Supply of buy-to-let deals fails to match demand - Moneysupermarket
Enquiries for buy-to-let mortgages have increased by nearly 50 per cent since August 2008 and products available have diminished by more than 70 per cent during the same period, according to the website.
It added buy-to-let mortgage rates have not fallen by as much as mainstream mortgage rates following the decreases in interest rates.
Since August last year the average rate for mainstream mortgages has reduced by 1.95 per cent, while buy-to-let rates have fallen by 1.13 per cent, according to Moneysupermarket.
Hannah-Mercedes Skenfield, mortgage channel manager of Moneysupermarket, said new and existing buy-to-let landlords faced a difficult task in finding a suitable mortgage.
She added: "Because banks are targeting safer borrowers for their limited mortgage funds, they have either abandoned or severely restricted their involvement in the buy-to-let market.
"Even if you are lucky enough to meet the tighter eligibility criteria and have found a suitable buy-to-let mortgage product, you must watch out for the fees levied on arranging the deal, as these can be extortionate."
Joy Dunbar
www.ftadviser.com
Wednesday, 02 September 2009
Residential rents rise in June
As a positive sign for Britain’s buy-to-let sector, residential rents rose by 0.5 percent during the month of June, according to statistics released by FindaProperty.com. As such, the average residential rent in the United Kingdom now stands at £823, signaling an increase of £4. The reason behind this change in fortunes has to do with the fact that the oversupply of available residential rental properties is no longer as dramatic as it was earlier this year. A growing number of landlords who only entered the buy-to-let sector on a temporary basis because they were unable to sell their homes are now trying to enter the housing sales market again. Additionally, some developers have decided to halt new constructions in highly-saturated areas. There have been signs more recently that the housing market may start to improve, thanks in large part to the fact that interest rates remain at historic lows.
Rental yields in the UK were generally unchanged in June, and now stand at an average of 4.56 percent. Yields, however, are somewhat higher in the case of flats (5.24 percent) than for rental houses (4.33 percent). While both this and rising rents may come as good news to landlords, buy-to-let experts emphasize that the situation remains much more challenging than a year ago, when there were three times fewer properties available for rent, coupled with similar demand. The most positive news is not the fact that rents are rising, but that supply has fallen for the first time in a year and half, as this is what may lead to a lasting recovery.
Monday, 29 June 2009
Bank keeps base rate at 0.5% - buy to let mortgages
The cost of borrowing will remain at 0.5 per cent for another month following the decision by the Bank of England's monetary policy committee (MPC) to freeze the base rate.
People with buy to let mortgages will have seen that the interest rate has been at this current record low level ever since March this year.
More of the same is expected over the remainder of the year and - in some experts' eyes - longer than that.
Ahead of yesterday's MPC announcement, UK economist at Capital Economics Vicky Redwood predicted that the base rate may not change in the next 18 months.
The MPC's monthly statement also indicated that the asset purchasing programme, which is worth £125 billion and is financed by central bank reserves, will continue.
"The committee expects that the announced programme will take another two months to complete," it stated.
Monday, 08 June 2009
Buy-to-let: rental market 'may have bottomed out'
The rental market showed signs of stabilising in May with average rents remaining unchanged for the first time in nine months, research has showed.
The average cost of a rented property was £819 during the month, unchanged from April and the first time since August 2008 that the cost has not fallen, according to website FindaProperty.com.
The rate at which people are putting properties up for rent also eased in May, in a further sign that the bottom of the market may have been reached.
The total number of properties available to let rose by 2.7pc compared with the previous month, well down on the 14.5pc jump in availability seen in May last year.
The number of rental homes has soared since house prices first started to fall, as people unable to sell their home opted to rent it out instead. The supply of rental property more than doubled in the past year, leading to a 6pc fall in average rents.
The dramatic rise in the number of homes available to rent has increased competition for tenants, leading to the average time a property is empty between lets increasing to 65 days in May, 16 days longer than a year earlier.
Andrew Smith of FindaProperty.com said: "A slowing in the increase of supply and signs that asking rents are beginning to stabilise indicate that we may be close to the bottom of the market.
"However, the house and flats markets continue to polar*ise, with houses starting to show a sustained recovery thanks to falling supply levels and rising prices, while the flat market seems to be lagging behind with increasing supply levels and asking rents that continue to fall."
The number of houses available to rent fell for the third month in a row in May, dropping by 1.2pc, while the average rent edged up by 0.1pc to £848.
But the supply of flats jumped by 5pc during the month, the six consecutive increase, leading to a 0.3pc reduction in average rents to £758.
Friday, 05 June 2009
Repossessed properties attract buy-to-let investors
The Council of Mortgage Lenders recently released statistics showing that the number of bank repossessions in the residential properties sector has increased by 23 percent since late 2008 and by nearly 50 percent over the past year. Even while a growing number of homeowners and landlords have been very negatively impacted by repossessions, some believe that repossessed properties now offer the best investment opportunities for those who are interested in either entering the buy-to-let sector, or simply expanding their current portfolios. Most of these properties are offered to the public through auctions, but those with experience in this field warn newcomers to be cautious, as a seemingly great deal on a residential property could conceal significant financial and legal risks.
Some suggest that those interested in purchasing repossessed buy-to-let properties consult with specialists, such as Stepping Stones. Headquartered in Banbury, Stepping Stones carefully examine properties available through auctions, before short-listing around 2 percent as ones that may truly be great investment opportunities. It is very important not to fall into the trap of making a quick offer at an auction, without first conducting serious research, because there will be little or no opportunity to back out once a bidder has won. In fact, transactions for buy-to-let properties are usually completed within a two week timeframe, leaving little room for the prospective landlord to prepare for his/her new acquisition. Yet firms such as Stepping Stones aim to open up the repossessed market to smaller investors and those with much less experience in building large portfolios, mainly by providing them with a catalogue of pre-screened opportunities and by limiting the risk involved in these transactions.
Thursday, 04 June 2009
Rush to rent as house sales dry up
The number of people instructing letting agents to rent out their homes rose at a record pace during the second quarter of 2008, as increasing numbers of would-be property sellers struggled to offload their home at a reasonable price.
According to the Royal Institution of Chartered Surveyors' (Rics) quarterly residential letting survey, published today, the number of new instructions received by letting agents increased at the fastest pace in the survey's 10-year history, providing the evidence that increasing numbers of homeowners are deciding they would rather rent out their property than sell it at a knock-down price.
Some 43 per cent of chartered surveyors reported a rise in instructions over the quarter, up from 30 per cent during the first three months of the year.
"The lettings market is booming, with many vendors opting to rent their property while sales in the housing market continue to dry up," said James Scott-Lee, a spokesman for Rics. "Many are willing to 'hold' and await the return of capital appreciation. Becoming a landlord is now an increasingly profitable option with rising rents and yields offering good returns.
"Established investors have been reaping the benefits of the housing downturn for some time and will continue to do so in the short term. However, ever-increasing supply could have an impact on rental growth as tenant options increase."
Property prices have fallen by almost 10 per cent over the past year, and much faster in some areas of the country, as the number of buyers has fallen sharply. Meanwhile, rents have been slowly increasing in most regions, improving prospects for amateur landlords.
However, the growth in the number of new landlords will put further strain on the buy-to-let mortgage sector, which is already struggling to meet demand. Bradford and Bingley and Paragon, the sector's two largest lenders, have pulled back from writing any significant volume of new business in recent months, creating a glut of supply. According to Moneysupermarket.com, the financial comparison site, the number of buy-to-let mortgage products on offer has fallen from more than 4,300 to just over 300 over the past year, meaning only those with excellent credit records and a significant amount of equity in their homes are being accepted for new loans.
David Hollingworth of London & Country, the fee-free mortgage adviser, said homeowners need to think carefully before deciding to become an amateur landlord. "This is a drastic measure, and will usually result in taking on a much greater level of mortgage debt than originally planned at a time when credit is more expensive and not as freely available."
"Borrowers need to fully understand the costs and risks that come with being a landlord before putting additional stress on their finances. Both properties are likely to be subject to larger mortgages, and payments need to be met whether there are tenants in place or not."
The growing number of new amateur landlords has created a two-speed market, with many amateur buy-to-let investors now trying to exit the market in response to the collapse in prices.
Thousands who bought properties over the past few years are still struggling to generate enough rent to pay their mortgages – and are now facing even higher borrowing costs when they come to refinance. While they had hoped a continued rise in capital values would help them to achieve a profit, the collapse in the market has encouraged many to sell.
Meanwhile, the number of landlords defaulting on their mortgages has risen sharply over the past few months, and Bradford & Bingley has predicted that the market may only get worse during the second half of the year.
Tuesday, 19 August 2008
Buy to let getting a boost from ever rising rents
Soaring rents in the UK makes buy to let a good prospect for property investors as demand for rental housing rises faster than supply...
Soaring rents in the UK makes buy to let a good prospect for property investors as demand for rental housing rises faster than supply.
The Royal Institution of Chartered Surveyors latest residential lettings survey shows that 28% more surveyors have reported a rise in tenant lettings and praised the move as a positive sign for landlords. But the British Property Federation, the trade body for developers, is predicting it will lead to a new crisis.
