Ban on letting agent fees divides UK rental industry

Opinion is divided over whether or not the decision to ban letting agent fees in England is a good move for the private rental market.

The announcement by Chancellor Philip Hammond that the ban will be introduced as soon as possible was met with dismay by letting agent and landlord organisations who warned that agents will pass the cost of administration onto landlords who will in turn pass it onto tenants in the form of higher rents.

Some experts pointed out that when a ban was introduced in Scotland it led to higher rents while others said that it did not lead to direct rent hikes. This issue aside, some other pertinent points have now emerged such as landlords possibly avoiding using letting agents which is not always advisable if they are not aware of current legislation and short cuts being taken in terms of tenant checks to keep costs down.

Charles Curran, principal at Maskells, pointed out that lettings agents do incur costs in setting up a new tenancy such as credit checks. Landlords are also now required to check that a prospective tenant has the right to live in the UK so there is paperwork involved.

He also pointed out that a lot of questions remain to be answered. For example, there are costs involved in carrying out checks and if fees cannot be charged it is not clear how these costs will be paid for.

‘We do expect landlords to seek to increase rents to take into account any additional costs. We will have to see the language of any proposed law before making our final analysis,’ he said.

While it is known that there are unscrupulous lettings agents who may be charging more than the average of £220 in fees for a new tenant, Mark Pollack, director at Aston Chase, said that the majority are reasonable.

‘We believe our charges are reasonable in comparison to many of the larger corporate agencies who also charge their landlords an administration fee. Indeed, we have always considered it surprising to charge for a tenancy agreement that we already have on file, although this is an industry norm.

However, the reference fees are a cost that we have to pay to a third party so under the new legislation, in the future agents would presumably have to pay for these themselves,’ he added.

Ali Carter, head of lettings at Russell Simpson, believes there is no place for some of the high fees that are charged. ‘Letting agency fees are in place to cover the cost of drawing up a tenancy agreement. This cost is split between the tenant and landlord. The tenant will also be charged a fee for their reference check,’ he said.

‘This could be a good opportunity for us, as well as other agents, to say that they are no longer charging an administration fee which is usually £150 plus VAT from today. Quite often we will promote a particularly property with a no admin fee tagline. In general we don’t charge the landlord their portion as they are paying us a fee already so we’ve always felt it was unjustified to ask for anything else on top. Overall, we’re quite in line with Hammond’s thinking,’ he added.

Others in the industry believe that regulation of letting agents might have been a more positive view. ‘I can’t help but feel that this is an issue of overall high rental costs and lack of trust in letting agents that do little to earn the respect of their tenants,’ said Bevan Smith, director of BPM Estates, which has offices in central London, Barnet and Potters Bar.

‘Rather than the removal of fees entirely, we would have liked to have seen stricter restrictions on what can and can’t be charged for and what fee levels are justified. This would have helped to put a curve on the immoral practices without punishing the honest, reputable agencies,’ he added.

Sarah Bush, director of Cheffins Residential Lettings, also things regulation would be a better option. ‘The Government needs to focus on the regulation of agents rather than banning upfront fees in their entirety. Rogue agents charging astronomical fees create the headlines and subsequently all agents are deemed guilty by association,’ she said.

‘Fees that are charged by reputable agents can be accounted for and justified at every step of the letting process. The banning of fees across the board will ensure that the costs are passed directly to the landlord, who in turn will increase rental prices to cover their respective costs,’ she explained.

‘A prohibition by the government on fees, combined with mortgage interest relief, will stifle a housing market that is already at breaking point and landlords are likely to leave the private rental sector en-masse. By trying to help tenants and pour cold water on the private rented sector, in reality the Government is doing nothing but heating up the situation for both tenants and landlords alike,’ she added.

Lucy Morton, head of agency at JLL, flagged up that the ban could lead less scrupulous agents to cut corners. ‘It is essential that agents do not cut corners and fail to carry out stringent referencing checks. At JLL and W.A.Ellis we have always advocated complete transparency of all charges made by agents to both landlords and tenants. We have also historically campaigned for the Government to regulate letting agents which it still fails to address,’ she said.

Paul Shamplina, founder of Landlord Action, warned that there could be a surge of landlords opting to self-let and manage and he believes that this would have a detrimental effect on rental property standards.

‘Agents will need to be forward thinking about how they can absorb some of this cost and the loss through other areas of their business. It has never been more vital for agents to educate less experienced landlords on the importance and benefits of a managed service, making sure they are compliant with industry legislation and preventing them from exiting the sector altogether,’ he added.

Property Tops The List For Investment Options Over The Last Decade

Since the financial crisis in 2008 the economy seems to have been in a constant state of uncertainty, leaving many questioning where exactly is the best place to invest their money.

There are plenty of options from the stock market to savings accounts, but what may surprise some is that findings from a recent study have shown property to bring the biggest return on investment over the last 10 years.

A recent study from estate agents Romans and Leaders has shown property to be the best investment option by some margin, by carrying out a comparison between the four most popular investment options, which are savings accounts, FTSE 100, property and gold.

This research looked into how much return you would see from an investment of £50,000 in 2006 into each of these investment options.

The results showed property at the top of the table by some distance. An investment in FTSE 100 would’ve seen a profit of £3,000, a savings account would bring in roughly £15,000 of profit and an investment in gold would fetch an extra £50,000 across the 10 years. While £50,000 is still a great return, property showed to be the clear leader with approximately £90,000 higher return than gold and an overall profit of £140,000 based on annual house price increases.

Managing Director at Leaders, Allison Thompson spoke on the results explaining why property comes out on top, she said “Despite many changes over the last ten years to the housing market and wider economy, buy-to-let is still the clear winner. As well as the most rewarding, it is also the safest of all the investment options over the long-term. We have seen historically that, although cyclical, house prices always rise in the long run. With the acute shortage of housing across the UK, this is only likely to continue.”

Thompson also suggests that while many are looking for the right time to jump into property investment, short term fluctuations in the market shouldn’t deter potential investors:

“Understandably, a lot of investors want to get the timing right when purchasing a property, but inevitably if you’re in it for the medium to long term, just learn to accept these fluctuations as any short term gains or losses. Second guessing and predicting the market will more than likely pale into insignificance in comparison to your overall return after ten years.”

