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Deputy BoE governor concerned over BTL lending

Published On: May 5, 2016 at 9:16 am

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With buy-to-let investment continuing to move at a steady pace, despite the Government’s moves to cool interest, the Bank of England’s deputy governor has moved to express his concerns.

Low-cost, interest only mortgages and substantial rental yields continue to drive momentum for investors. However, Sir Jon Cunliffe is worried about the pace at which the sector is growing.

Concern

The deputy governor also said he was concerned about mortgage lenders over-exposing themselves to buy-to-let, lending money more freely as a result.

Since 2008, buy-to-let lending has increased by an average of 6%. Cunliffe pointed out that buy-to-let lending to landlords now makes up more than 15% of all mortgages, up from 8.5% in 2007.

As mortgage lending in the sector grows, Cunliffe feels it is important to look carefully at whether lenders’ underwriting procedures are falling.

He observed, ‘at around the start of 2016, lenders were planning to grow their gross buy-to-let lending by, on average, almost 20% per annum over the next two years, with some challenging banks and smaller building societies planning to grow their buy-to-let books at a much faster rate.’[1]

‘When some form of credit is growing fast one needs to look very carefully at whether lenders’ underwriting standards are slipping,’ he added.[1]

Deputy BoE governor concerned over BTL lending

Deputy BoE governor concerned over BTL lending

Tighter

In March, the Bank of England announced plans to introduce more tighter checks on buy-to-let lenders. The Bank’s Prudential Regulation Authority (PRA) said that it was announcing the moves to stop banks from making risky loans. It warned that 20% of lenders were guilty of not making sufficient credit checks.

Its main concern was that a housing bubble could be created, which in turn would cause a wider housing market slowdown. Over 1.7million properties now have buy-to-let mortgages, representing 17% of loans used to purchase property in the last year.

[1] https://www.landlordtoday.co.uk/breaking-news/2016/5/major-concern-over-surge-in-buy-to-let-mortgages

Landlords, Be Aware of the Risks of Investing in Student Accommodation

Published On: May 4, 2016 at 9:23 am

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Student accommodation in the UK is a booming market, according to estate agent Savills. However, landlords are being warned to be aware of the risks involved in investing in this type of property.

Savills reports that £5.8 billion was invested into the student accommodation market last year, with private developments springing up in prime city centre locations.

These blocks of high-spec, boutique rooms, complete with en-suites and flat-screen TVs, promise the student a luxury experience.

Landlords, Be Aware of the Risks of Investing in Student Accommodation

Landlords, Be Aware of the Risks of Investing in Student Accommodation

Since 2006, the private sector has gone from providing 18% of rooms to a huge 41%. On top of this, the latest NUS-Unipol survey found that the average weekly rent for student accommodation in the UK now stands at £147 – up by 18% on 2012-13.

Student numbers are also expected to rise for the foreseeable future, thanks to George Osborne lifting the cap on how many students each university can take. A recent study by UCAS shows a 0.2% increase in applicants for 2016-17, in part due to a 6% rise in students from EU countries.

While demand and prices may remain high, a leading student property investment specialist, The Mistoria Group, is warning of the pitfalls associated with letting student rooms.

The firm’s Managing Director, Mish Liyanage, insists: “If investors are considering student rooms, otherwise known as student pods, they need to look at not only the opportunity, but also the risks too.

“Unfortunately, a major disadvantage of student pods is their resale value and capital growth potential. The value of property will fluctuate with the market and the pool of potential investors is much smaller than for other types of student accommodation, such as HMOs [Houses in Multiple Occupation] and flats.”

Liyanage continues: “With a normal buy-to-let, you can sell the property at any time on the open market through a reputable estate agent, and expect a reasonable capital appreciation. However, selling a student pod will encounter problems. For example, who decides the market value? As a piece of real estate per square metre, it is very expensive (double the average market value), there is no established resale market. Who will sell it? Is it an investment or is it a piece of real estate?