Because mortgage providers are continuing to hold back, the demand for rental housing is rising faster than supply leading to an escalation in rents.
'These figures highlight another impending housing crisis - soaring rents,' said Ian Fletcher, the BPF's residential director. 'If demand continues to rise while supply does not, those who can't buy or access social housing will have nowhere to go.'
The organisation believes developers should now be encouraged to build new homes at a time when they are all slowing down because of the credit crunch. 'Large investors building new family homes specifically to let could be encouraged with minor planning and tax changes,' he added.
But for landlords the news is welcome. 'The sales market's loss is the lettings market's gain,' said RICS spokesperson James Scott-Lee. 'Some would-be sellers are retreating from selling and letting or re-letting their properties as they wait for mortgage lenders to offer buyers more favourable lending criteria.
'With rental expectations high, landlords will continue to enjoy this increasingly lucrative market. Fears that a change in capital gains tax would bring a new wave of sellers have to date not been realised,' he concluded.
John Heron, managing director of Paragon Mortgages, said: 'Rents have been rising at the fastest rate we have seen since the Buy-to-Let Index was first published in 2001. Buy-to-let provides accommodation for many people, particularly in the current environment with people choosing not to buy but rent instead.'
He believes there is a lot of opportunity for investors. 'This presents a good buying opportunity for investors, who remain upbeat about the future. A massive 90 per cent of them plan to hold on to their portfolios for the long-term - 17 years according to ARLA's latest research, and 40 per cent of them intend to invest more in the private rented sector this year.
'Buy-to-let has certain counter-cyclical characteristics which mean it will remain resilient, and indeed will outperform the market, at times of lower economic confidence and growth,' he added.
Wednesday, 28 May 2008
Landlords: 10 ways to beat the crunch
Banks have tightened their criteria for buy-to-let loans. Paul Farrow suggests some handy tips on how to get your houses in order
Owning a second property used to be a sure-fire way to make money. Until recently, the wannabe amateur landlord – spurred on by a plethora of property makeover programmes that made making money from bricks and mortar look easy – would have found their bank managers in a receptive and generous mood.
Cheap buy-to-let mortgages were easy to come by as lenders relaxed their criteria, no longer demanding a hefty 30 per cent deposit or that the rent comfortably covered the mortgage. Now the market has soured, banks are increasingly picky about who they lend to. Falling property values are causing headaches for investors who were in it for a quick buck.
Rather than panic, it's a good a time to check your buy-to-let portfolio to see whether you are making the most of it. Here are 10 things you can do to help you get your houses in order.
1. Put up your rent
First, some good news. Demand for rented properties is on the increase, with average rents across the country at their highest for a decade. Subject to your rental agreements, you may have scope to increase the rent – especially if you spruce up a property.
Katie Tucker at mortgage broker John Charcol says: "Put in the elbow grease to make your property genuinely attractive for viewers. The extra £50 a month you could make might be vital."
2. Claim all your tax allowances
The taxman treats investment property in much the same way as any other business. You can claim tax relief against rental income for most of your running expenses, including repairs, agents' fees, any utility bills you pay, as well as a general allowance of 10 per cent of rental income for wear and tear if the property is furnished. This can cover the cost of beds or sofas, televisions, fridges and freezers, carpets and floor-coverings.
3. Make the most of mortgage tax relief
Your biggest expense is likely to be mortgage interest. Landlords have to pay tax on their rental income, but the amount of mortgage interest paid can be offset against this income to reduce your tax bill.
It may also make sense to remortgage your buy-to-let property if you have scope – then you can use the extra borrowing to pay down the mortgage on your primary residence. This way, you'll get more relief and have less to pay on your main property.
Mike Warburton at accountants Grant Thornton adds: "I recommend investors to open up a separate rental business bank account and make sure that any extra money borrowed goes into the business account. If you later draw out from that account to buy something else, it would then be treated as drawings from your business."
4. Plan ahead to shrink the size of your loan
Banks have been reducing the maximum amount they will lend to as little as 75 per cent of a property's value. Consider setting up a savings account in which any spare rent can accrue so you can reduce the loan-to-value when the time to remortgage comes.
Charcol's Katie Tucker says: "Even if you can borrow the maximum you want, be aware that you might not have the option to remortgage at the high loan-to-value in two years' time, and property can't be relied upon to increase in value. A bigger deposit is the order of the day here."
5. Don't disregard high arrangement fees
Look at any mortgage 'best buy' table and all the leading buy-to-let rates have either percentage fees or high flat rates. For example, Abbey has a two-year fix at 5.34 per cent with £5,999 fee, while Alliance & Leicester has the same rate but with a 2.5 per cent fee.
Depending on the size of your mortgage, it might be worth paying a seemingly high fee rather than one that's calculated as a percentage of the loan.
6. Keep your eye out for a bargain
The crunch is not bad news for everyone. There are buying opportunities everywhere if you know where to look. Although novice landlords have been scared off, savvy landlords are still expanding their portfolios where they spot opportunities to do so and don't overstretch themselves. Falling prices in some areas have resulted in lower-than-market values, particularly on repossessed properties.
If you are in the market for a bargain, it is worth haggling. Those desperate to sell may drop their price.
7. Check that your credit rating is in order
Just as with any borrowing, lenders that offer buy-to-let loans are getting picky on who they lend to. A missed credit card payment could be held against you if you are remortgaging.
Get your credit report and check that it is in order and there are no mistakes on it – simply forgetting to put yourself on the electoral roll will harm your rating.
8. Think long-term
In the present climate, the temptation to cut your losses and sell is strong. But there is potentially huge benefit in staying put and making your existing portfolio work harder.
Melanie Bien at Savills Private Finance adds: "Are you charging market rent or is it time to consider an increase (within the constraints of your tenancy agreements, of course)? If you haven't remortgaged for some time, you may be on your lender's standard variable rate and paying more interest than you need to spend on your mortgage payments; consider switching deals. Can you get an extra room in a property, thereby increasing your rental income?"
9. Ditch underperforming assets
While you may consider it a bad time to sell, the most successful landlords are the most ruthless. If one of your properties is not performing well, and has struggled for months, it may be time to cut your losses.
"The smart landlord knows when to give up and move on. One advantage is that you may save on capital gains tax since the new 18 per cent flat rate was introduced. Learn a lesson and move on.
10. It's not all doom and gloom…
While the mortgage choices for buy-to-let borrowers are now fewer, there are still plenty of lenders still keen for business. Bucking the downward trend, Norwich & Peterborough Building Society (www.npbs.co.uk), for instance, has actually increased the maximum facility on portfolios to £5,000,000, and allows rent to be spread between the properties.
Tuesday, 08 April 2008
Watch out for ‘side-line’ letting agencies
Recent research shows that almost 70 percent of sales agents who do not currently offer a lettings service would consider moving into this area to supplement their income if the residential market slows substantially. Many have already done so.
However, Ben Jones of Stepping Stones, the independent letting agents in Parsons Street, is warning landlords to be wary of agents who have taken up lettings as a ‘side-line’ in tough times and who may not have the knowledge and expertise needed to provide a professional, reliable service.
“A good letting agent needs a thorough understanding of the complex legislation surrounding letting; an in-depth knowledge of the local letting market; a firm grip on what is happening in the property market generally; and the ability to look after the needs of a range of clients efficiently and professionally”.
Ben said: “Letting is not something you can easily dip into and out of when it suits. There is a lot at stake, not least the safety and wellbeing of tenants and the success or failure of a landlord’s investment. Getting it wrong can have dire consequences for landlords, including huge legal expenses, loss of rent, long void periods, loss of tenant’s deposit and penalties for not complying with legislation. For tenants it can be a matter of life and death if legislation regarding the safety of the property and its contents is not complied with.”
With more than 20 different regulations, acts and rules governing lettings - and a Housing Act that allows further regulations to be introduced by Ministers without reverting to the House of Commons - Ben believes it is now more important than ever that agents providing a lettings service should be experienced with a thorough and up-to-date knowledge of all current and forthcoming legislation and how it affects landlords and tenants.
For peace of mind, Stepping Stones advice to landlords and tenants is to make sure that any agent they deal with is a member of – and therefore regulated by - a professional association such as the National Approved Letting Scheme (NALS).
Ben added: “Ideally your chosen letting agent should specialise in lettings, with many years of experience in the industry and a good local reputation. The staff should be trained with an excellent understanding of your local market. And most importantly, they should be completely impartial; we strongly advise landlords never to take the advice of an agent who is also selling you a property.”
Monday, 31 March 2008
Buy-to-let returns on the rise
Last year saw a growth in profit for buy-to-let investors, who saw their returns rise to 16.3 per cent, up from 13.5 per cent in 2006.
Investors in Northern Ireland made the strongest gains in 2007 with total returns of 44.3 per cent, according to a review from Birmingham Midshires.
The average price of typical by-to-let property in the UK rose to £154,795, an increase of 10.9 per cent.
Meanwhile rental yield on those properties rose marginally to 5.4 per cent.