Remortgages drive growth in UK home lending market

Gross mortgage lending in the UK held steady in October but is being driven more by remortgages than new buyers due to a lack of supply in the current housing market.

It reached an estimated £20.6 billion, according to the latest figures from the Council of Mortgage Lenders and closely matches September’s gross lending total of £20.5 billion, but is 5% lower than October last year when it was £21.8 billion.

‘Housing market sentiment is holding up well, with demand still strong. This has led to a pickup in approvals, as expected. The more pressing issue is on the supply side, where the lack of private sellers continues to be an obstacle for would-be borrowers,’ said CML senior economist Mohammad Jamei.

‘For this reason, we expect lending in the months ahead to be driven more by remortgaging activity and less by house purchases. Remortgaging will be helped by competitively priced mortgage deals, which are encouraging borrowers to refinance,’ he added.

According to Ishaan Malhi, chief executive officer of Trussle, the figures conceal two very different stories in the mortgage market. ‘On the one hand, new purchases are seeing a slight fall as first time buyers continue to face challenges saving for a mortgage deposit. This is having a long term impact on home ownership,’ he said.

‘On the other, we’re witnessing a surge in remortgaging, up 17% in the last 12 months, as existing home owners take advantage of record low rates to secure better deals,’ he added.

John Goodall, chief executive officer of peer to peer platform Landbay, also believes that the push is coming from home owners changing to lower interest products. ‘Many existing homeowners are choosing to take advantage of low interest rates to refinance their mortgage. However, this growth in lending volumes belies a much more mixed picture across the sectors. Buy to let lending levels remain around 24% down on this time last year, as April’s 3% stamp duty hike caused an initial wave of transactions, but left in its wake a much more subdued market,’ he pointed out.

‘The fundamentals of the buy to let market are still pointing toward long term sustainable growth, but landlords have had a white knuckle ride over the last 12 months, and we hope to see them given some relief at next week’s Autumn Statement,’ he added.

The lack of homes for sale is also highlighted by comments from John Eastgate, sales and marketing director at OneSavings Bank. ‘Mortgage activity is in good health, reflecting growing consumer confidence after the European Union referendum and impressive resilience in a quite exceptional year. Borrowers are benefitting from record low interest rates, with remortgage activity buoyant, although purchases are constrained by lack of homes for sale,’ he said.

‘However, with the Government set to fall short of the 200,000 new homes it had committed to providing annually, the UK’s chronic housing shortage, and resultant rising house prices, are set to remain a major barrier towards lending growth. Tax changes on buy to let will only make matters worse. The mortgage market needs to be supported by house building of all tenures which is the only long term solution that can prevent further deepening of the housing crisis,’ he added.

Henry Woodcock, principal mortgage consultant at IRESS, believes that the mortgage market remains vibrant. ‘Low interest rates, a levelling of house prices and continued consumer confidence have all combined to maintain market momentum,’ he said.

‘It’ll be interesting to see if the Chancellor has any good news for the mortgage and housing markets in the Autumn Statement. It’s expected he will confirm earlier announcements of funds towards new homes to be built by small firms, but many would like to see further investment into rental properties,’ he added.

New buy to let powers granted to Bank of England committee from early 2017

The Bank of England’s Financial Policy Committee (FPC) will be granted new powers by the Government to help it protect the financial system from future risks in the buy to let mortgage market.

The FPC is responsible for identifying, monitoring and taking action to remove or reduce systemic risks in the financial system and these new powers are aimed at enhancing the tools it has at its disposal to head off potential threats to financial stability should they arise.

From early 2017 the FPC will be able to direct the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) to require regulated lenders to place limits on buy to let mortgage lending in relation to loan to value ratios and interest coverage ratios.

It follows the FPC recommending that it be given additional powers of direction over both the residential mortgage lending market and the buy to let mortgage market in September 2014. The Government granted the FPC powers over the residential mortgage lending market in April 2015 and then consulted on the buy to let market.

The consultation noted the positive impact of buy to let landlords in the economy and the role they play in widening and balancing the overall housing market. They provide good quality accommodation for those who cannot at this point afford to buy a home, or who do not wish to commit to home ownership for personal or employment reasons.

At the same time, the consultation set out the financial stability risks that buy to let lending may pose and how the FPC’s recommended tools would address these risks and ensure long term economic stability.

‘It is crucial that Britain’s independent regulators have the tools they need to keep our financial system as safe as possible,’ said Chancellor of the Exchequer Philip Hammond.

‘Expanding the number of tools at the Financial Policy Committee’s disposal will ensure that the buy to let sector can continue to make an important contribution to our economy, while allowing the regulator to address any potential risks to financial stability,’ he added.

Home lenders urged to take rental payments into account

Home lenders in the UK should recognise rental payments when making lending decisions, as new research unveils that rental rates are rising rapidly when typical monthly mortgage payments for first time buyers are falling.

In the UK private tenants paid more for their accommodation in 57% of districts during the third quarter of this year, compared to the same period in 2015, according to the first time buyer index from Experian.

At the same time, the monthly mortgage payments a first time buyer could expect to pay has dropped in 65% of districts, assuming their loan was for 90% of the property on a two year fixed rate mortgage over 25 years.

The amount renters pay for their accommodation is either above or within 10% of the monthly payments they could expect to pay for a mortgage in 27% of UK districts and the research says this suggests that, if they could raise a deposit, many of the UK’s 4.3 million private renters would find monthly mortgage payments to be manageable and in line with their current rental commitments.

Scotland is home to six of the 10 districts where rental rates exceed monthly mortgage payments by the greatest margin. Manchester, Salford and Hull in the North of England also offer among the most favourable conditions for renters to become first time buyers.

‘What our research shows is that while a mortgage is a major ongoing commitment, renters often have a track record of making monthly payments which are often similar to what they might pay on a mortgage,’ said Experian’s Jonathan Westley.

He explained that lenders already apply rigorous checks to assess whether mortgage payments will be affordable for would be home owners, following the Mortgage Market Review but by taking rental payments into account, lenders can get a more complete picture of a borrower’s financial track record and make more suitable lending decisions.

The research also found that in 36% of districts the cost of renting had increased in the third quarter year on year, while mortgage payments had fallen. The reverse was true in only 4% of places, suggesting the balance across the country is shifting towards mortgage payments becoming more affordable compared to those who are currently renting.