“There is also the issue of guaranteed returns of 7%. The guarantees are only as good as the person or firm that is promising it. Investors need to weigh up whether they think providers of student pods are robust enough to stand behind the guarantee. They also need to be aware that the 7% guarantee may not stand in five years’ time, when their investment could have devalued as new developments have been released.”

He adds: “However, despite the big pitfalls of student pods, student property is a very profitable asset class giving robust returns. For example, in the North West, a high quality HMO, which will house four students, can be purchased for £160,000. The return on investment is very attractive too, with 13% (8% cash rental and 5% capital growth). Unlike student pods, you can apply for a remortgage and there is a buoyant market for this type of student property. If you are building a portfolio, you can lend on your equity in the HMO to fund further investments.”

If you are considering an investment in the student accommodation sector, remember to fully evaluate the risks involved with this market.

Which London Mayoral Candidate Will Solve the Housing Crisis?

Published On: May 4, 2016 at 8:38 am

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Tomorrow, Londoners will vote for the capital’s next mayor. But which London mayoral candidate will work best towards solving the housing crisis?

Housing remains the number one issue for many living in the capital, with a lack of supply causing spiralling house prices. Research from ComRes confirms that the housing crisis will be the main determining factor in who is elected tomorrow.

In a bid to address the capital’s chronic shortage of supply, the leading London mayoral candidates have put housing at the core of their manifestos, with front-runners Sadiq Khan and Zac Goldsmith both calling the election a “referendum on housing”.

The Residential Landlords Association has also released its own London mayoral manifesto, detailing what it thinks should be done to solve the housing crisis.

As house prices soared under the two most recent London mayors – Ken Livingstone and Boris Johnson – the next mayor will be put under great pressure to do more to make London more affordable.

Which London Mayoral Candidate Will Solve the Housing Crisis?

Which London Mayoral Candidate Will Solve the Housing Crisis?

Residential property prices are now at least ten times the average salary in 28 of London’s 33 boroughs, with prices in many of London’s most expensive areas now out of reach for all but the super-rich. Worryingly, however, it is believed that even the wealthiest of Londoners are having to turn to the private rental sector.

So which candidate will solve the capital’s housing crisis?

Sadiq Khan 

Labour’s Sadiq Khan has promised to deliver 80,000 new homes in London every year, 50% of which will be affordable. He plans to build these homes on brownfield land. Khan also wants to form a new homes division in City Hall, set up a not-for-profit letting agency, restrict rent rises, and invest more in the London Affordable Homes Programme.

Zac Goldsmith

Zac Goldsmith, the Conservative candidate, has also vowed to focus on releasing publicly owned brownfield land for the construction of more residential properties, hoping to deliver 50,000 new homes in London per year by 2020. This would be financed in part by a new pan-London investment fund for overseas investors. He also aims to bring thousands of empty homes back into use, clamp down on rogue landlords, and introduce longer-term tenancies.

Caroline Pidgeon

The Liberal Democrat candidate wants to boost new housing supply in the capital, including a substantially higher amount of council homes at affordable rent prices. She also plans to make all private landlords in the capital registered, introduce a right to buy scheme for tenants if their landlord decides to sell, abolish letting agent fees for tenants, and introduce three to five-year tenancies.

Sian Berry

The Green Party’s Sian Berry would like the Mayor of London to be given greater rent controls, as part of an effort to help private tenants in the capital. She also believes there should be a voluntary register of landlords, as well as a new Renters’ Union, financed by City Hall, designed to provide tenants with greater support and advice.

Pete Whittle 

Peter Whittle, of UKIP, has pledged to lobby for sensible migration levels to help restrict demand for housing, alongside boosting housebuilding levels. He claims that producing a comprehensive registry of all London brownfield sites is crucial to increasing the supply of land for housebuilding. Whittle plans to tax buy-to-let landlords at a higher rate if they leave their properties empty, and offer long-term residents in London priority when it comes to social housing.