Tenants in Britain paid an average of £698 per month last year, an increase of 13.1 per cent on the previous year.
Steven Crawshaw, chief executive of specialist buy-to-let mortgage lender Bradford & Bingley, recently warned that the buy-to-let market was becoming "a rich mans game", the Telegraph reported.
He predicted that stricter lending criteria and the rising cost of taking out specialist mortgages would leave the market only accessible to "professional landlords and the wealthy", according to the paper.
Monday, 18 February 2008
If only it was like this for all of us!
BARBARA FOLLETT, the Labour minister and wife of millionaire novelist Ken Follett, has claimed more than £120,000 in MPs’ allowances to pay for a London home, while owning a buy-to-let flat in the capital.
Follett last year claimed £22,107 in expenses for a central London flat bought by her husband seven years ago. But it was confirmed last week that she owns another flat near the houses of parliament that she could have used instead.
The MP also has the use of the family home in Hertfordshire, less than a 30-minute rail commute from London. The use of public funds to effectively subsidise an extra London home for the Folletts - who are together worth more than £15m - has prompted new calls for a review of the controversial housing allowance.
Matthew Elliott, of the TaxPayers’ Alliance, said: “This is extraordinary. It’s wrong that Barbara Follett should be claiming this money for another home when she already has a flat she could be using for parliamentary duties.”
A spokesman for Follett would not comment on why the cost to the public purse of the central London flat was so high. He said it was not practical for her to live in the other flat, which she could claim expenses on if she lived there.
“Everything she has claimed is in accordance with the rules,” said the spokesman. “The southeast London flat is her own personal investment.”
Follett’s housing expenses claims - which total £120,098 since 2001 - do not include any mortgage interest repayments. MPs are entitled to claim for insurance, utility bills, furnishings, security costs and maintenance.
Barbara Follett became an MP in 1997, after acting as an image consultant for the front bench. Even now she is paid to act as a “communications consultant” to her husband, who is estimated to have sold 100m copies of his novels.
The Folletts - sometimes referred to by Labourites as “Barbie and Ken” - were a golden couple of new Labour, acting as enthusiastic fundraisers and holding parties at their house on Cheyne Walk, Chelsea.
The couple reportedly fell out with the Blairs, after they arrived at a private party at the Folletts’ house, to be met by a throng of photographers.
The relationship further deteriorated in 2000 after Ken Follett described Labour spin doctors as “the rent boys” of politics, but when Gordon Brown became prime minister Barbara Follett was made pensions minister. Ken Follett made two donations to Harriet Harman’s deputy leadership campaign.
The other properties owned by the Folletts include a country house in Hertfordshire, a holiday home in Antigua and a property in Cape Town. Follett has declared in the MPs’ register of interests that she is letting her London flat.
Follett is among a number of MPs who have used the allowance to help fund extensive property portfolios. Among MPs who let properties is Douglas Hogg, the Conservative MP and former agriculture minister, who owns three properties in London which he lets.
He claimed the full amount available – £22,110 – in housing allowances last year, but has previously said he does not claim any expenses for his London properties.
Celia Barlow, the Labour MP for Hove, owns a maisonette and a one-bedroom flat in London, which are let, and claims £22,110 accommodation costs. MPs can have the choice to claim the housing allowance on a London property or on their constituency home.
The Liberal Democrat MP Norman Baker, who has campaigned for greater transparency in MPs’ expenses, said the rules on housing allowances should be tightened. “I don’t think that an MP should be profiting from capital gains increase. They should either rent, or stay in a hotel or return the uplift on property value to the taxpayer.
“There should be more auditing and spot checks. The issue is that if you have a house in London, it is difficult to see how you can justify getting the taxpayer to pay for a second one.”
MPs are resisting demands from Richard Thomas, the information commissioner, to oblige MPs to detail how they manage to claim more than £20,000 on properties when they have no mortgages.
From The Times Online.
Wednesday, 06 February 2008
Buy-to-let investors hold the key to predicting how far house prices will fall
Suddenly house prices are falling and the daily obsession is predicting how far down can they go. The evidence so far is that the softening will continue - with valuations falling by up to a tenth – but that the downturn will not turn into a rout.
The joker in the pack is the buy-to-let investor. Purchasing by buy-to-let investors has slowed because of the impact of the credit squeeze, but the consensus is that the market will not be overwhelmed by sales from cash-strapped owners desperate to quit the rental market.
Fionnuala Earley, the chief economist at Nationwide, is particularly optimistic. She predicts that cuts in interest rates and the sheer number of tenants will help to keep the buy-to-let investor in business.
“There will be those investors who want to crystallise gains, but those will be the speculators who are struggling to get tenants,” Ms Earley said. “We are in a market where there is great tenant demand because first-time buyers are unable to get on to the housing ladder.”
Ed Stansfield, a property economist at Capital Economics, does not expect a wave of buy-to-let sellers to flood the market. However, he believes that their “hibernation” will continue long into the year.
The growing importance of the buy-to-let investor market has been underlined by separate figures published last month. The Council of Mortgage Lenders revealed that during the past year the number of buy-to-let landlords had outstripped first-time buyers for the first time since records began. It is estimated that 340,000 loans and remortgages were granted to buy-to-let landlords in 2007.
Meanwhile, Halifax estimated that only 300,000 first-time buyers had entered the market last year, 44 per cent fewer than in 2002 and the lowest level since 1980. Would-be buyers were pushed aside by high prices and the tightening of lending criteria, which makes it harder for people to get mortgages.
Nationwide and Halifax both expect house prices to remain flat next year, but that view is not universal. Capital Economics forecasts a 5 per cent decline in 2008 and an 8 per cent fall in 2009. David Miles, chief economist at Morgan Stanley, expects house prices this year to suffer a 10 per cent fall, bringing them back to where they started 2007. Savills, the estate agency, predicts that turnover will be down by a fifth this year, Knight Frank forecasts a 12 per cent drop in volume while Hometrack expects a 16.5 per cent reduction in properties sold.
London is usually the first part of the housing market to slow and the first to pick up. Ms Earley says that the situation in the capital continues to be characterised by “chronic undersupply”, with the shortage of attractive stock giving support to underpressure valuations.
Peter Rollings, managing director of Marsh & Parsons, a 14-branch agency that covers Central and South West London, expects asking prices to come down to levels seen in the middle of last year. Mr Rollings said: “It’s gloom out there but not doom. People are waiting on the sidelines for a spot of bargain hunting. Families, however, can only put off moving for a certain amount of time. Spring might just come a little later this year.”
Prime Central London properties worth £2 million or more have started to show signs of life during the past two weeks, Mr Rollings said, with sealed bids still the norm for houses in Kensington and Chelsea worth at least £4 million.
For the majority of buyers and sellers who do not earn six-figure bonuses, there will a long winter waiting in hope for a cut in interest rates to materialise. Without it, London’s “standard market” of between £350,000 and £1.5 million will continue to struggle.
From The Times Online.
. Wednesday, 02 January 2008
Moderate recovery prospect leaves buy-to-let well placed
One of the most frequently highlighted statistics in the property investment sector has been the rise in rents as the housing market has declined. With more and more would-be first-time buyers opting to stay out of the market in these uncertain times, rental demand has been higher and has pushed up prices. Thus while buy-to-let is less of an enticing prospect than it was for those buying in the hope of rapid price inflation, it presently offers a good rental return for long-term investors.
It was for this reason that buy-to-let landlords have remained optimistic about the future, with a recent Bradford & Bingley survey finding that 86 per cent of them plan to either maintain or expand their portfolios in the year ahead. But what, some may ask, of the prospects for the current market circumstances to remain as they are? Will the housing market continue to slow, leaving landlords in an ever healthier position, or will a renewed housing boom change matters?
The most recent evidence appears to provide good reasons to believe the downward trend is continuing for now. British Bankers' Association statistics produced earlier this week showed that secured lending is still rising, but the increase in November was less than it was in October, falling from £4.8 billion to £4.3 billion. Both figures in turn indicate a longer-term slowdown, with the average monthly increase over the last six months being £5.5 billion.
Similarly, Nationwide's figures for house prices have also indicated a house price fall for the second successive month, down 0.5 per cent in December. This is less than the 0.8 per cent recorded in November, although the latter figure may itself have been a correction of the 1.1 per cent rise recorded in October, a figure which was out of keeping with those supplied by other surveys in the autumn (these typically were well under one per cent monthly inflation).
Of course, one major factor in the coming months will be interest rates. Already down this month, Nationwide's chief economist Fionnuala Earley predicted at least two cuts and possibly more. However, she suggested, this may not have the effect some hope.
She said: "It is true that lower interest rates will probably help market activity recover somewhat later in 2008, as lower house price growth restores some affordability and allows pent-up demand from first-time buyers to be released."
However, Ms Earley continued, this would not be a repeat of 2005, since affordability is worse and interest rates are falling from a higher level. She concluded: "This time around lower interest rates are more likely to stabilise market activity rather than re-ignite it."
