at the pump prices, and the real-term inflation hitting consumers is immediate and brutal. The headline index says 3.3%, but when you factor in the crack spread exploding and diesel prices rocketing, the reality on the ground feels far worse. The Bank will want to look through this direct energy hit, but history tells us they usually panic if the media cycle gets too loud.
Theme 2: The Squeeze on Real Incomes and Demand
The Summary: The energy supply shock is heavily impacting domestic demand, with the Bank projecting a 0.5% fall in real post-tax household disposable incomes in the year to 2026 Q2. Underlying GDP growth remains highly subdued, estimated at just 0.2% in the first quarter, and is expected to slow to 0.1% in the second quarter. Higher uncertainty among businesses has eroded confidence, leading to the postponement of new projects and a projected 0.6% fall in business investment in the first half of 2026. While household consumption grew by a mere 0.1% in the final quarter of 2025, the saving ratio remained elevated at 9.9%. However, the Bank anticipates that households will lower their savings rates to partially smooth their consumption through this latest period of falling real wages.
The Propenomix Perspective: Here is the bleak truth about the UK economy right now - we are stagnating. The index says underlying growth is hovering just above zero, but real-term inflation is actively stripping wealth from households. We are seeing a classic cost-push scenario where the money in your pocket buys less, so discretionary spending falls off a cliff. I am particularly concerned by the Bank's assumption that consumers will simply raid their savings to smooth out the hit. Yes, the saving ratio looks healthy on paper, but that cash is not evenly distributed. Lower-income households do not have a 10% buffer to casually draw down. And with business investment contracting as firms sit on their hands, the structural supply constraints of the UK economy are only going to worsen. You cannot grow an economy when everyone is terrified to spend or invest. What if people save more because they are worried about war?
Theme 3: The Loosening Labour Market
The Summary: Labour market conditions have continued to loosen compared to the exceptional tightness seen in 2022. The Labour Force Survey unemployment rate dropped to 4.9% in the three months to February, though this was driven entirely by an increase in economic inactivity due to studying. The Bank projects the unemployment rate will rise to 5.1% in the second quarter. Job vacancies fell by around 4% in the first quarter, while the redundancy rate remains elevated. Crucially, annual private sector regular average weekly earnings growth slowed to 3.2% in the three months to February. This widening margin of spare capacity in the labour market is expected to limit workers' ability to bargain for higher wages, thereby reducing the risk of persistent second-round inflationary effects.
The Propenomix Perspective: The headline unemployment figure dropping to 4.9% is a classic statistical mirage. When you strip out the students dropping out of the workforce, the underlying picture is one of easing demand and rising slack. Vacancies are down, redundancies are up, and the balance of power has firmly shifted back to employers. For property investors and macro watchers, this is the silver lining in an otherwise grim report. The Bank of England is terrified of second-round effects - specifically, a wage-price spiral. But with private sector wage growth cooling to 3.2% and the labour market softening, workers simply lack the leverage to demand inflation-busting pay rises this year. I see this as the ultimate buffer. The Bank can afford to keep rates steady because the labour market is doing the tightening work for them.
Theme 4: Tightening Financial Conditions and Mortgage Rates
The Summary: Financial conditions have tightened notably since the onset of the Middle East conflict. The market-implied path for the Bank Rate has shifted upward by almost 60 basis points compared to February, now peaking at 4.2% in early 2027 before gradually easing. Despite the Monetary Policy Committee voting 8-1 to hold the Bank Rate at 3.75%, this shift in market expectations has already passed through to consumers. Quoted rates on new 75% and 90% loan-to-value mortgages have risen by slightly over 100 basis points since the February Report. This increased cost of credit is expected to weigh heavily on housing market activity and consumer spending, adding approximately £80 to the average monthly payments of mortgagors refinancing over the next three years.