‘Lenders take more into account than simply the amount you have raised for a deposit and what multiple of your earnings you are looking to borrow. The responsibility of ensuring mortgage payments are affordable for borrowers in the long term is one lenders take seriously,’ Westley pointed out.

‘They want to get a complete picture of a would be home owner’s financial commitments and see a strong track record of making regular payments. This helps lenders to understand how a borrower would manage mortgage payments now and in the future,’ he added.

Experian has developed the Rental Exchange to help renters get a mortgage. It allows rental payment information to be submitted to Experian, which will help strengthen renters’ credit histories and ease their difficulties when they buy a home.

UK property prices still rising, up 1.4% in October, despite Brexit uncertainty

Residential property prices in the UK continued to grow in October, up 1.4% and are now 5.2% up year on year, taking the average cost of a home to £217,411, the latest lender index data shows.

On a quarterly basis they were up just 0.1% but experts point out that this reflects a slowdown caused by the political uncertainty around the referendum in June on the UK’s membership of the European Union.

There was concern that the vote to leave the EU might be catastrophic for the housing market and the annual rate is down from a peak of 10% in March but Halifax Housing economist Martin Ellis pointed out that a slowdown was not unexpected and there are factors other than Brexit.

‘Annual house price growth has nearly halved from a peak of 10.0% in March this year, but remains robust at 5.2%,’ he said, but added that the slowdown appears to have been largely due to mounting affordability pressures, which have increasingly constrained housing demand.

He also pointed out that activity levels, like house price growth, have softened compared with a year ago. ‘Home sales, however, appear to have stabilised in recent months following the distortions earlier in the year due to the changes to stamp duty in April,’ he explained.

‘Whilst house price growth may ease further in the coming months, very low mortgage rates and a shortage of properties available for sale should help support price levels,’ he added.

Mark Posniak, managing director of Octopus Property, believes that the market is proving to be more resilient than anticipated. ‘In a politically and economically uncertain time, both at home and overseas, the resilience of the UK property market will certainly be tested. Demand may well be down amid such uncertainty, but as the latest mortgage approvals statistics reveal, it’s by no means out,’ he said.

‘The low cost of borrowing, weak supply levels and a robust jobs market are preventing prices from falling more sharply. Confidence is likely to play an increasingly prominent role in the short to medium term,’ he pointed out.

‘As inflation rises, people will feel less well-off and will become more cautious, and this could result in subdued transaction levels. Brexit related uncertainty remains the key narrative for the UK housing market at present, and last week’s high court ruling on Article 50 could see that uncertainty prolonged for longer than anticipated,’ he added.

Randeesh Sandhu, chief executive officer of Urban Exposure, also thinks the court ruling could have an effect as continued uncertainty about the Brexit process could hit confidence but at the same time there is still more demand than supply.

‘We still view the overall UK housing market picture as positive in light of enduring supply and demand fundamentals and no sign that the government will halt its long-term support of the sector. There are a number of issues that must be remedied on the supply side if the UK is to meet the government’s building targets, so in parallel we see opportunities for continued growth as and when these opportunities are unlocked,’ he concluded.

UK housing market expected to be strong and active throughout Brexit process

The path towards Brexit will dictate what happens in the UK housing market over the next few years but it is expected to remain reasonably strong and active, according to a new analysis.

There may be some turbulence along the way with article 50 to be enacted by march 2017 and the country set to leave in 2019, but the latest forecast from real estate firm JLL says that there will still be moderate growth with the residential market picking up again from 2020 onwards.

‘Demand will be undermined in the short term by uncertainty and a more subdued economy while supply issues will exacerbate, lending support to prices. The perennial issue for the housing industry remains supply and we are pleased that there seems to be fresh impetus in this regard,’ it says.

‘The big question, however, is whether policy initiatives target short term supply improvements, or look beyond the immediate horizon to create lasting, long term solutions,’ it adds.

JLL forecasts growth of 0.5% across the UK in 2017 and 1% in 2018 followed by 2% in 2019, then 4% in 2020 and 5% in 2021 but there is regional variations. Scotland is expected to be flat in 2017 then see 1% growth in 2018, 2% in 2019, 3% in 2020 and 4.5% in 2021. Wales is expected to do less well but catch up by 2020 with a forecast of prices falling by 1% in 2017, up 0.5% in 2018, up by 1% in 2019, by 3% in 2020 and then 4% in 2021.

Greater London is predicted to do well with growth of 1% in 2017, some 2% in 2018, then 3% in 2019, 5% in 2020 and 7% in 2021 but the prime central London market will not see as much growth with the JLL prediction showing prices likely to be flat in 2017 then 1% in 2018, 3% in 2019, 5.5% in 2020 then a slight reduction to 5% in 2021.

According to Neil Chegwidden, head of JLL residential research the real key to the outlook for the property market is the widespread positive attitude adopted within the UK. ‘Much will depend on the trade agreements negotiated, but with greater certainty the economic outlook should brighten along with consumer and business confidence as we head into 2019,’ he said.

‘We expect the UK housing market to be more subdued over the next two to three years. However, it will remain reasonably active with little chance of meaningful price corrections. Assuming Brexit negotiations are not too detrimental, we could see a rebound in London housing markets in 2020, before the rest of the country follows,’ he explained.

One concern on the horizon is that house builder activity could pull back from current rates of construction. ‘Although levels of new housing delivery were still woefully low prior to the referendum at least the direction of travel was positive and encouraging. This will now fall back again. We are predicting England starts to drop to 134,000 units next year,’ Chegwidden explained.

‘In London, we expect the house building slowdown to be more marked. Not only is London’s economy more vulnerable to Brexit but the housing market is also more reliant on investors, both domestic and international, and is hence more susceptible to buyer confidence,’ he pointed out.

But he also explained that the short term London supply prognosis implies that prices should bounce back when confidence returns. ‘The work stream of new supply should then pick up, albeit slowly.

While central and local government policies will be pro-development, we question whether they will really be able to outweigh the more cautious approach adopted by house builders in response to weaker market forces. Most worryingly, both the UK’s and London’s housing shortages will be even more acute by this point,’ he added.

The report also points out that the forthcoming five year UK economic outlook is particularly uncertain and much depends on the nature and detail of the EU exit. JLL’s base economic forecast assumes a hard Brexit with access to the single market sacrificed in favour of immigration controls.