This may be not entirely a bad thing for first-time buyers, since a gradual recovery will enable first-time buyer incomes to play catch-up rather than affordability to soar as a result of a price crash that leaves some in negative equity. Indeed, the sort of circumstances in the wider economy which could make a house crash possible - such as a recession like that of the early 1990s - is what the Bank of England will be seeking to avoid by cutting rates, as the monetary policy committee minutes revealed.
Such a gradual recovery may mean a slowing in the rate of rental price rises. This may happen anyway to avoid pricing people out of the market, but if Ms Earley is right, this will occur slowly and in a way that will give landlords plenty of time to adjust. Whatever else 2008 brings, rapid changes in market circumstances, be they price or affordability, are not what the forecasters are predicting.
Saturday, 29 December 2007
Buy-to-let landlords "optimistic" about new year
Most buy-to-let investors have a positive outlook for next year, according to a new survey by a mortgage provider.
The study conducted by Alliance & Leicester found that 71 per cent of buy-to-let landlords believe that their overall prospects for next year were either "good or very good".
A further 77 per cent said that they were making a profit from their investments, of which 22 per cent have used the income generated by their properties to build up their savings.
Jeremy Claridge, head of specialist mortgages at Alliance & Leicester, said it is "encouraging" that landlords are feeling "buoyant" about the new year.
"Regardless of a tough financial year, it is clear the buy-to-let property market is still healthy for longstanding landlords, especially for those in the south-east of the country," he commented.
In related news, the Royal Institution of Chartered Surveyors reported this week that the rate of growth in tenant demand for rental property has "moderated" in recent months
. Wednesday, 19 December 2007
Buy to let investment hints
The credit crunch has sent shock waves through financial markets and made many people cautious about where they place their hard-earned investment money. Ben Jones explains why buy-to-let property can provide an attractive haven in times of trouble, provided investors are prepared to do their homework first.
DESPITE the uncertainty in both the financial and property markets, buy-to- let investors remain stoical about current difficulties and confident about the future.
There is certainly no sense of panic in the findings of a recent survey by the Association of Residential Letting Agents. Arla found that more than half of all buy-to-let investors plan to increase their portfolios over the coming year. Nine out of ten say they won’t sell their properties even if prices start to fall.
More than half of all landlords are investing for long-term capital gain, with only 2.5%, looking to make short-term capital gains.
The tendency to take a long-term view is one of the reasons why buy-to-let investors are able to ride out short-term difficulties.
However, anyone considering entering the market should do their homework first to make sure they invest their money wisely to reduce risk and maximize returns. The old adage of location, location, location still holds true so great care should be taken before deciding what kind of property to buy and where to buy it.
For example, you should think twice before you take on newly built flats in city centres. There is a surplus in many areas and so the chances of losing money are high. It may also be more difficult to get a mortgage because there have been allegations of fraudulent borrowing on new build properties. Some syndicates of investors have been colluding with developers to inflate the price of new build flats so that they qualify for higher mortgages.
It means that in reality the property may be worth less than the mortgage leaving the lender badly exposed if the borrower defaults and the property has to be repossessed. Not surprisingly, banks have become more reluctant to lend money for such properties.
The current sub-prime mortgage crisis and the difficulties faced by Northern Rock have only made things worse. As well as being cautious about new build flats, make sure you know the area well before buying any property and understand the needs of the kind of tenant you hope to attract.
Take location into account as well as the availability of public transport, local amenities, schools and the proximity to colleges or places of work. For example, it would be inadvisable to try to rent to students if the property is miles from their college. On the other hand, it might be difficult to rent out a family home if it is right in the middle of a noisy student area.
Investors also need to be familiar with certain legal obligations. For example, you will need a licence from your local authority if you want to rent out homes of multiple occupation such as student flats.
The Housing Act also places obligations on landlords to ensure their properties are safe, secure and free from hazards. The licence is not just a legal requirement. You will probably need it to get funding to buy your property.
New investors will also need to familiarise themselves with the tenancy deposit scheme. When a tenant pays a deposit, the landlord has 14 days to hand it over to a government-approved private company. The scheme is designed to protect tenants from unscrupulous landlords.
The buy-to-let market remains strong and even though house prices are beginning to cool, it seems there is no shortage of investors wanting to get involved. According to a survey by Mintel, the buy-to-let market could double in the next three years. Many of those new investors will only be taking on one or two properties and will see it as a nest egg for their retirement.
If people are prepared to take a long-term view, do their homework and meet all the legal requirements then there is no reason why buy-to-let should not prove a successful investment.
Friday, 14 December 2007
Buy to let investment hints
The credit crunch has sent shock waves through financial markets and made many people cautious about where they place their hard-earned investment money. Ben Jones explains why buy-to-let property can provide an attractive haven in times of trouble, provided investors are prepared to do their homework first.
DESPITE the uncertainty in both the financial and property markets, buy-to- let investors remain stoical about current difficulties and confident about the future.
There is certainly no sense of panic in the findings of a recent survey by the Association of Residential Letting Agents. Arla found that more than half of all buy-to-let investors plan to increase their portfolios over the coming year. Nine out of ten say they won’t sell their properties even if prices start to fall.
More than half of all landlords are investing for long-term capital gain, with only 2.5%, looking to make short-term capital gains.
The tendency to take a long-term view is one of the reasons why buy-to-let investors are able to ride out short-term difficulties.
However, anyone considering entering the market should do their homework first to make sure they invest their money wisely to reduce risk and maximize returns. The old adage of location, location, location still holds true so great care should be taken before deciding what kind of property to buy and where to buy it.
For example, you should think twice before you take on newly built flats in city centres. There is a surplus in many areas and so the chances of losing money are high. It may also be more difficult to get a mortgage because there have been allegations of fraudulent borrowing on new build properties. Some syndicates of investors have been colluding with developers to inflate the price of new build flats so that they qualify for higher mortgages.
It means that in reality the property may be worth less than the mortgage leaving the lender badly exposed if the borrower defaults and the property has to be repossessed. Not surprisingly, banks have become more reluctant to lend money for such properties.
The current sub-prime mortgage crisis and the difficulties faced by Northern Rock have only made things worse. As well as being cautious about new build flats, make sure you know the area well before buying any property and understand the needs of the kind of tenant you hope to attract.
Take location into account as well as the availability of public transport, local amenities, schools and the proximity to colleges or places of work. For example, it would be inadvisable to try to rent to students if the property is miles from their college. On the other hand, it might be difficult to rent out a family home if it is right in the middle of a noisy student area.
Investors also need to be familiar with certain legal obligations. For example, you will need a licence from your local authority if you want to rent out homes of multiple occupation such as student flats.
The Housing Act also places obligations on landlords to ensure their properties are safe, secure and free from hazards. The licence is not just a legal requirement. You will probably need it to get funding to buy your property.
New investors will also need to familiarise themselves with the tenancy deposit scheme. When a tenant pays a deposit, the landlord has 14 days to hand it over to a government-approved private company. The scheme is designed to protect tenants from unscrupulous landlords.
The buy-to-let market remains strong and even though house prices are beginning to cool, it seems there is no shortage of investors wanting to get involved. According to a survey by Mintel, the buy-to-let market could double in the next three years. Many of those new investors will only be taking on one or two properties and will see it as a nest egg for their retirement.
If people are prepared to take a long-term view, do their homework and meet all the legal requirements then there is no reason why buy-to-let should not prove a successful investment.
Friday, 14 December 2007
Buy-to-let rents hit record high in October
According to lender Paragon’s latest buy-to-let index, average annual rents have reached record levels in the UK. Strong tenant demand for rented accommodation has resulted in average annual rents climbing to £11,066 in October.
This constitutes a 10% increase on the level of 2006 according to Paragon. Furthermore Paragon’s figures also show that yields remain steady at 6%, while total annual returns on the average property purchased a year ago have increased to 15.5% compared with 14.2% in September.
John Heron of Paragon said the figures suggested professional landlords were continuing to invest in property for which there is strong and sustainable tenant demand. Mr Heron added that there is solid and growing demand for decent, affordable rented homes in all parts of the country, but it is essential landlords purchase the type of property that meets tenants’ needs and expectations.
The group also said that rents are being supported by limited supply, with many prospective homebuyers putting off purchasing a home following reports of a slowdown in the property market, or a possible crash.
According to research from the National Landlords Association, 25% of landlords are looking to increase their property portfolio over the next few years.
Friday, 07 December 2007
Bank decides upon rate cut - buy to let mortgages
Borrowers with Buy to Let Mortgages have received a welcome boost today following the Bank of England''s decision to cut interest rates to 5.5 per cent.
The cut, the first such fall in more than two years, came as a result of fears regarding the extent to which the UK economy is slowing down.
The Bank said that it had decided to make the move despite inflationary risks still persisting, with most analysts now predicting at least two further cuts in 2008.
"Borrowers should keep a watching brief as lenders are likely to take their time and unlikely to pass on the full reduction in rates as they try to claw back lost profits," said Louise Cuming from moneysupermarket.com.
"The banks are very efficient at passing on interest rate cuts to savers but a lot slower at reducing mortgage rates," Ms Cuming added.
Interest rates had sat at 5.75 per cent since July of this year.
