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.