Who will you be voting for?

Landlords to Blame for Decline in DIY Among Under-30s?

Published On: May 1, 2016 at 8:29 am

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According to new research, buy-to-let landlords are to blame for the sharp decline in under-30-year-olds carrying out DIY work in their homes.

Generation rent cannot afford to buy and fix-up their own homes, reports credit card provider MBNA.

The firm says that spending by under-30s on DIY has fallen by a third since the mid-1990s. It blames the decrease on the rise of buy-to-let landlords.

These figures arrive as a report from Halifax shows that the average age at which people purchase their first home is still rising, with buyers having to take out longer mortgages in order to get on the property ladder.

MBNA’s Mark Elliott explains: “Generation rent is usually barred from making home improvements by clauses in their tenancy agreements. Although [overall] DIY spending has grown by 42% in real terms since 1996, an increase in the proportion of people renting in the UK could impact the sector’s growth in the future.”

Landlords to Blame for Decline in DIY Among Under-30s?

Landlords to Blame for Decline in DIY Among Under-30s?

Based on spending trends among millions of credit card customers, under-30s’ spending on DIY has dropped by 32% since 1996, to an average of £108 per year. At the same time, 45-60-year-olds have increased their spending, to an average of £240 a year.

“Any further increases in the average age of first time buyers could impede the DIY sector’s future growth by narrowing the window in which most people undertake DIY tasks during their lives,”1 says Elliott.

The report from Halifax found that the average first time buyer is now almost 31, compared with 27 in the early 90s. Some predictions say the average age of a first time buyer could be over 40 in the next ten years.

The young adults who are able to get onto the property ladder have to stretch themselves much further with ever-longer mortgages, says Halifax.

It reports that 26% of first time buyers are taking out 35-year mortgages, up from 16% in 2007.

As the average age of a first time buyer rises and the mortgage term is stretched, many will still be paying off their debt into retirement, warns the lender.

The report states: “One in three (34%) young people don’t expect to pay off their mortgage under after their 60th birthday – more than one in 20 (6%) still expect to be paying their mortgage over the age of 70, while almost one in ten (8%) expect to be paying their mortgage throughout their life.”

The research also highlights the huge deposits that young buyers now have to save. The average deposit size increased by 13% in 2015 to a huge £32,927.

Until now, the size of the deposit has been the single biggest barrier to buying a home. But now, it is the size of the deposit and the absolute level of house prices combined that are keeping youngsters off the property ladder.

“The generation rent report has repeatedly shown that raising a deposit has been the consistent barrier for the majority of would-be homeowners,” says Halifax. “However, the 2016 report tracks the emergence of high property prices being perceived as an increasingly large barrier to purchasing a first home (rising to 60% in 2016 compared with 52% in 2011). The average price of a first property is now £196,801, rising from £134,889 in 2010.”1 

But the situation does not look set to improve. Figures from the Office for National Statistics show that the number of private rental homes has more than doubled in recent years, from 2.13m in 2001 to 4.74m in 2015. And prices in the private rental sector aren’t low either – the average two-bedroom property in London is forecast to cost £2,000 per month by September.

1 http://www.theguardian.com/lifeandstyle/2016/apr/29/buy-to-let-landlords-decline-diy-under-30s-generation-rent-age-first-time-buyer

Sharp fall in empty residential properties

Published On: April 29, 2016 at 8:46 am

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Interesting new data released by the Government indicates that the total number of empty residential properties in the UK is at its lowest level since records began.

The report shows that there has been a drop of over a third in unoccupied homes since 2004, where the total stood at 318,642. Last year, this figure stood at 203,596.

Owner increases

In addition, the figures show there has been a rise in the number of owner occupied properties in the past twelve months, following seven years of decline.

What’s more, the data suggests that the number of new homes being provided was at its highest for 28 years, having risen by over a quarter during the last year.