Friday, 07 December 2007
Property for life - Buy-To-Let Market Forecast 2008
The base rate will fall to 5% by the end of 2008
Overall property price growth of up to 3%
Strong buy-to-let activity levels among serious investors
Increasing rental yields as rental demand increases
Investment hotspot areas
M40 Corridor
Growing university towns – Southampton
Regeneration areas - Middlesborough
David Austin, managing director of Property for Life, comments:
“The buy-to-let market has had a strong year, remaining buoyant despite slowing house prices and financial turbulence. This will continue into 2008, encouraged by three quarter percent drops in the Bank of England base rate, taking the rate back down to 5.0%.
“Property prices will be static for the first half of the year, with overall price growth for 2008 reaching a potential maximum of 3%. As a result of this and the lingering aftermath of the Credit Crunch, we expect to see some slight dips in activity levels and demand as newer investors hold back until they are more certain about the state of the housing market.
“However, activity levels among serious investors will continue to be high throughout 2008, particularly as better investment opportunities re-emerge and buyers focus on the solid longer term returns of bricks and mortar. Demand for properties will be as strong as ever, buoyed by the growing demand from students, immigrants and those who prefer to rent as a lifestyle choice. With the private rented sector also increasingly taking up the slack on social housing, the future of the sector looks bright.
“Having fallen back in some areas, rental yields will improve as a result of strong growth in rental values. In addition, the problem of oversupply of apartments in some of the city centres will start to be corrected.
“We are tipping towns along the M40 Corridor, growing university towns such as Southampton and major regeneration areas such as Middlesborough as property investment hotspots for 2008. The development and regeneration in these areas and the jobs and opportunities they are creating will draw people inwards, providing some extremely lucrative prospects for the buy-to-let investor.”
Wednesday, 05 December 2007
Buy-to-let market sees higher rental returns
Buy-to-let landlords in the UK are earning record amounts of rental income, according to new figures.
Paragon stated that owners of rental accommodation in Britain earned an average rent of £11,066 during October 2007 - 10.2 per cent more than at the same time last year.
The increase was attributed to growing demand for affordable rented homes from people across the country, including migrant workers from overseas.
Commenting on the findings, Paragon's John Heron said: "These figures show that professional landlords continue to invest in the types of property where there is strong and sustainable tenant demand."
However, he said it was "essential" for property buyers to purchase a house which met the needs and expectations of consumers.
Recently, the Building Societies Association advised prospective landlords that they could still make a profit in the buy-to-let sector if they did their sums correctly.
Tuesday, 04 December 2007
Agents' high street future called into question in new survey
A NEW survey suggests the future for estate agents may not be on the high street.
Although 71 per cent of agents who took part in the survey by property portal HotProperty agreed that high street premises are still in demand now, only 38 per cent thought they would be necessary in 10 years’ time — and only 28 per cent thought they would still be necessary in 20 years.
Asked where agents should be operating now, if not in high street shops, there was an equal split between online and in serviced offices.
The future for high street agency has been called into question before, most notably at the height of the dotcom boom some seven years ago.
HotProperty managing director Shawn Luetchens said: “People today still like to be able to browse estate agent windows for houses, but for how long it’s hard to say.
“Without a doubt the future for estate agents is going to be online — it’s a just a matter of how fast it happens.”
Wednesday, 28 November 2007
House prices tipped for continued growth
A new report suggests that, while a housing market crash is unlikely, the rate of house price growth is likely to slow over the next three years.
According to PricewaterhouseCoopers (PwC), there is a one in five chance that house prices will be lower in 2010 than they are now.
The accountancy firm's report also predicts there is a one in three chance that house prices will have lowered in real terms over the same period.
However, the most likely scenario is that property prices will continue to rise above the rate of consumer price inflation - although not necessarily at the heady rate of recent times.
"There is clearly some risk of house prices falling over the next three years, but these risks are mitigated by continuing housing supply constraints," commented John Hawksworth, head of macroeconomics at PwC.
"The most likely scenario is for a slowdown in the housing market rather than an outright fall in prices," he added.
Higher interest rates and the global credit crunch have been blamed as factors in the market's slowdown.
Thursday, 08 November 2007
Housing stock outdated with the rise of one-person households
It seems an Englishman’s home will always be his castle – be it for only one person in 2026. A report by Alliance & Leicester Mortgages predicts the number of one person households or ‘living loners’ will increase by 53 per cent to 9.9 million by 2026 – equivalent to three quarters of the total annual household growth over the next two decades.
The ‘Changing UK Household Market’ Report by Alliance & Leicester Mortgages in conjunction with think tank Centre of Future Studies also predicts the decline of the Mr and Mrs Household with 2.4 children. These trends are partly due to higher divorce rates, with separated couples living on their own again, but also because people are staying single for longer, and then getting married and having families later in their lives.
The number of married couple households is projected to fall over the next 20 years by an average of 34,000 every year. This is as a result of the increase in co-habiting and divorce, although the proportion of family households overall will still drop from 20 per cent in 2004, to 18.5 per cent in 2026.
The percentage decrease in the numbers of family homes and the increase in one-person homes means property developers will have to adapt to the changing household make-up. Over 200,000 extra new properties are needed each year to 2026 to cope with the influx of ‘living loners’. This demand could be fulfilled by building or conversions such as city centre loft living.
Stephen Leonard, Director of Mortgages at Alliance & Leicester said: “Our ‘Changing UK Household Market’ report shows the demand for housing will increase over the next 20 years. Interestingly, the pressure will come from the changing make-up of households, as we see more people living on their own, and the concept of the traditional family home steadily being eroded.
“We can expect to see an increase in flats and converted houses in the future due to the rise in the one person household, as understandably, people living on their own will be less likely to splash out on a larger property.”
Regional household numbers:
London and the South East are predicted to have the highest rise in households, an average of 36,000 per year, resulting in 3,296,000 and 4,184,000 households in 2026 respectively. At the other end of the scale, the North East is expected to rise by an average of just 5,300 per year – a total of 1,211,000 in 2026.
Stephen Leonard continues: “Social trends influence the way we live – right up to the house we live in. We are currently witnessing a change in society that is set to continue well into the future. Mortgage lenders need to recognise that future generations of homebuyers’ will have differing needs and financial circumstances and will need to consider this when designing mortgage products.”
Monday, 05 November 2007
Make sure you don’t miss out on tax allowances, Letting agency advises landlords
It is not uncommon for landlords to pay too much tax because they are missing out on the many tax allowances they are entitled to, according to local letting agent Ben Jones of Parson Street agents Stepping Stones.
Any profit made from letting a property is subject to UK income tax, whether the landlord is resident in the UK or not, and must be reported in a Self Assessment Return. However, certain deductions are allowable and Ben believes that, with the growing numbers of buy to let investors entering the market for the first time, many landlords may not be aware of them.
With Tax Returns due by 30th September (if you want the Inland Revenue to do the calculations for you) or 31st January next year (if you will be doing the calculations yourself or using an accountant to do so), Stepping Stones wish to remind landlords of their tax obligations, and of the allowances they are entitled to.
Says Stepping Stones’ partner Ben Jones: “Landlords should bear in mind that they are allowed certain deductions from their rental income before calculating profit, although these deductions are only allowable when the property is being let or is available for letting.
“We would advise all landlords to keep receipts and letting agent statements to prove their income and expenditure relating to the rental of your property.”
Allowable deductions include the cost of:
• mortgage interest on loans used to purchase the rented property or to fund improvements
• your agent’s letting and management fees
• repair and maintenance of the property and contents (but not the cost of improvements)
• ground rent and maintenance charges on leasehold property
• water and sewerage rates unless charged to tenants
• a wear and tear allowance applicable to furnished property only, equal to 10% of the gross rent received (less council tax and water rates) or you can deduct the cost of replacement from the rental income in the relevant tax year
• if you pay someone to assist with the work involved in letting your properties, the cost is allowable if you can prove that they are paid at local commercial rates and they report the income in their own tax return
• council tax whilst the property is vacant
• accountant’s fees
• legal expenses (but not those relating to the purchase or sale of the property)
• stamp duty on tenancy agreements
• building and contents insurance and any insurance claim fees
• VAT on all charges where applicable
To qualify for the wear and tear allowance, the property has to be furnished sufficiently to meet the ‘eat, sit, sleep’ rule; i.e. sufficient and appropriate furniture and furnishings must be provided for all rooms.
Other costs not mentioned above may be allowable if accurate records are kept, but landlords would need to discuss the details with their accountant or the Inland Revenue.
In the case of landlords who are resident abroad for more than six months in any tax year, they are generally classified as non-resident landlords but income tax is still payable.
Says Ben: “If the tax affairs of non-resident landlords are up to date, they can complete an NRL1 form, which your letting agent should provide, to apply for exemption from having tax deducted from your rental income at source, although the income is still taxable and must be reported in the self assessment tax return. The Inland Revenue regularly inspect letting agents’ records to make sure that non-resident landlords’ taxes are being properly dealt with and at Stepping Stones we are particularly careful when dealing with ‘care of’ addresses, where the landlord may have given a UK contact address while living abroad. We believe strongly in all of our clients being given the best advice and would suggest that anyone letting a property but unsure about their tax position talk to an accountant or financial advisor”
Friday, 21 September 2007
NAEA’s plea over interest rates
‘Seriously consider effect of any further rises’
THE National Association of Estate Agents have made a plea to the Bank of England to “seriously consider the potentially adverse effect” of any further interest rate changes after the fifth rate rise in a year.