The Propenomix Perspective: This is where the rubber meets the road for property investors. The MPC might have sat on their hands and held the base rate at 3.75%, but the bond markets did not wait for permission. We have seen SONIA swap rates spike as traders price in the inflationary energy shock, and mortgage lenders have ruthlessly passed that cost straight onto borrowers. A 100-basis-point jump in mortgage rates in just a few months is a brutal handbrake turn for a housing market that was just starting to show signs of life. I am watching gilt yields closely, and the reality is that the cost of capital is going to stay elevated for longer than anyone hoped at Christmas. The Bank talks about this cooling demand, but out here in the real market, it is actively suffocating transactions and trapping borrowers in expensive renewals. “Higher for longer”, as many haven’t been listening to, is 18-24 months longer at this point than it already was as we looked, frustratingly, to be approaching 3.25% before the conflict began - but I must remind you the markets still saw 3.75% as “terminal velocity” for the base rate in the short to medium term anyway.
How about this L&G report, then, on affordable housing?
Theme 1: The Affordable Housing Subsidy Gap & HA Debt Crisis
The Summary: The UK Government has pledged to deliver 300,000 homes annually, with at least 80,000 of these designated as Affordable Housing. However, the current historical delivery average is just 50,000 affordable homes per annum. Closing this supply deficit requires overcoming a structural £2.2bn annual subsidy shortfall. Compounding this issue is the deteriorating financial health of traditional Housing Associations (HAs), which have historically been the primary developers of affordable stock. The sector's weighted average interest cover ratio has plummeted from 174% in 2017-18 to just 87% in 2025. This critical metric indicates that interest costs on outstanding debt now exceed operating income across the sector. Consequently, many HAs are structurally unable to borrow the necessary capital to draw down government grants or purchase section 106 homes from private developers.
The Propenomix Perspective: Look, we all know the 300,000 target is a political football, but the maths on the affordable allocation is undeniably grim. The sector is entirely hamstrung by debt. When your interest cover ratio falls below 100%, you are not building new houses - you are barely keeping the lights on. The headline index says we need to build more, but real-term inflation and brutal SONIA swap rates have fundamentally broken the traditional HA funding model. They are maxed out on leverage and drowning in higher operating and compliance costs. So, the government can shout about expanding the capital grant programme all they want. If the very entities supposed to build the homes cannot physically take on the debt to co-fund them, that £2.2bn subsidy gap might as well be a trillion. It is a capacity crisis, plain and simple.
Theme 2: Unlocking Latent Value via Partnership RPs
The Summary: To address the capacity shortage, Legal & General proposes creating "Partnership Registered Providers" (Partnership RPs). These vehicles operate as joint ventures, equally owned by a vendor HA and an institutional investor. The HA sells a portion of its existing tenanted stock to the Partnership RP at Existing Use Value - Social Housing (EUV-SH). The resulting cash proceeds allow the HA to pay down its debt and invest in retrofitting its retained stock. Crucially, the remaining cash surplus acts as a "recycled subsidy" to fund new affordable housing development. Modelling suggests that transferring 35% of all HA homes into these vehicles over a decade could unlock the £2.2bn recycled subsidy required annually. Furthermore, this mechanism would crowd in £9.5bn of private capital to deliver an additional 185,000 homes over ten years.
The Propenomix Perspective: Here is where the financial engineering gets spicy. L&G wants to monetise the bricks and mortar that have been sitting on HA balance sheets for decades. Let us call it what it is - a partial equity release scheme for housing associations. By selling stock into a joint venture, they crystalise the latent value, clear the debt decks, and suddenly find themselves flush with development cash. I do not hate the mechanics of it - I’m a huge fan of equity release solutions. Institutional capital is desperately hunting for long-term, inflation-linked yield, and social rents fit the bill perfectly. But my scepticism flares up around the operational efficiency assumptions. The model assumes the new Partnership RPs will miraculously operate £8,000 to £10,000 cheaper per unit than traditional HAs. Call me a cynic, but extracting that level of margin out of legacy social stock - whilst simultaneously upgrading it to EPC-B - is going to be a monumental operational headache.
Theme 3: The Macro-Economic and Fiscal Multiplier
The Summary: Independent modelling by Oxford Economics suggests that adopting the Partnership RP model at scale would generate substantial economic benefits. If 35% of HA stock is transferred, UK GDP is forecast to be 0.16% higher by 2037, which is equivalent to £5.7bn in 2025 prices. This growth is driven by short-term construction stimulus and long-term productivity gains stemming from improved labour mobility and agglomeration. Additionally, the programme is estimated to improve the government's annual fiscal balance by £3.1bn by 2037. These fiscal savings are primarily achieved through a reduction in Temporary Accommodation costs, which saves the government an estimated £17,600 per household annually. Furthermore, transitioning households from the private rented sector into affordable housing reduces Housing Benefit expenditure by an average of £3,200 per household each year.