‘Despite this, the economic prognosis is not too detrimental for the UK. There is clearly downside risk to this quite benign outlook, if trade agreements and financial sector passporting rights are not favourable. However, this base assumption also implies that there is significant upside potential too, so the economy could prove more robust next year and could also expand faster thereafter,’ it concludes.

Residential rents up 2.3% year on year in UK

Private rental sector prices paid by tenants in Britain increased by 2.3% in the 12 months to September 2016, unchanged compared with the year to August 2016, the latest official data shows.

There is some regional variation with the data from the Office of National Statistics (ONS) showing rents up by 2.5% in England and 0.1% in Wales but down by 0.1% in Scotland.

Rental prices increased in all the English regions over the year to September 2016, with rental prices increasing the most in the South East with growth of 3.5% while prices across the country excluding London increased by 2.1%.

All areas have seen rises in their private rental prices since 2011 with those in England up more than those of Wales and Scotland.

According to Nick Davies, head of residential development at Stirling Ackroyd, there is a lack of properties available to rent in London where demand is highest, partly due to a high number of international students.

‘While London draws in the some of the world’s brightest students and graduates, it lacks rental homes to accommodate them. With rents already unaffordable for many young people, we are witnessing the rent rises ripple out to the South East as potential tenants are forced to look further afield,’ he explained.

He believes that Chancellor Philip Hammond should consider scrapping the stamp duty surcharge for buy to let properties in his autumn statement in November as a way of encouraging more buy to let landlords into the market and making renting more affordable.

He also believes that this would make it make a huge difference to the cost of living for young people, making it easier to save for a deposit to buy their own homes as competition for rented homes is particularly fierce due to the 3% stamp duty surcharge being introduced earlier this year.

‘While the 2.7% increase in London rents may not seem severe when compared to the house price rises, it’s important to remember that average weekly earnings are only increasing by 2.3% year on year in nominal terms. And this suggests it will be even harder for first time buyers to save for a deposit,’ he added.

 

Historic low rates encouraging more UK home owners to remortgage

Two thirds of remortgagors in the UK plan to remortgage again in the next four years, spurred on by record low rates, new research has found.

Some 46% change their mortgage product to suit circumstances, two year fixed rates are falling in popularity while five year fixes grow as rates fall and borrowers seek stability.

The research from conveyancing panel management specialists LMS also shows that choice of lender is driven by rates available with 11 out of 20 picking a lender for this reason and only one in 20 doing so due to customer service.

Overall, in September some 85% of remortgagors were able to lower their mortgage rate at a time when the interest base rate is at an historic low of 0.25%.

Home owners can reap the rewards of rising house prices and competitive rates by remortgaging, something many appear to be aware of, the research suggests. Indeed, 64% of people who remortgaged in September believe they will do so again within the next four years.

However, 62% of remortgagors in September only remortgaged when they did because they had come to the end of their current deal. The report says this suggests complacency or lack of awareness among some home owners who could switch to make monthly savings earlier than they realise, something that may prove invaluable for many households who face higher costs for essentials as a result of rising inflation.

Following the Bank of England’s move to reduce the base interest rate from 0.5% to 0.25%, the majority of remortgagors do not expect any further changes to interest rates in the immediate future and 69% expect interest rates to remain the same for the next year.

Perhaps surprisingly, given fairly widespread commentary to the contrary, 14% believe interest rates will increase in the next year while 9% believe they will be lowered again within the next year.

‘Record low mortgage rates after the cut to the base interest rate make this a great time to remortgage. Mortgage interest rates were already falling but this cut may have been the catalyst to encourage more people to remortgage and August had the highest number of remortgages for seven years, after the base rate was cut,’ said Andy Knee, chief executive of LMS.

The LMS survey also examined customer preference relating to product choice and found that in September 46% of remortgagors changed the type of their mortgage product to suit their current financial situation and expectations. In the process two year fixed products declined in popularity among remortgagors while repayment and the popularity of five year fixes have risen.

Of those who changed their mortgage product, some 38% had a two year fixed mortgage for their previous term, a figure that decreased to 26% who opted for this type of product in their new mortgage.

In contrast, just 8% of remortgagors had a five year fixed mortgage before remortgaging, but this number has since climbed to 22% as average rates for this type of product have fallen and they became more attractive to customers.

However, five year fixes remain more expensive than two year fixes, supporting anecdotal evidence that, in the current environment of political and economic uncertainty, people are looking for longer term security even if this involves slightly higher costs in the short term.

Just 13% of remortgagors who changed their mortgage had a repayment product, a figure that has risen to 19% for those who have one since remortgaging. Variable mortgages, on the other hand, fell from 18% who had this in their previous term to 17% who have that product now.

The survey also found that saving money is by far the most important factor when choosing a lender and 55% of remortgagors said the main reason they chose their lender was because it offered the cheapest mortgage deals or best interest rates. This is more than twice as many as the second most popular option for 22% who opted for a lender based on a recommendation from their broker or adviser.

Only 8% said a lender’s reputation was the most important factor when choosing a product, while just 5% said customer service was the most decisive factor.

Knee explained that while two year fixed products remain the most attractive to remortgagors, the growth in popularity of five year term fixed mortgages is interesting and suggests that home owners are either keen to take advantage of competitive rates and lower costs with short term fixes or are more cautious, prioritising greater stability in a period of uncertainty by fixing for longer.

‘As the terms of Brexit remain unclear and its impact on prices and costs are not fully realised, it will be interesting to see whether more people start erring on the side of caution or wait for more information,’ he concluded.

 

UK rental homes reach highest supply level for 18 months

The latest monthly report from the Association of Residential Letting Agents (ARLA) shows that the number of rental properties managed per letting agent branch reached 193 in September, up from 183 in August and the highest since April 205.

It was a welcome jump in supply as the number of rental properties managed per branch had fallen to lows of 171 so far this year and there were 40 prospective tenants registering interest per letting agent branch, up from 37 in August.

The report says that in line with expectations, demand from tenants has been steadily growing since the start of the year, and is now at the highest level seen since February 2015, when there were also 40 prospective tenants registered per branch.

The number of agents witnessing rent hikes for tenants is at the lowest level so far this year, with just 24% of agents reporting increases, down 3% from August when 27% of agents saw rent increases, and 8% down from a high of 32% in March 2016.