The base rate rose a quarter of a per cent to 5.75 per cent on July 5 and there has been widespread speculation that another increase could follow.
But the NAEA fear that the latest interest rate rise may over-correct a housing market that the Association believes is already “levelling out”.
Peter Bolton King, the NAEA’s chief executive, said: “It is disappointing that this rise has occurred given that there were signs in many parts of the country that the property market was starting to level out, the exception being London.
“The problem in London however is not going to be resolved by increasing interest rates as the pricing problem in that region is down to the lack of supply.
“We urge the Bank of England to seriously consider the potentially adverse effect of any further interest rate changes and the consequences that this will have on the housing market, especially bearing in mind how vital this sector is to the UK economy.”
The Royal Institution of Chartered Surveyors, meanwhile, fear that the latest increase will “dampen demand” — and are bracing themselves for further rises in the coming months.
David Stubbs, senior economist at the RICS, said: “This latest increase will further dampen housing demand as first time buyers find their borrowing constrained, and households who are coming to the end of their fixed rate deals face a big increase in their monthly payments. “In fact, someone with a £100,000 mortgage who is coming off a two-year fixed rate deal in the next few months will face an increase of around £100 in their monthly repayments.
“Furthermore, this may not be the end of the pain. With economic growth strong both at home and abroad, a resilient housing market and elevated inflation expectations, it is likely that the Bank of England will choose to push interest rates up again in the coming months.”
Tuesday, August 21, 2007
The plight of the first time buyer...
Report highlights steps taken to get on ladder
MORE than two thirds of first-time buyers are having to move further out of town, or to a less desirable area, in order to be able to afford their first property, according to a new report.
In addition, 30 per cent of first-time buyers have further added to their stresses by taking on a modernisation project, just to get onto the ladder, while a desperate two per cent have even bought abroad, with the intention of renting out, merely to become a homeowner.
The statistics are in the fourth annual First Time Buyers Report by the Bradford & Bingley, which also shows that 45 per cent of first time buyers are worried that house prices are rising so fast that they won’t ever get onto the property ladder.
An eager 13 per cent went in with an offer on the first property they viewed, although a more patient 24 per cent made an offer after viewing between six and 10 properties.
For the very lucky majority, 62 per cent had the offer they made on their one and only property of choice accepted.
But a further 24 per cent lost out on their first property before having their offer for property number two accepted.
Of those first time buyers who have managed to buy recently, 37 per cent paid between £151,000 and £250,000 for their first home. That rises to over 50 per cent for those living in the costly London and South East areas.
A very keen 20 per cent went straight in at the asking price, with a further nine per cent even going in at over the asking price in order to secure their spot on the property ladder.
According to the report, such is the zeal of first time buyers to join the homeowning classes, that 26 per cent have entered into a bidding war or a sealed bid situation to try and wrap up the sale.
Thirty six per cent have offered up to £10,000 over the asking price, with a generous 15 per cent offering between £10,000 and £40,000 more.
Andy Wiggans, director of mortgage products at Bradford & Bingley, said: “Homeownership is part of the nation’s fabric and it would seem that the desire to own one’s own home is now stronger than ever.
“First time buyers are not only making sacrifices to make that first step onto the ladder but they’re also compromising their idea of the perfect house for one that is more realistic.
“Moving further out of town, away from their family and friends, as well as uprooting to a less desirable area are both options that first time buyers are prepared to consider in their bid to become homeowners.
“We have been really encouraged by the Government’s proposed measures to build up to three million more houses by 2020 and to make affordable housing a key priority over the next few years.
“However, we won’t see the effects of these measures for some time yet — and so first time buyers will most likely continue to find the property market just as tough.”
Thursday, August 16, 2007
Buy-to-Let law reform a step closer
The government has conducted one of its largest consultation projects to date, in order to look thoroughly at the rental market and how it can be regulated more closely to benefit both landlord and tenant.
The three areas they have been looking at for potential reform are social housing, the contract between the landlord and the tenant, and the clarification of legal responsibilities for both landlord and tenant.
A new policy is proposed for the social rental market, creating a single social tenure that puts social housing providers and private sector landlords who wish to rent to those on benefits on the same terms. Revision of this particular sector is intended to increase flexibility in the provision and management of social housing.
The relationship between landlord and tenant has long been a tentative one, with neither party often clear as to their legal responsibilities. Revision of the rental contract will ensure greater transparency for both parties and ensure that everyone has a clearer understanding of their rights and obligations.
Landlords will thereafter be less ignorant of their role in the rental process and tenants will be clear on the terms under which they rent a property and the circumstances and process for which their right to occupy will come to an end.
With no fixed date for the bill to be passed, landlords should be checking regularly for updates. See the final report here: www.landlordlaw.co.uk/content/lc297_vol1.pdf
Thursday, July 26, 2007
HIPS: ‘CHAOS WILL REIGN’
Conservatives highlight key loopholes — and say rule of law could be brought into disrepute
HOME Information Packs — due to come into effect on August 1 for properties with four or more bedrooms — could lead to widespread evasion and avoidance by the public, to the point where the rule of law is brought into disrepute, the Conservative opposition have warned.
The Tories claim that detailed analysis of the new HIP regulations has revealed a number of key loopholes that threaten to make the Packs impractical to enforce effectively or fairly.
One alleged ‘loophole’ covers the redefinition of a fourth bedroom as a ‘study room’ to avoid paying for a HIP, to which the Communities and Local Government department have said that redefining the home as having fewer bedrooms would harm the sale price of the property.
Yet the Tories say that if the market realises that the phrase “three bedrooms and a study room” (or equivalent) is an effective proxy for “four bedrooms” just to avoid a HIP, there will no detrimental change in the capital value.
Another is moving the bed from a bedroom to avoid having to pay for a HIP. The Property Misdescriptions Act 1991 makes it an offence for estate agents to make false or knowingly misleading statements.
Yet the Conservatives say that if the bed was simply moved out, a bedroom could quite fairly be described as having the material qualities of a “spare room” without being false or misleading.
The other ‘loopholes’ cover:
Sellers stating that their home was already on the market before August 1 and the definition of the phrase 'made public’;
Sellers not letting Trading Standards officers into their homes. Councils, the Tories point out, would need to subsidise any meaningful enforcement activity through money raised by council tax – which town halls will be reluctant to do.
Sellers risking a fine, and only ordering a Pack if caught, as the fine for a household marketing a home without a Pack is only £200, compared to the much greater cost of a Pack;
Ordering the Pack, and then paying a cancellation fee, as under additional transitional proceedings, for any home placed on the market before January 1, 2008, a Pack only needs to be ordered not actually produced.
Michael Gove, Conservative Shadow Minister for Housing, said: “It is clear that these flawed rules have the scope to lead to widespread avoidance and evasion. This threatens to bring the whole law into disrepute.
“There will be four groups of consumers – those who pay, those who pay but don’t need to, those who don’t have to pay, and those who should but get away with not paying. Laws which are difficult to enforce and hard to understand are bad laws and should not enter the statute books. This whole confusing scheme should be scrapped and be taken back to the drawing board.”
Meanwhile, the National Association of Estate Agents has renewed its dismay over the revised Packs regulations after the Government confirmed that there will be three stages for the implementation of HIPs.
The first applying to properties with four or more bedrooms will be followed by a second and third phase covering three bedroom properties and then all others as soon as there are enough domestic energy assessors.
Peter Bolton King, chief executive at the NAEA, said: “The already chaotic situation surrounding HIPs appears to be getting even worse. The idea of three separate phases will cause complete confusion and delay the introduction of the important energy performance certificate.
“The NAEA continues to be dismayed that despite criticism of the proposals from Parliament, the industry, the media and the public, the CLG is continuing to push forward with these ill-thought out proposals. We once again urge the Government to separate the EPC from the rest of the HIP to allow for its rapid introduction, and then to scrap the remainder of the Pack. The Government should sit down with the industry to work out a sensible way of improving the home buying and selling process. We also remain very concerned over the issue of monitoring HIPs, particularly considering the potential lack of action by Trading Standards. This will cause an uneven playing field that will work against agents.”
Tuesday, July 17, 2007
Rental demand outstrips supply
Demand for rented properties seriously outstripped supply and rent levels rose during the three months to the end of May according to the Association of Residential Letting Agents’ latest quarterly survey of members.
Seven out of 10 agents in Central London areas say there are more tenants than properties — the highest figure seen since the ARLA surveys started six years ago.
In the South East, 10 per cent more agents than in the previous quarterly survey report demand is outstripping supply, while the proportion in the rest of the country with a lack of supply has also risen.
Rents rose for the fourth quarter running for each type of property, including detached, semi-detached and terraced houses and flats.
Over two thirds of all agents in Central London report rising rent levels.