The Propenomix Perspective: I love a good multiplier effect, but let us separate the spreadsheet fantasy from the fiscal reality. The Oxford Economics agglomeration theory - the idea that moving people into better housing instantly boosts national productivity and innovation - is a very long-term, theoretical play. What I do care about is the Temporary Accommodation bill. Local authorities are currently bleeding cash, paying exorbitant nightly rates to private landlords for substandard rooms. Slicing £17,600 off the public purse for every family we move out of a B&B and into a proper social home is a tangible, hard-cash victory. If we can actually deliver these homes and stem the absolute haemorrhaging of Housing Benefit into the private rented sector, the Treasury should be biting the institutions' hands off. It is an inflation-busting intervention that actually makes macroeconomic sense.
Theme 4: Regulatory Tweaks and Solvency UK
The Summary: While Partnership RPs can operate under the existing regulatory framework, specific policy adjustments are recommended to optimise the model's viability. A key recommendation is reforming the Solvency UK Matching Adjustment (MA) rules. Currently, only the debt-like cash flows of social housing qualify for favourable capital treatment, requiring a significantly higher return for the equity tranche. Allowing 'whole project' Social Housing assets to be MA eligible would reduce the cost of capital and increase investment efficiency. The report also calls for the National Housing Bank to provide zero-fee or low-fee debt guarantees to further uplift property valuations and boost recycled subsidy. Finally, a 30-year rent settlement and a return to direct housing support payments to landlords are suggested to improve the predictability of long-term rental income.
The Propenomix Perspective: And here is the inevitable pivot - the "ask." The institutions have the capital, but they want the structural deck stacked in their favour before they deploy it. The Solvency UK Matching Adjustment argument is classic City lobbying. They essentially want the regulator to treat the equity risk of social housing as if it were as predictably safe as a government gilt. In fairness - perhaps it is? If they get it, their cost of capital plummets and the viability of these joint ventures goes through the roof. Throw in a demand for zero-fee National Housing Bank guarantees, and you can see the play: socialise the downside risk, privatise the upside yield. I cannot blame them for asking, though. If the state wants to fix a supply crisis without writing a £2.2bn cheque every single year, they are going to have to swallow some bitter regulatory pills. I’ve long said that the Government needs to throw its weight - which can make private debt a LOT cheaper - behind more contracts, not fewer, when it comes to housing - one of the ways that they can genuinely create value. I just wish they understood it well enough.
OK - let’s check in on the build-to-rent market thanks to Knight Frank’s quarterly update:
Theme 1: The Sluggish Start and Macro Headwinds
The Summary: In the first three months of 2026, the UK Build to Rent (BTR) market saw just shy of £700 million invested across twelve transactions. This marks the slowest first quarter for BTR investment since 2018. Operational stock drove the majority of activity, comprising 61% of total investment, highlighted by Pension Insurance Corporation's acquisition of Ebb & Flow in Reading for over £200 million. The broader economic climate remains highly sensitive, however. Geopolitical volatility stemming from the Middle East has caused UK gilt yields to spike, reflecting expectations that central banks will keep monetary policy tighter for longer. Consequently, Oxford Economics now forecasts that UK CPI inflation will top 4% in the second half of 2026 before cooling in 2027. Single Family Housing (SFH) investment was comparatively subdued, recording just under £200 million across seven deals.
The Propenomix Perspective: Right, let us cut through the polite institutional phrasing. The Knight Frank index calls this a "muted start," but anyone watching the debt markets knows exactly why £679 million looks like a rounding error compared to the glory days. When geopolitical shockwaves send UK gilt yields into a tailspin and 2-year SONIA swap rates start dancing unpredictably, cautious capital simply sits on its hands. Oxford Economics predicting CPI back over 4% is the real spectre at the feast here. It means the Bank of England's rate-cutting party is officially on hold. You cannot blame investors for holding back when the cost of debt is eroding their unlevered returns. That £200 million Pension Insurance Corporation deal in Reading is fascinating, though - it proves that when the asset is prime and operational, the big cheques are still written. The rest of the market? They are waiting for the maths to make sense.