‘This month’s findings paint a really positive picture for renters. Although demand is rising, we’ve seen this happen gradually over the course of the year, and would expect it to slow again in line with seasonal trends over the next few months,’ said David Cox, ARLA managing director.

‘On the other hand, the supply of rental stock has risen astronomically, which suggest it’s not quite right that landlords are pulling out of the market as a result of Brexit. This is supported in our findings, which reveal the number of landlords selling their buy to let properties hasn’t changed since April, when three landlords were selling up per branch,’ he pointed out.

He explained that it is good to see less landlords hiking rents this month, but ARLA believes that 24% is still too high. ‘The cost of renting is already high in many parts of the country and until the Government converts its pledges and promises into bricks and mortar, we won’t see renters reach a position where they’re able to save to get on the housing ladder. It will be interesting to see how this is tackled in the upcoming Autumn Statement,’ said Cox.

 

Brexit doom and gloom for UK housing market failing to materialise

People in the UK are still positive about the housing market despite the decision by the country to leave the European Union, although they seem to agree with many experts that price growth will be more moderate.

This is full of good news. It means that property is still regarded as a good investment and people still want to buy, as shown by two new pieces of research that came out last week. The UK is still a nation where people aspire to own a home and what is particularly interesting tis that those who might struggle with affordability are willing to look at alternatives such as shared owner ship.

The first pointer is the latest sentiment survey which shows that there has been a significant uptick in house price sentiment since the vote to leave the EU. The Knight Frank HIS Market index was over 50 for a third month in row since its low point in July, just after the referendum.

It was slightly lower than in September and significantly below its peak of 63.2 recorded in May 2014, but as the index report points out households are still positive about the market although expecting more modest growth in property prices over the next 12 months than they were in September,.

It comes at a time when house prices in many areas are continuing upward, although price growth in London has slowed. The Hometrack cities house price index showed that 11 cities are seeing higher growth than at the start of the year and nine slowing.

And research from the Council of Mortgage Lenders shows that the majority of British people still want to own a home and they aspire to having their own property not purely for financial reasons. It found 72% of adults want to be home owners in two years’ time and 80% hope to own in 10 years’ time.

It is interesting that the research gave us some interesting insights into how people perceive home ownership and how to help young people get onto the housing ladder. It found that partial home ownership through shared ownership or shared equity is regarded as a good idea by around half of all those who took part in the survey, around five times the proportion who see it as a bad idea.

Indeed, more people see part ownership as a stepping stone to full ownership than as a permanent tenure in its own right and in addition, a majority of people regardless of their own circumstances feel that it is harder than it has ever been for young people to buy their own home. If those who believe it is very difficult are included, the proportion rises to 85%.

Overall 75% believe action is necessary to help first time buyers. Predominantly, people see the Government as having a responsibility, but mortgage lenders, house builders and local authorities are also widely regarded as having a role.

It is certainly a good time to be getting a mortgage and the usual monthly figures from the CML showed that home lending market has not been deflated by Brexit with gross mortgage lending reaching £20.5 billion in September, the highest September lending figure recorded by the Council of Mortgage Lenders since 2007.

The CML is predicting a modest rise in approvals, though at levels lower than seen earlier this year, as the lack of properties on the market for sale and affordability constraints continue to bear down on borrowers. The report depicts a mortgage market undeterred by the EU referendum result and very much open for business.

Indeed, the 11% increase in lending between the second and third quarters shows that borrowers weren’t put off by the downside of Brexit being hailed in the headlines. That we can have such positivity in the housing market at a time of potential economic turmoil does suggests that the pre-Brexit fears ought now to be put to bed.

As a part of Theresa May’s shake up of the Conservative cabinet, new housing minister Gavin Barwell has announced that the government will be switching its focus from the Housing Sector to the Private Rental Sector (PRS) as he believes the PRS will be “vital” as more and more people choose to rent.

Mr Barwell believes that investing in building more rental properties will alleviate the strain on the currently overloaded housing market.
The change in housing policy comes after Barwell stated that the amount of properties needed to meet the current demand will “never be achieved” without first investing heavily in PRS.

As a part of the renewed focus on the private rental sector, Barwell has announced the intention to insure there will be a wider variety of properties to suit the needs of every renter.

Speaking at a recent property conference, Barwell said “We need to make sure we have a good, thriving private rented sector. Recent growth in the bespoke rental market has been impressive, but this progress must be expanded,”

He added: “A growing number of families and young professionals are choosing the PRS… many will rent for some years before they buy.
“I’m very clear that our ambitions will never be achieved without significant boost in institutional investment to the PRS, to ensure more choice and quality for people living in rented accommodation.”

James Murray, London’s Deputy Mayor for Housing, has supported the government’s decision to focus on PRS whilst also defending his own 50% affordable housing target.

He said: “If we’re going to increase supply and have affordable [housing] within that, you need to use every route of delivery, and if build-to-rent can deliver at scale and speed, then we should support that.”

Property Is Still The Highest Yielding Investment

The buy-to-let market has already seen some significant changes in 2016, with perhaps the most significant being Brexit and the increase in stamp duty. It’s clear why many may wonder whether property is still a solid investment, however for investors looking to add value to their portfolio, UK property remains the highest yielding and resilient of all assets.

UK property remains the highest yielding investment – and it’s becoming the “new norm”.

You can look at buy-to-let in the same way as any kind of investing: you're putting your capital at risk in pursuit of a regular income, capital growth, or a combination of the two:

However, it's quite different to holding investments like stocks, bonds or precious metals:

• For a start, your assets have low liquidity – another way of saying it isn't easy to get your money back, because it takes time and costs money to sell a property
• There are lots of legal responsibilities, some of which we cover below.
• Usually, there is borrowing (gearing) involved, in the form of a mortgage
• By 2021, buy-to-let investors with a mortgage may be taxed on revenue, not profit

More and more investors are being drawn to property as the returns continuously outperform those of other investments, including bonds, stocks and shares.

And it’s not just UK investors that are interested…

A number of Europeans have moved to secure UK property while assets are below market value following a significant drop in pound sterling. There has been a shift in investor sentiment towards lower risk opportunities that offer income yield following the vote for Brexit, with many investors targeting properties in the UK.

Before you start browsing our website for your next buy-to-let opportunity though, it’s important to consider the risks involved with investing in property.