Half of the agents in the rest of the South East say the same and in the rest of the country the proportion of agents reporting rises rose from 33 per cent to 35 per cent.
ARLA’s chief executive Adrian Turner said: “There is a shortage of all forms of housing in this country and these results show that the shortage of good quality property is also apparent in the rented sector.”
The average capital asset values of rented houses rose during the three months by 2.2 per cent in Central London, 0.3 per cent in the South East and, by contrast, fell by 3.9 per cent in the rest of the UK.
Average rented house values ranged from £885,000 in Central London to £229,900 away from London and the South East.
Rented flats did less well, with the average asset value across the country down by 1.3 per cent for the three month period.
Asset values for flats ranged from £501,000 in Central London to £210,000 in the South East and just £153,000 in the rest of the country. However, flats showed a slightly higher gross return.
Tenants continue to stay in rental properties for an average of well over a year. They remain in the same property for the longest in Central London at an average of 17.7 months.
This compares to an average of 15.2 months for the South East and 14.2 months elsewhere. These figures have shown little change for the past two years.
Mr Turner added: “Even though it still needs more investment, the private rented sector is continuing to provide choice in housing and a safety valve for the housing market, particularly now, at a time of mixed expectations for future strong rises in house prices.”
Thursday, July 05, 2007
WHAT A FIASCO!
THE Government is being urged to scrap Home Information Packs altogether and bring in Energy Performance Certificates as a separate entity after the shock 11th hour announcement that the introduction of the controversial HIPs is being put back.
Leading figures within the industry were shocked to hear Communities and Local Government Secretary Ruth Kelly say in the House of Commons that the Packs were not to come into effect on June 1 after all.
The sensational announcement came with just six working days to go to ‘H-day’ and came in the wake of a legal threat by the Royal Institution of Chartered Surveyors, who had called for judicial review over the Packs, citing a lack of consultation.
Ms Kelly, whose department covers housing matters, said that Packs are now due to be brought in on August 1, but only then for properties with four bedrooms or more. No date has been given for when the HIPs will apply to other properties — and is dependent on how many domestic energy assessors have been trained.
In the wake of the announcement, the National Association of Estate Agents branded HIPs ‘total chaos’. Chief executive Peter Bolton King said: “It is clear from Ruth Kelly’s statement that the Government is still confusing the HIP and the Energy Performance Certificate issues. EPCs do not need to be dealt with as part of HIPs. Extracting them from the Pack legislation would satisfy the green agenda and make the whole process easier. The proposed phased implantation is confusing things even further. We believe it is nonsensical to bring in EPCs for four bedroom houses and larger only. We urge the Government to take EPCs out of HIPs and implement them as a separate entity for all properties.
“Following this we would advise the Government to sit down and consult the industry over other ways to improve the home buying and selling process. The fact is that technological advances with online documentation will soon render HIPs unnecessary.”
The Spicerhaart group have laid off 30 staff at their hips.co.uk call centre in Colchester in the wake of the announcement — and group chief executive Paul Smith, who writes a monthly column for EAN, said: “We believe the new proposals are completely unworkable.
“It’s outrageous that, less than two weeks away from the introduction of HIPs, the Government has done yet another U-turn with such devastating consequences for so many people. Across the country, firms are laying off staff as a result of this fiasco.
“We are now calling on the Government to scrap HIPs totally and just introduce EPCs, which will help them to meet their Kyoto and EU targets and will influence homeowners to become more energy efficient. The Government has done enough damage to our industry. This is the least they can do to ensure we can now all move forward.”
Mike Ockenden, director general of the Association of Home Information Pack Providers, said: “This is a serious letdown and it is both the consumer and the environment which will now suffer as a result of these latest changes. The industry was and is ready for the introduction of HIPs on June 1 and it is only the propaganda, spread about by those opposing the Packs for their own vested interests that have ultimately led to this delay.
“It is absolutely paramount that we now see the Government’s 100 per cent commitment to the new, August 1 date and that the proposed, phased implementation of HIPs is fast tracked, to ensure that HIPs are available on all homes for sale, as soon as possible.”
Wednesday, June 13, 2007
PACKS PUT BACK TWO MONTHS
THE Government have made a shock announcement that the introduction of Home Information Packs is being put back two months — just days before they were to come into effect.
Communities and Local Government secretary Ruth Kelly told the House of Commons that the Packs, due to become law on June 1, would now be introduced on August 1 — and initially only on properties with four bedrooms and above.
They will then be phased in for smaller homes according to the number of energy inspectors available.
Another change is that up to the end of this year, first day marketing of properties eligible for Packs will be allowed and the integral energy performance certificates will be valid for 12 months rather than the originally-intended three.
The Government’s announcement follows the threat of legal action over the Packs by the Royal Institution of Chartered Surveyors, who called for a judicial review.
Saturday, May 26th 2007
Sellers ‘underestimate time taken to complete’
16 weeks required on average, say NAEA statistics
ALMOST half the people in the UK underestimate the amount of time it will take to sell their houses, according to new research.
The survey showed that 48 per cent of those questioned thought they would be able to sell their homes within three months.
In reality, according to the National Association of Estate Agents, the average time taken to sell is around 16 weeks. Six months ago, it was 17 weeks from instruction to completion.
Jim Akin, director of homebuying specialists UK Property Bank, who commissioned the survey, said: “The survey demonstrates that a significant number of people in Britain underestimate the time it will take to sell their property.
“The average time to sell of 16 weeks, reported by the NAEA, masks the reality in different parts of the housing sector.
“Even Peter Bolton King, chief executive of the NAEA, said recently that there are vast differences in the residential housing market across the UK.
“The national average figure includes statistics from London and the Home Counties, where almost all commentators agree there is a serious shortage of property for sale – the lowest level in a decade – and houses put up at a sensible price are snapped up within days.
“This is certainly not the situation outside London and the Home Counties so the time to sell in the regions is invariably longer than the average quoted by the NAEA.”
NAEA statistics for the early part of this year showed that, on average, 43 per cent of house sales are agreed within one month of property being put on sale, and 48 per cent of completions take a further two to three months.
However, a significant number of vendors are taking longer to sell their properties, with 13 per cent of sales taking between three and four months to complete after a sale has been agreed.
The difference between the average asking price and the selling price was 3.1 per cent, according to the NAEA statistics, which also reported that almost nine per cent of sales fell through in November and almost seven per cent the following month.
This is perhaps explained, say the Association, by the fact that those who agreed sales in the autumn were more committed and prepared to deal with the logistics of a house move during the festive period.
Mr Akin said: “There is nothing worse than having a sale fall through close to completion. It sets everybody back, right through the chains of buyers and sellers.”
Wednesday, May 16, 2007
Asking Price Surge!
Property website Rightmove reports that average asking prices rose by 3.6% (£8,307) last month, the highest monthly percentage increase recorded since April 2002 (then 4.50%).
The average asking price for a property now stands at £236,490 - £30,816 higher than a year ago. Rightmove measured 159,718 asking prices of properties put on sale by estate agents from 11th March to 7th April 2007.
Miles Shipside, Commercial Director of Rightmove comments: "Sellers' asking prices provide one of the earliest indicators of which way the market is headed, and whilst a boost is to be expected around Easter, £8,000 in a month is the largest amount we have ever recorded. Every region saw major increases, with the minimum jump being £3,000. We have a unique set of market conditions however, and followers of housing fortunes should not regard this as the start of another national boom. As prices go higher, fewer buyers can afford to get on the ladder or trade up, and that will restrain ongoing increases in many parts of the country. More affluent areas will remain the exception however".
Tuesday, April 24, 2007
‘Don’t blame buy to let for house prices’
A LEADING expert in property economics has dismissed the notion that buy to let investors are pricing first time buyers out of the housing market.
Michael Ball, professor of urban and property economics at the University of Reading Business School, told delegates at the annual conference of the Association of Residential Letting Agents that the only way to lower house prices is to “build more houses that people actually want to live in and in places where they want to live”.
Professor Ball said that buy to let “has substantially improved housing market stability.
“Without buy to let and a stable rental market, young households would be forced to enter owner-occupation earlier, at a more financially precarious time of their lives,” he said.
“Buy to let has increased the size of the private rented sector and extended the alternatives to both owner-occupation and social housing.
“It has also spread renting wider, to towns and suburbs that had little or no private renting before.
“It has assisted in the regeneration of inner city neighbourhoods and in some areas it has helped to revive the housing market.”
As a result, Professor Ball said that it is not clear that house prices would have been lower without buy to let, as housing demand is still with us, but supply is likely to have been less.
Professor Ball added that the effect of buy to let on tenants had been to shelter many households from the full impact of house price rises, as renting is often a cheaper monthly-money-outgoings option.
“It enables households to build up their own equity and, although tenants do not share in capital gains directly, they do so through lower rents and lower risk,” he said.
“They can do this while living in good standard accommodation, as competition in the rental market is now greater. This appeals to young, mobile people in employment. Overwhelmingly these are the client base of the buy to let landlord.”
Professor Ball pointed out that more younger people rent rather than own property compared to previous decades.