Theme 2: Construction Squeeze and the Supply Paradox
The Summary: The completed UK BTR stock currently stands at 165,790 homes, representing a 27% national increase compared to the first quarter of 2025. However, the number of units under construction has fallen by 10% year-on-year, highlighting significant challenges in converting the 126,565 homes in the planning pipeline into active developments. Urban high-rise developments face particular headwinds, whereas Single Family Housing (SFH) construction has increased by 9% over the same period. Available rental supply remains constrained, sitting nearly 25% below pre-pandemic averages, despite a short-term 4% rise in listings in March. This scarcity, paired with a net balance of +10% of surveyors reporting increased tenant demand, suggests rents will continue to rise throughout 2026. Furthermore, five-year fixed-rate mortgages currently exceed 4.8%, further restricting first-time buyer activity and consolidating rental demand.
The Propenomix Perspective: Supply is up but down? Welcome to the ultimate paradox of UK property. A 27% bump in completed stock sounds lovely in a press release, but look at the forward pipeline - a 10% drop in active construction is a flashing red warning light for future supply. The urban high-rise model is currently suffocating under the weight of build-cost inflation and a Byzantine planning system. But here is the stark reality - with overall rental supply sitting a quarter below where it was before the pandemic, we have a structural deficit that no amount of government tinkering can fix. And with five-year fixed mortgages flirting with the 5% mark, first-time buyers are effectively trapped. They are renting for longer, exacerbating the supply constraints. If you own operational stock right now, you hold all the cards, and you do not need a PhD in economics to know exactly what this means for yield compression.
Theme 3: The Renters' Rights Act Reality Check
The Summary: The Renters' Rights Act 2025 officially came into force on the 1st of May 2026, marking a fundamental overhaul of the private rented sector. The legislation abolishes assured shorthold tenancies and fixed-term agreements, converting all residential tenancies to periodic tenancies from the outset. Furthermore, it removes Section 21 "no-fault" evictions, requiring landlords to use an updated Section 8 process with valid grounds for possession. Rent increases are now restricted to once per year, requiring a minimum of two months' notice, and tenants possess the right to challenge these proposed increases at the First-tier Tribunal. BTR operators will need to adapt their operational models, investing in rigorous tenancy management and transparent, well-evidenced rent-setting processes to navigate potential tribunal scrutiny and avoid fines of up to £7,000.
The Propenomix Perspective: The government has finally torn up the rulebook, and institutional landlords are waking up with a collective headache. Moving to periodic tenancies from day one fundamentally alters the BTR business model. Historically, operators relied on fixed-term leases to forecast yield and neatly package their debt. Now? Your tenant can hand in two months' notice on a whim. It turns predictable cash flow into something resembling a transient hotel model if your customer service is not flawless. Then there is the First-tier Tribunal for rent increases. I can guarantee you that system will be choked with disputes within six months. BTR operators can no longer just push through inflation-busting rent hikes without bulletproof market evidence. The days of lazy asset management are officially over. If you want to survive this new legislative landscape, operational excellence is no longer just a slick marketing phrase - it is a strict survival mechanism. The weak operators will be eaten alive.
Theme 4: The Ascent of Single Family Housing (SFH)
The Summary: While the broader Build to Rent (BTR) market experienced a sluggish first quarter, the Single Family Housing (SFH) sub-sector continues to demonstrate notable resilience and growth within the construction pipeline. Following a record-breaking 2025 where £2.6 billion was invested in SFH, Q1 2026 saw seven completions totalling just under £200 million. More significantly, SFH development is actively bucking the wider downward trend in BTR starts. By the end of the first quarter of 2026, there were 9% more houses for rent under construction compared to the same period in 2025. This growth highlights a strategic pivot in the market, contrasting sharply with the headwinds currently stifling urban high-rise developments across all tenures.