• It ties up your capital. To access your capital you'll either have to sell or remortgage your rental property, which can take time. You'll need an emergency fund in place to cover unexpected expenses while your capital is locked away.
• Property prices can go down as well as up. You may not be able to sell your property quickly, and you may not get what you paid for it which could leave you in negative equity.
• Rental income can fluctuate. The amount that tenants are willing to pay can vary according to supply and demand. If you have to reduce the rent, it could affect your ability to keep up with your mortgage payments.
• It can take time to find tenants, and they won't always pay their rent on time
• You're responsible for maintaining the property, which can leave you with unexpected demands on your cash flow and affect your overall returns.
• You have legal responsibilities to your tenants; if you inadvertently break the law you could end up with fines or a criminal record.

 

Asking prices up across all of UK but sellers are too optimistic, index suggests

Residential asking prices in the UK increased by 0.7% since September, led by the East of England, but sellers could be being too optimistic with their pricing, says the latest index report.

Month on month asking prices increased by 0.7% in England, by 0.3% in Scotland and by 0.2% in Wales and are 4.4%, 5.3% and 1.3% higher year on year respectively.

The data from Home.co.uk also shows that supply is up by 11% year on year but much higher in the South and East of the country with a rise of 19% in London, 23% in the South East and 30% in the East of England.

A breakdown of the figures show that the biggest month on month rise was the East of England at 1.1% and taking the average property price to £342,915, some 11.5% higher than a year ago.

The next highest monthly rise was 1% in the South East and the East Midlands to an average of £394,837 and £211,328 with an annual rise of 4.2% and 5.5% respectively. Greater London saw prices rise by 0.8% month on month and 1.5% year on year to £538,775, followed by the South West, up 0.7% and 5% to £309,168.

Elsewhere the month on month growth was more muted with asking prices up 0.5% and 6.5% in the West Midlands to an average of £225,664, by 0.1% in the North West month on month and 4.2% year on year to £186,746, by 0.2% and 3% in Yorkshire and Humber to £181,459, and by 0.2% and 1.1% in the North East to £155,577.

The report points out that a key warning sign showing the fragility of the current market is that price cutting of properties whilst on the market has risen to a three year high across the UK and the firm is predicting price falls to come.

‘Supply is increasing rapidly in the East, South East and London. What’s more, the pricing of these new instructions is looking rather optimistic,’ said Doug Shephard, director at Home.co.uk.

He explained that London was the first to show an uptick in properties entering the market and the total stock for sale in the region has risen by around 24% which means that over supply is a danger and in the neighbouring regions, which would trigger a rapid downward spiral in prices.

‘Foreign investment was the saviour of the London market following the onset of the financial crisis, but Euro or dollar based investors will not be tempted back until sterling stabilises and that may take some considerable time,’ he pointed out.

Shephard believes there are also concerns about currency fluctuations and whether the Bank of England will have to intervene and raise interest rates to support the Pound which he thinks would be disastrous for the highly leveraged UK property market.

UK sees first time buyer mortgages rise as buy to let slows

Home owners in the UK borrowed £12.2 billion for house purchases in August, up 14% month on month and 11% year on year, according to the latest data.

They took out 66,000 loans, up 13% on July and 9% on August 2015, the figures from the Council of Mortgage Lenders (CML) show as house purchase activity bounced back with a particular resilience from first time buyers but buy to let loans are down.

Indeed, the data shows that at £5.1 billion, first time buyers borrowed 13% more than in July and 24% more than August last year. This equated to 31,800 loans, up 12% month on month and 19% year on year.

Home movers borrowed £7.1 billion, up 15% on July and 3% compared to a year ago. This represented 34,200 loans, up 14% month on month and 2% on August 2015.

But remortgage activity fell 2% month on month to £5.9 billion but is still up by 41% compared to a year ago. This came to 34,900 loans, up 4% month on month and 40% compared to a year ago.

In the buy to let market landlords borrowed £3 billion, unchanged month on month but down 12% year on year. This came to 19,400 loans in total, up 4% compared to July but down 13% compared to August 2015.

‘House purchase activity bounced back from a dip in July, reflecting resilience in first time buyer activity. Mortgage rates remain at or close to historic lows, and the re-pricing of mortgages following August’s base rate cut should help to underpin a continuing, strong appetite for home-ownership over the coming months,’ said Paul Smee, CML director general.

‘Buy to let by contrast continues to operate at lower levels five months after the stamp duty change on second properties. This appears to be a long term trend, and with lenders potentially tightening affordability checks ahead of the tax changes in April 2017, activity on the buy to let house purchase side may well remain at current levels,’ he added.

Steve Bolton, founder of Platinum Property Partners, also believes that buy to let lending will continue to fall. ‘The stamp duty surcharge is just one in a series of recent changes implemented by the Government designed to penalise landlords and derail the buy to let market,’ he said.

‘Section 24 (the Tenant Tax) will restrict landlords’ ability to deduct mortgage interest costs as a business expense and as a result force many to exit the market or increase rents, when many haven’t done so for years, as their growing tax bill will wipe out any profits. Wealthy, institutional landlords who can purchase properties without the need for mortgage finance will not be affected, creating an unfair playing field and leaving smaller landlord’s financial plans in ruins,’ he explained.

‘The Government’s belief that buy to let tax changes will help residential buyers is hopelessly misguided. Tenants will undoubtedly be hit with higher rents as landlords struggle to stay afloat, making it even harder for them to save for a deposit. We have already seen evidence of this in Ireland, where a similar tax change resulted in a 50% increase in rents over a three year period,’ he pointed out.

‘Although our legal battle to reverse this legislation has now run its course, we are continuing to fight this legislation through lobbying, and will continue to do so until this ludicrous legislation is abolished or the retrospective nature of the tax changes is removed. As the judge said himself, the so called tenant tax raises serious questions socially, politically and economically,’ he added.

However, David Whittaker, managing director of Mortgages for Business, pointed out that there are still good opportunities for landlords looking to expand their portfolios. ‘We may even see lending for buy to let purchases pick back up before the end of the year, as savvy landlords borrowing personally seek to take advantage of existing income cover ratios ahead of the introduction of the PRA’s stricter underwriting rules which come in effect on January 01,’ he said.

‘What we do know for sure is that buy to let purchases by landlords using limited companies is fast becoming the norm ahead of changes to tax relief and the new PRA guidelines will only push more investors down this route,’ he added.