This, he said, is due to changing lifestyles, employment patterns and affluence, as well as other financial circumstances, including the rising costs of equity requirements for house purchase.
Two thirds of rented property is now owned by private individuals, up from 50 per cent 10 years ago, when buy to let was initiated.
The change has occurred as corporate landlords have left the market but more individuals have wanted to invest in residential property.
“Without buy to let, the private rented sector would probably be much smaller. The quitters would have exceeded new entrants,” said Professor Ball. “Many of these new investor landlords have substantial equity in their rental properties as well as in their own homes and they work or have other sources of income.
“Many buy to let properties have no mortgages on them and many have loan-to-value ratios well below mortgage lenders’ cap limits.
“Landlords are generally very secure financially and this helps to explain the low default rates among buy to let borrowers. ”
A decade on from the first buy to let mortgage being offered, over a million households live in buy to let properties. The initiative accounts for the housing of five to six per cent of all households in the country and contributes over £30 billion to the UK economy every year.
ARLA claim it is a bigger industry than all pubs, hotels and restaurants put together and is four times bigger than the car industry.
The Association, which is set to soon link up with the National Association of Estate Agents, point out that, as of 2003, there were 750,000 buy to let mortgages, with £84 billion issued in outstanding mortgages and well over £120 billion in property assets. The forecast for the next decade is for an annual growth of between 20,000 and 30,000 buy to let properties becoming available to rent.
Tuesday, April 03, 2007
Inquiry calls for new council tax bands and rebate
From Sam Knight at The Times Online
Two new council tax bands — one at the top and one at the bottom end of the current scale — should be created to reflect the altered state of the English housing market, a review of local government funding reported today.
Sir Michael Lyons also suggested an automatic rebate for the £1.8 billion in council tax benefits that go unclaimed each year and measures to protect pensioners, many of whom have seen their properties increase in value with no corresponding rise in their income.
Sir Michael acknowledged that the new tax bands — the upper one for houses worth more than £1 million — would not added until the Government decided to carry out a full tax revaluation of England's housing stock, which has not been carried out since 1993, and which has been ruled out during the current Parliament.
Instead he recommended what he described as "a mosaic of changes" to begin a process of reform and prepare the country for the eventual shock of revaluation.
"There are no easy options for change, and no simple ‘golden key’ that will unlock the problems of the finance system," he wrote. "Any change in taxation creates ‘winners’ and ‘losers’, with those who pay more tending to react much more strongly to change than those who benefit."
"A package of complementary measures will be crucial if we are to balance the impact of change on different groups in an acceptable way."
Sir Michael described being struck during the course of his inquiry, which began in 2004, by the strength of feeling surrounding council tax, which he called "the most visible and well-known tax in the country". He said that people commonly described the tax as unfair because it was linked to property value rather than an ability to pay.
As a priority, therefore, he recommended a series of measures designed to protect the poorest households and pensioners, who, stranded on fixed incomes, are frequently the victims of the rising value of their sole major asset.
First among these is Sir Michael's proposal to hand council tax benefits directly to those who are eligible for them, rather than wait for applications. He concluded that council tax benefit should be renamed the "council tax rebate", because its "primary purpose is not to provide income support as such, but to adjust households’ liability for council tax according to their ability to pay".
Sir Michael said an automatic rebate could be ploughed into state pensions in the first place, and called on the Government to carry out "a more radical overhaul of the way council tax rebates are delivered in the medium term". Fewer than 60 per cent of pensioners eligible for council tax benefits currently claim relief.
Sir Michael did not directly criticise the Government for delaying the last scheduled revaluation of the housing stock, in September 2005, but he stressed that revaluation, while painful, was crucial if council tax was regain credibility among taxpayers.
He also noted that as many as 3.7 million households, 17 per cent of all the households in England, have been effectively punished by the Government's refusal to revalue because they would have slid down the council tax scale and now be paying a lower rate.
"History has shown that it is possible, though not ideal, to keep levying property taxes based on out-of-date valuations," he wrote.
The creation of a new top tax bracket, I, for houses worth more than £1 billion would affect around 80,000 households currently and would be expected to absorb thousands more in the years to come.
The average house price in England has doubled over the past four years, while in London nearly 4,000 houses sold for £1 million last year, compared with just over 1,600 in 2001.
The report, Place-shaping: a shared ambition for the future of local government, is the fruit of an inquiry commissioned by John Prescott and Gordon Brown in July 2004 and then expanded the following year to study wider questions about the role of local government. Its publication coincides with Mr Brown's eleventh — and what many regard to be his final -- Budget.
The intense scrutiny and politicking that has surrounded the inquiry — last week the Conservatives accused the Government of planning to use aerial photography to judge the value of house extensions and conservatories -- reflect the importance of council tax in the public imagination.
A recent survey by Unbiased.co.uk, a financial advice website, found that council tax has overtaken house prices as the most most-talked about financial topic in the UK.
Wednesday, March 21, 2007
Eight buyers for every seller in UK housing market
There are eight buyers for every seller in the UK housing market, a leading estate agent reports.
Research by Hamptons International reveals the imbalance in supply and demand is "showing no sign of abating".
In London there is a 38 per cent rise in registered buyer numbers in 2007 while the level of properties for sale has dropped 50 per cent.
There are also reports of sellers deciding to not to put their home on the market until they see a suitable property to buy.
The number of offers being made on properties has also risen - up 67 per cent.
In February there was a 72 per cent increase in viewings and a 30 per cent rise in valuations.
"The continued imbalance in supply and demand is beginning to have a real impact on the areas people are looking to buy," the estate agent explained.
"Across the south-west, the more affordable locations in the region such and Stroud and Malmesbury are now becoming extremely sought after.
"Previously shunned by potential buyers from London and the Home Counties in favour of Bath and Cheltenham, these areas are now receiving considerable interest and regeneration."
Julian de La Poer Beresford, Hamptons International south-east director, added: "Given the uncertainty over the launch of the government's Hips [Home Information Packs] on June 1st 2007, I am confident the momentum in the market will slow over the next 12 months, with house price growth settling around seven per cent for 2007."
Wednesday, March 14, 2007
Rental market going strong
The UK's rental market is going strong with the buy-to-let sector continuing to thrive, estate agents are reporting.
Figures from the National Association of Estate Agents (NAEA) show from October to December 2006 rents continued to rise at an average of 1.5 per cent each month.
This is almost double the rate of rental growth recorded for the same time last year of 0.72 per cent over the same period.
The NAEA explains the rise was likely to be down to interest rate rises being passed on to tenants.
The research also shows there has been an extra demand for rental property due to increased immigration, particularly from Eastern Europe.
Additionally, the market has also benefited from potential first-time buyers staying in rented accommodation for longer as their typical buying age rises.
"The market is looking particularly healthy, aided by rising property prices and increased immigration in 2006," commented Jan Bartlett, lettings expert at the NAEA.
"Interest rate rises are a concern as many landlords may choose to sell and 'cash in' on their investment at the threat of increasing expenses.
"However, I am confident that there is still significant return to be gained from buy to let property and I hope that the initiation of the tenancy deposit protection initiative will not deter investors."
In the last quarter of 2006 the average time taken to let properties saw a small increase on the previous quarter, up from 12 to 13 days, which the NAEA said was due to people reluctant to move home before Christmas
March 8th, 2007
Should buy-to-let properties be a stone’s throw away
It appears the vast majority of buy-to-let property investors choose to invest in their local area, despite seemingly endless reports suggesting that buy-to-let investors should look around the country and overseas for possible properties.
The latest research from Landlord Mortgages suggests that buy-to-let investors prefer to keep their property investments in their local region, with 77 per cent of landlords claiming to choose properties near to home.
This is despite much being made of the potential in countries recently embraced by the EU, with the newest members Bulgaria and Romania predicted to benefit from overseas property investors.
In London 50 per cent of buy-to-let investors choose properties within five miles of their own home.
The most obvious reason for this is the confidence investors have in the area, for example knowing the market value of properties, local rentable rates, amenities etc.
Additionally local investment means the property is always within reach and therefore accessible in the event of any problems or emergencies etc.
However, there is evidence that buy-to-let investors are being forced to travel further from home in order to be able to afford properties, with many regions around the UK experiencing continued price inflation.
According to the research, the average property investor will now travel 20 miles to find their ideal investment property, while 22 per cent of landlords choosing to invest outside of their own region travel up to 122 miles.
Although these figures could indicate the decline or demise of ‘the local landlord’, there is still a lot to be said for investing in your local area.
Local knowledge is an under rated and often under used asset, specifically regarding market research, advertising and understanding the demographic your property will attract.
The market has also benefited from the recent loosening of lending criteria in the UK, with many lenders making it easier for investors to get buy-to-let mortgages.
Ray Boulger, senior technical manager at independent mortgage advisor John Charcol, commented that the changes to mortgage products would probably help to counteract the problems posed by recent interest rate rises.
"Although the increase in interest rates has made it more difficult for people in terms of not being able to borrow as much, it has been counter-balanced to a large extent by lenders loosening criteria," he commented.
Thursday, February 22, 2007