The Propenomix Perspective: I have been banging the drum about suburban housing for more than a decade, and the data is finally catching up with the narrative. Yes, £200 million in Q1 looks like a hangover after the £2.6 billion party of 2025, but do not let the headline figure fool you. The smart money is migrating outwards. Why? Because fighting local councils over high-density, high-rise urban schemes has become a fool's errand - a miserable cocktail of delays and margin compression. Houses, on the other hand, are the path of least resistance. You build them, you let them, and the families stay put for years. That 9% increase in active SFH construction is the most important metric in this entire report. It represents capital seeking safe harbour. While the multifamily sector grapples with the new legislation and transient urban populations, SFH offers a sticky, reliable demographic. Expect that construction percentage to aggressively widen over the next twenty-four months. The building safety act, amongst other factors, guarantees this capital migration to the ‘burbs.
Last but not least - how are development land values faring whilst all of the geopolitical certainty continues?
Theme 1: The Urban vs Greenfield Divide
The Summary: Urban brownfield and prime central London residential development land values declined by 2.5% in the first quarter of 2026. This leaves the annual decline at 1.1% for prime central London and 2% for urban brownfield land. By contrast, greenfield land values remained relatively stable, dipping only 0.7% on an annual basis. This divergence reflects more resilient conditions for volume housebuilders in suburban markets, where lower-density schemes and simpler build requirements support project viability relative to higher-risk urban developments. Amidst geopolitical instability and a tight regulatory environment, developers are exhibiting a clear preference for "oven-ready" sites that have full planning consent, allowing them to commence work on site quickly. However, the supply of these fully consented sites remains highly limited across the market.
The Propenomix Perspective: The index tells us that urban land values are down by a couple of percentage points, but let us be absolutely clear - that is just the polite, institutional way of saying the market is frozen solid. As I have been warning our readers for months, you need your head examined to take on a high-density urban site right now. When you factor in the sheer cost of development finance tied to elevated SONIA swap rates, alongside an impenetrable planning system, the risk premium on city centre brownfield is completely out of kilter with the potential returns.
The fact that greenfield values are flat is not a sign of booming confidence; it is merely the path of least resistance. Housebuilders are retreating to what they know - simple, low-density boxes in the shires where they do not have to fight a local council for three years just to lay the first brick. The headline indices might look like a gentle softening, but the reality on the ground is a structural strike by developers who simply refuse to buy land that does not make economic sense.
Theme 2: The Return of Material Cost Anxiety
The Summary: The outbreak of conflict in the Middle East on the 28th of February marked a sharp return to market uncertainty. This geopolitical instability caused mortgage rates to spike, consumer sentiment to decline, and increased the likelihood of rising build costs if the conflict were to endure. Consequently, 39% of survey respondents cited rising material costs and availability as a major concern in Q1 2026, representing a significant jump from just 20% in the final quarter of 2025. This renewed cost pressure is directly impacting near-term delivery pipelines. Looking ahead to the second quarter, 46% of surveyed developers expect project start volumes to fall. Only 14% anticipate an increase in starts, while 40% believe volumes will remain unchanged.
The Propenomix Perspective: Just when the consensus view was that we had finally wrestled inflation into submission, geopolitics decided to throw another spanner into the works. The Bank of England can pat itself on the back over headline consumer inflation all it likes, but the reality for developers is that the raw cost of putting bricks on top of one another is climbing once again.
When 46% of developers tell you they are actively pausing project starts, you need to listen. This is not just a temporary blip; it is a permanent loss of housing delivery that we will feel acutely in two years. I constantly look at long-term gilt yields as a proxy for sanity, and right now, the debt markets are pricing in prolonged friction. If you cannot secure fixed-rate development finance at a sensible margin, and your timber and steel costs are suddenly subject to supply chain shocks via the Strait of Hormuz, the only logical, capital-preserving move is to down tools. The supply crunch is not coming - it is already here.