Housing Minister Brandon Lewis stated that, ‘we are turning around the housing market and making sure the best use is made of all housing including empty homes. We are very clear that a house should be a home which is why we have taken action to stop homes being bought up and left as an empty investment.’[1]

‘We’ve taken forward the boldest ambition for housing in a generation, doubling the budget so we can help a million more people into home ownership, while delivering a bigger and better private rental sector,’ Lewis added.[1]

Sharp fall in empty residential properties

Sharp fall in empty residential properties

Measures

Mr Lewis pointed out that the Government has introduced a series of measures aimed at restoring homes that have been unoccupied for a number of years. He also said that through the New Homes Bonus, councils have been allocated in excess of £4.84bn in to provide new residential dwellings.

Lewis went on to say the Government has provided 704,000 extra homes, alongside bringing 106,000 empty homes back into use. He noted there is an additional £20bn over the next five years, in order to try and provide one million new homes.

Right to Buy is also being extended to 1.3 million people, with shared ownership properties being made more available.

[1] http://www.propertywire.com/news/europe/uk-homes-lying-empty-2016042911852.html

 

Could PRA proposals lead to increased activity?

Published On: April 28, 2016 at 11:14 am

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Newly proposed underwriting rules for buy-to-let lenders as suggested by the Prudential Regulation Authority (PRA) could lead to an increase in market activity.

This is the view of buy-to-let specialist lender, Fleet Mortgages, who feel that landlords will look to secure finance before the PRA intervene.

Stricter conditions

Just last month, the PRA issued recommendations aimed at imposing stricter lending affordability measures on applicants looking for a buy-to-let mortgage. The PRA wants to see the amount of money being borrowed to be reduced,

Fleet Mortgages believes the new rules could come into place as soon as January 2017, but that some lenders will want more time to adapt to any alterations. Landlords and mortgage advisors could treat the coming months as they did in the period leading up to the stamp duty alterations on 1st April.

This period saw a surge in buy-to-let mortgage demand and activity and Fleet Mortgages suggests landlords looking to remortgage are more likely to do so before the new PRA lending criteria comes into play.

What’s more, it is feared that landlords with a large portfolio could be most affected by the changes, with many looking to secure finance in 2016 instead of waiting.

Increases

Bob Young, Chief Executive Officer of Fleet Mortgages, noted, ‘many have suggested that the recent stamp duty deadline is the only one facing the buy-to-let sector and market activity will now wither on the vine as landlords take stock of their positions for the foreseeable future.’[1]

‘The recent PRA consultation on buy-to-let underwriting actually makes it more likely that we will see activity levels begin to increase again over the course of the year as we get closer to the implantation of the rules. Certainly, given their intention to drive down the amounts buy-to-let landlords can borrow, it would be logical to think existing landlords seeking to remortgage or capital raise or both will make the most of the current market conditions which will allow them to borrow at higher levels,’ Young continued.[1]

Could PRA proposals lead to increased activity?

Could PRA proposals lead to increased activity?

Compromised

Mr Young went on to say, ‘Once the new rules kick-in, landlords and their advisers may well find their ability to secure the money they want has been compromised by the stricter underwriting criteria imposed on lenders, plus of course the likelihood that increased capital requirements will also impact on lender’s ability to offer the same levels of funding. It all adds up to the potential for renewed vigour in the buy-to-let sector, especially for those who may be deemed portfolio landlords, given the special affordability requirements they will face next year.’[1]

Offering advice to landlords, Young stated, ‘Our advice to advisers is to make sure any clients with these circumstances are contacted and they are made aware of how the lending landscape might change in 2017. Those in a position to make their new mortgage arrangements now are likely to find a much more hospitable lending environment, rather than waiting for lenders to implement these new rules and ultimately for them to end up disappointed.’[1]

[1] http://www.propertyreporter.co.uk/landlords/could-new-pra-proposals-reignite-market-activity.html