‘There are mixed signals surrounding buy to let, according to Adam Tyler, chief executive officer of the National Association of Commercial Finance Brokers (NACFB), who thinks there are signs of a slight recovery in demand.

‘A thousand more buy to let loans in August than July is not a huge number, especially when you consider that the majority were remortgages, but at the same time it shows landlords and property investors are beginning to regroup,’ he said.

‘You sense, and this is definitely the feeling we get from our own brokers around the UK, that property investors have started to adjust to the new stamp duty regime. Without doubt, many landlords have started to withdraw from the sector, but at the same time others are seeing this exodus as an opportunity,’ he explained.

‘Getting a buy to let loan may now be harder, but if your house is in order the rates available are exceptionally low. Landlords also sense that it is a buyer’s market and so are able to negotiate hard on price, thus mitigating the impact of the extra 3% stamp duty,’ he added.

‘Only this week the Office for National Statistics revealed that people in the UK see property as the asset class that will deliver the best returns over time. We can only see this attitude continuing, despite the stamp duty changes introduced earlier this year,’ he concluded.

Over a third of UK landlords concerned about Brexit, latest survey shows

Some 35% of landlords in the UK are worried about Brexit and think that leaving the European Union will have a negative impact on their ability to attract tenants in the future, new research shows.

The latest findings form the monthly National Landlords Association (NLA) survey also shows that 39% believe that Brexit will have no significant impact on their business, 21% are unsure while just 5% say it will have a positive impact.

The research follows Prime Minister Teresa May’s announcement at the Conservative Party Conference that the process of the UK leaving the EU will be triggered by March 2017.

Across the UK, the findings show that more than half of landlords in central London, some 55%, believe Brexit will have a negative impact on their business, higher than any other region.

Just over a fifth of landlords in the North East, some 22%, think Brexit will have a negative impact, the lowest proportion compared to other regions of the UK.

The findings also come as the NLA launches its new podcast series Inside Property with the first presented by Richard Blanco focusing on what life after Brexit will look like for landlords.

‘These findings clearly show that a significant proportion of landlords are concerned about what Brexit will mean for their lettings business so we wanted to try to understand and make sense of the situation,’ Blanco said.

‘We now know that Article 50 will be triggered soon, but landlords still have lots of questions, like what will happen to rental demand as a consequence of Brexit, will house prices fall, or should I rethink my investment strategy?,’ he added.

1.8 million more rental homes needed

Rental demand has been climbing for some time, with two main factors driving this change. On one hand is the reality that the UK has seen a rise in the price of owning a home, which has meant more and more people choosing instead to get themselves rental properties. 

In addition to this there is the fact that there has been a rise in generation rent, where people simply choose to rent homes rather than buy their own because it is seen as more convenient and a generally more modern way to live. 

According to the latest data released by Royal Institution of Chartered Surveyors (RICS), this swelling in demand from tenants has meant that the UK struggling to keep up with demand from tenants. 

RICS said that at the moment, 86 per cent of those landlords in operation nationwide have no real intentions to increase their portfolio of rental properties. However, the UK needs this to change, with a real need for more homes to be brought onto the market in this regard. 

It said that by the end of the year 2025, the UK needs as many as 1.8 million more homes in the rental sector than it currently has. This can be addressed by the swell of build to rent properties set to come to market in the next few years, but the country will also need landlords to keep investing. 

The study said: "RICS is urging the Prime Minister to abandon David Cameron's previous home ownership focus and reverse April's Stamp Duty measures in order to address short term rental supply issues.

 

 

"However, they are recommending that Government takes a much bolder long-term approach and pioneers a new build-to-rent sector, with the private sector encouraged to build properties specifically for residential letting.

 

"It would like to see pension funds incentivised with tax breaks to build large scale rental properties with affordable elements. Additionally, local authorities holding brownfields sites should be encouraged to release land for such properties." 

 

The organisation's head of policy, Jeremy Blackburn, added: "It's time for Theresa May to get out her hard hat.

 

"We are facing a critical rental shortage and need to get Britain building in a way that benefits a cross section of society, not just the fortunate few." 

 

Should you be considering becoming a first time Landlord or adding to your current portfolio please call us for advice.  We are able to offer bespoke packages to suit all needs whether you have a large or small portfolio. From Full or Part Management to Let Only a package can be put together which suits your particular requirements.

Outlook for buy to let in UK looking rosy despite Brexit

With the predicted shock of Brexit so far not having a major impact on the UK property market the outlook for buy to let is not looking too bad with the lowest ever interest rates a potential boost.

So it is interesting to see that most landlords in the UK still consider renting out a property to be a part time activity and the majority own just one property and manage their portfolio as private individuals.

Indeed, the research commissioned by the Council of Mortgage Lenders (CML) found that rents make up less than half of a landlord's total income. But it is important to also note that there is evidence that rent is increasingly becoming a significant income stream for part time landlords.

And while most landlords still own just one property, there is an apparent trend towards larger portfolios. Between 2010 and 2016, the proportion who manage only one property fell from 78% to 63%. At the same time, the share managing two to four properties rose from 17% to 30%.

This does reinforce that part time landlords are an important part of the private rented sector in the UK and we all know those seeking to increase their portfolios have had a hard time with the extra 3% stamp duty surcharge being imposed in April and tax relief changes on the horizon.

With the current lack of housing to buy the rental sector is going to remain significant for some time and specialist lenders have been increasing the number of buy to let products available. But jumping into a buy to let portfolio needs careful consideration at a time when rental growth is slowing.

The latest lettings index from Countrywide, for example, shows that rents in London fell by 0.5% in July compared to the same month in 2015 but they increased across the UK by 1.5%, the latest index shows.

It is important to realise that there are considerable regional variations and the drop in London was the first annual fall in rents for six years and in the North of England and the Midlands the rate of rental growth hit the highest level for two years.

The most up to date index from HomeLet also shows rents still rising but this growth is slowing. In London rents were up 4% year on year and excluding the capital up 2.3%. The index report suggests that the outlook remains strong despite the growth slowing. It even adds that landlords have been able to continue securing higher rents on new tenancies.

On top of this the student rental market has been given a complete revamp in recent years with the latest research naming Edinburgh, Bristol and Brighton as the best university cities to invest in student property in the UK, with Oxford further down the list in fifth place and Cambridge seventh.