Theme 3: The London Supply Illusion
The Summary: In the first quarter of 2026, London's residential developers sold 2,850 homes in schemes of 20 units or more, which is a 30% increase compared to the previous quarter. While this sounds positive, it represents a rise from an extremely low base, and quarterly sales of approximately 22,000 would be required to meet City Hall's annual target of 88,000 new homes. The composition of these sales is heavily skewed by institutional buyers. Of the 2,850 total sales, 1,931 were either bulk transactions to Build-to-Rent operators or allocations switched to affordable housing. As a result, individual UK buyers purchased just 600 new homes across London in the first three months of the year. Future supply projections appear bleak, with completion numbers expected to drop to 10,000 in 2027, leaving only 5,900 homes actively on site by January 2028.
The Propenomix Perspective: Do not let anyone sell you the narrative that a 30% jump in London sales means the market is recovering. It is a statistical mirage. When you strip out the institutional bulk buys and the forced affordable housing allocations, you are left with a grand total of 600 retail buyers. Let that sink in for a moment. In a capital city of roughly nine million people, only 600 regular folks managed to buy a new build home in an entire quarter.
The Build-to-Rent funds swooping in to buy bulk stock at a discount is not a sign of retail market health - it is developers offloading inventory at distressed margins just to keep the lights on and satisfy their lenders. As for the Mayor's 88,000-home target? It is pure fantasy. With pipeline numbers collapsing to a miserable 5,900 homes actively under construction by 2028, we are sleepwalking into the worst urban supply deficit in modern history. Rents in the capital are going to continue their path upwards.
Theme 4: Housebuilder Survival Tactics
The Summary: Listed housebuilders are actively revising down their volume expectations and land acquisition targets due to increased global uncertainty and slower sales rates. Corporate strategy has shifted significantly, with balance sheet strength and cash preservation emerging as the clear priorities for developers. Consequently, many firms are opting to limit new land purchases entirely, choosing instead to focus their capital on existing development pipelines. The forward-looking indicators remain incredibly cautious, underscoring the fragility of consumer demand. When asked about the outlook for the remainder of 2026, 44% of surveyed respondents anticipate weaker reservation performance. A further 44% expect conditions to remain unchanged, while a mere 8% believe that reservation volumes will improve.
The Propenomix Perspective: The listed boys are doing exactly what I would do if I were sitting in the boardroom - battening down the hatches. Why on earth would you aggressively buy development land when the cost of capital is eating your profit margin for breakfast?
Cash is king when the market turns, and these builders are essentially engaging in a capital strike. By sitting on their existing landbanks and refusing to bid on new sites, they are forcing landowners to either drop their price expectations or take the land off the market entirely. The government loves to blame housebuilders for "land banking," but this is basic corporate survival. When nearly 90% of the industry expects buyer demand to either stagnate or worsen over the rest of the year, deploying millions of pounds into fresh land acquisitions is a dereliction of fiduciary duty. We are witnessing a massive, sector-wide deleveraging event, and until the macroeconomic fundamentals shift decisively, the cranes will remain firmly packed away.
As we get towards the end for this week - our Manchester Property Business workshop last week was another great one. Thanks to all who made it. The VIP dinner afterwards set new standards afterwards in terms of its length, breadth and depth of conversation. Don’t miss the next one - Wednesday 1st July, in Central London. Due diligence is the topic, and this is broader than how you are being measured by others, just as how you should measure others; we include deal due diligence - deals, partners, companies and counterparties including lenders and borrowers. The full gamut.
We always have real life case studies about our own experiences, and close with our “no-holds-barred” Q+A. The VIP dinner for this one will sell out once again, without doubt. Get access to Rod and myself afterwards to discuss your individual and unique circumstances over dinner. Book your tickets for Wednesday 1st July, Central London at: www.tinyurl.com/pbweleven
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. Capital growth looks set to remain slow(ish) at the moment, although if you are in the right part of the UK, you will be well looked after by the combination of that plus increasing inflation, the big bull run needs some runway first (although let’s see what the FCA and PRA do around continued easing of lending requirements) - now it’s time to deal with the consequences, both intended and unintended, of the Renters’ Rights Act. The fundamentals haven’t changed - there’s a shortage of 2-3 bed terraces and semis, there was 15 years ago and it has only got worse since then. “Investing in property” is not a guaranteed win. Investing in undervalued areas, sexy on the spreadsheet, strong yields - that’s as close to a guarantee as you will get in any game, which will also ensure you keep pace and indeed stay ahead of inflation. KCCO!