Looking forward, the fundamental forces in the private rental sector remain unchanged despite Brexit and key fundamentals could well keep it rosy, including Britain's growing population, the relative unaffordability of house prices, and the lack of new homes being built combined with the reduction in social housing.

3 Costly Defects to Look For When Viewing Properties

It’s a disappointing fact that approximately 80% of buyers don’t commission a survey before making a commitment to purchase.

Article written by Justin Burns BSc MRICS of Peter Barry Surveyors.

As a Chartered Surveyor I would obviously advocate the benefits of having a detailed survey prepared but I accept that with some properties it’s more necessary than with others; the problem is that most buyers don’t know which. I therefore thought it would be useful to come up with a list of 3 defects that are relatively easy to identify but potentially costly to repair.

1.       Roof coverings

If you have a pair of binoculars in the house, take them with you when viewing properties; that’s how surveyors do it! Missing tiles or slates will be easy to spot but general unevenness is also a sign of trouble ahead.

You’ll often learn more from inside the roof space so don’t be shy about asking to go in to the loft. If there’s sarking felt present then you can assume that the tiles or slates have been renewed in the last 40 years or so and should have plenty of life left in it yet. If that felt is breathable (smoother in appearance and thinner) then the roof covering is probably less than 20 years old.

Flat roofs can often be seen from the upper windows. Felt is the most common covering and has a lifespan of around 15 years or 25 if it is the modern ‘high performance’ type. Any bitumen type repair, creasing or tearing to the edges will indicate that the covering should be replaced. Pooling of water or a build-up of moss are signs that the surface is not draining properly and more expensive reconstruction work may be necessary.

2.       Chimneys

The first thing to check is whether they are plumb. Chimneys can start to lean as the bricks to the side that gets the brunt of the weather become frost damaged and expand. Stand in line with the stack and sight it though, a very slight lean is not a cause for concern but anything more than about 5% and you’re looking at re-building in the medium term.

Get your binoculars out again and take a close look at the brickwork. Has the pointing eroded or the bricks spalled? Spalling is the term used when the outer face of a brick comes away after suffering frost damage and is difficult to repair; patching up, even with colour matched mortar, will look terrible so you are looking at chopping out and replacing individual bricks.

The cost of doing any work at roof level is significantly increased due to the difficulty of access

3.       Dampness

Surveyors will test with a damp meter but there are signs that you can look for during a viewing.

All properties built since Victorian times will have a damp-proof course present to resist dampness rising from the ground. DPCs in older properties will normally consist of a bed of slate and can fracture and fail over time but the cause normally lies elsewhere.

High external paving levels are a common culprit. The surface of any paving that abuts an external wall should be at least 6 inches below the DPC to prevent rainwater penetrating through. Often we’ll see DPCs that are bridged, either by very high external paving, or the later application of render to the outside face of the wall. Both will allow dampness to pass around the DPC.

The most common cause of dampness is defective rainwater goods. A leaking gutter that is left unchecked can saturate a wall within a short period of time and if that wall belongs to an older style property and is solid the internal surface will also be wet.

Dampness often leads to other defects, such as deterioration to adjacent timbers, so the problem may be more widespread than is immediately apparent.

If you find any of the defects outlined above you will want to make allowance for the necessary remedial works when negotiating.

An RICS Homebuyer Report will flag up all such defects and could be a useful tool when re-negotiating the price. Most surveyors will also be happy to provide costings as part of a more detailed building survey. The alternative method is to arrange estimates from suitable qualified tradespeople.

 

Bychoice ask where next for the housing market?

One month since the historic Brexit vote, Jason Hydes, Branch Manager of Bychoice takes a look at how the local market is shaping up.

The market in Bury St Edmunds continues to remain buoyant with many new houses coming to the market and no shortage of buyers registering their interest in them.

One of the significant benefits is that Interest rates are expected to remain below 2% for the next 18 months, and with 10 year fixed deals available at under 3%, there is a ‘once in a lifetime’ opportunity for homeowners to secure exceptional deals, reducing inherent risk. Upsizing is also more attractive, especially if prices are expected to nudge upwards at faster rates than mortgage interest. If you’re a first-time buyer or looking to upsize, this could be the perfect time, contact Bychoice on 01284 769598 to find out how this market could be ideal for you. 

Marcus Whewell, CEO of The Guild of Professional Estate agents, comments, ‘The market (outside of London) actually looks steady and predictable. Prices are holding up, properties are selling (on average) for at least 99% of the asking price and withdrawals are no higher than pre-referendum. Mortgage rates continue to be the most competitive in history.’

London is a slightly different story, as Marcus Whewell, CEO of The Guild of Professional Estate Agents, explains: ‘Brexit essentially acted as a catalyst to the inevitable correction to the overheated prices present in the Spring. Offers, prices achieved and completions all adversely affected at least in the short term. The London market has always fluctuated more than the rest of the UK as overseas and speculative investments help drive activity. However, recent sterling growth should help restore some confidence, as should the early political appointments and the conciliatory tone being adopted from Downing Street.’

Marcus comments, ‘Looking at the bigger picture, there are strong reasons to believe the residential market will remain healthy for the next few years’.

Supply and demand remains high; the UK population is expected to continue growing by up to 50,000 per annum and to meet demand this the UK needs at least 200,000 new homes every year. Currently less than half of this number are being built. This is only amplified by the changes in trends and demographics such as more single-person households.

If you are interested in selling your home contact Bychoice on 01284 769598.

Is Buying Cheaper Than Renting?

Work out your rental costs for a full 12 months, including renewing your contract
Calculate other bills you pay eg contents insurance, utility, council tax
Find a property you would like to own
Search ‘house prices sold’ information eg mouseprice.com to find out what it might sell for
Calculate how much deposit you would have to put down on the property, eg 5% or 25%?
Work out what the monthly mortgage would be now and when interest rates increase to 5%, eg you can use a mortgage calculator such as the BBC
Write down all of the costs you don’t pay now which you would pay if you owned a property:-
Water bills
Buildings insurance
Other utility bills (especially if you rent a room with all bills included)
Service and ground rent charges if a flat or new build
Renovation costs
On-going maintenance eg £1,000 a year for a house more than 25 years old
Safety checks eg gas and/or electrics
New appliances which the landlord would have previously replaced
Compare the upfront costs of buying including a deposit with the upfront costs of renting
Compare the on-going costs of buying versus renting