Search Results For: buy to rent sector

Rising Interest Rates and the Housing Market

Published On: July 20, 2015 at 10:13 am

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The Bank of England (BoE) Governor, Mark Carney, has suggested that interest rates will rise around the start of next year.

Carney has implied in the past that this could happen, and it hasn’t. So can we be sure that it will happen now?

The Guardian is prepared for the worst. It sees the housing market collapsing and, apparently, “it is estate agents who have most to fear.”

The newspaper believes that confidence will be most affected.

It also expects lenders to start re-pricing their mortgages “almost immediately” and not wait until the base rate increases.

Rising Interest Rates and the Housing Market

Rising Interest Rates and the Housing Market

It says that one third of borrowers will struggle if interest rates rise, consumer spending will drop and there will be a surge in repossessions.

The Guardian would have everyone believe that they need to act quickly, but one mortgage broker says that borrowers and agents do not have to be so worried.

Simon Tyler thinks that rates may not increase for all borrowers, even if the base rate does rise.

He says: “If we see a rate rise next year, those on tracker loans will be hit straightaway, but many other people may not be affected – at least initially.

“Competition in the mortgage sector is so intense, with so many new entrants vying for market share, that we may find that the first rate rise is hardly passed on at all by many lenders.

“Remember, most lenders’ standard variable rates [SVRs] are already at over 4%, which is miles above the level of the base rate at just 0.5%.

“So we may not see much movement at all, even after a rate rise.”

It is the long-term that Tyler is not so optimistic about: “However, if a rate hike is passed on it is going to hurt. Household debt is so high, with so many people stretching to repay their mortgages and other credit, that any rate hike is going to be very painful and have a disproportionate impact.

“Remember, wages have barely been rising for years but many people have stretched to get on the housing ladder, often only with the aid of Government assistance. These people may find a rate hike hard to cope with.”

He continues: “House prices are unlikely to be hit very hard given that demand is still so high, but it could dampen the market a little and slow price growth in some areas.

“First time buyers may find some areas where prices drop back a little, which will help them, but at the same time they are likely to find that higher rates mean they won’t qualify for the mortgage that they want.

“As rates begin to rise, you could even see a rush of people coming to buy because they fear they will miss the boat if rates increase too far and that could even push house prices up in the short-term.”

Tyler evaluates the situation: “In short, raising rates will have to be a very delicate process in order not to derail the economic recovery, which is actually paper thin.

“If they rise too fast too soon, it will take away the feel good effect that people are starting to get with rising wages and push the economy backwards. Business borrowing could be hit and that would hit employment.

“The fact is that any big increase in rates is still some years away and competition among lenders should ensure that there are fantastic value deals still around for several years from now.”1 

But Carney has said that any rate rises will be “limited and gradual” and “proceed slowly” to a “level in the medium term that is perhaps half as high as historic averages.”1

1 http://www.propertyindustryeye.com/what-will-rates-rise-mean-for-housing-market/

 

 

The Changing Role of the Letting Agent

Published On: July 10, 2015 at 6:37 pm

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The last few years have seen a boom in the private rental sector, with generation rent forced to rent instead of buy. MPs and pressure groups have focused on Britain’s tenants, landlords and letting agents.

The growth of the sector has been so large that in 2014, the Intermediary Mortgage Lenders Association (IMLA) claimed that if current market trends continue, over half of UK homes would be rented by 2032.

Due to more and more money going into the sector, regulations have become stronger. These changes have not only affected the role of the letting agent, but have driven out rogue operators in the country.

Since 2010, there have been several important changes for those working within the private rental sector. Specialist rental software provider, OnBoard Pro, has discovered what these means for letting agents.

Its research details the changing role of the agent, through the pieces of legislation the sector has been hit with in the last ten years. OnBoard Pro also looks at what is happening now and what is coming in the future.

The last decade

  • April 2006 – Scottish landlords must join a national register before renting out a property.
  • April 2012 – All rental properties must have an Energy Performance Certificate (EPC).
  • November 2012 – Letting agent fees charged to tenants are banned in Scotland.
  • November 2013 – The Advertising Standards Authority (ASA) rules that agents must include information about non-optional fees in advertisements.
  • February 2014 – Landlords and agents must conduct Legionnaires’ disease risk assessments due to updated guidance by the Health and Safety Executive (HSE).
  • October 2014 – Letting agents must be a member of one of three Government-approved redress schemes.

At present

  • May 2015 – All letting agents must display their full fee tariff, publish details of the redress scheme that they belong to and state whether they offer client money protection.
  • The Changing Role of the Letting Agent

    The Changing Role of the Letting Agent

    June 2015 – Under the Deregulation Act, the small amount of deposits taken before 6th April 2007 must be protected in one of three schemes.

  • Ongoing – HM Revenue & Customs (HMRC) require agents to provide a list of landlords that they have collected rent on behalf of.
  • Ongoing – The introduction of selective landlord licensing schemes in parts of the UK, including Liverpool and areas in London.

The future 

  • October 2015 – All rental properties must have a carbon monoxide alarm that is checked regularly.
  • October 2015 – Smoke alarms must be fitted on every floor of all rental properties.
  • October 2015 – Under the Deregulation Act, landlords will be unable to serve a section 21 notice if they or their agent do not handle repair requests correctly.
  • 2016 – Landlords and agents must carry out energy efficiency improvement works on rental properties, if the tenant requests.
  • 2018 – It will be illegal to rent out a property that has an energy efficiency rating of F or G.
  • Unknown – Right to rent immigration checks will be rolled out nationally.
  • Unknown – Planned localised rent controls and landlord repossession changes in Scotland.

Members of the industry give their opinions on this:

CEO of OnBoard Pro, Stephen Purvis, says: “As we have found from talking to agents around the country, as well as in Scotland, the role of a full service letting agent becomes more complicated and regulated as each year passes.

“That is not to say that increased regulation is necessarily a bad thing. The more rogue landlords and agents that are prohibited from operating in the sector, the fewer negative portrayals of agents we will see in the mainstream media.

“The majority of agents are very quick to get up to speed with the latest changes affecting them. However, after breaking it down like we have here, it shows the quite astonishing amount of new tasks and checks letting agents are taking on all the time.”

Purvis continues: “In just five years, agents have gone from having to join a redress scheme and organise Legionella assessments to having to also disclose their full fees tariff and make sure all of their landlords’ old deposits are protected.

“And in the next five years we can expect the list to lengthen yet further as agents and landlords will be expected to check tenants’ immigration status, make sure rented properties are energy efficient, and install fire and carbon monoxide alarms in all properties.

“With all of this in mind, keeping up with industry news outlets as well as thoroughly digesting any Government or industry body information issued has become more important than ever.

“On top of this, as legislation and administration duties increase, utilising the latest technology allows agents and landlords to efficiently streamline processes and subsequently spend more time looking after tenants and brushing up on the latest legislation and industry practice.”1

Director of London’s Kings Group, Karl Knipe, comments: “I don’t feel the front end of the job has really changed. It’s no different today than it was five, 10 or 20 years ago. However, it’s the backend, the legalities, which have and are changing all the time. This makes doing the job – if being compliant and safe – more costly for the agent, landlord and ultimately, the tenant.”1 

Founder of Letting Solutions in West Lothian, Brian Callaghan, speaks about the Scottish private rental sector: “Scotland has much to be proud of in the private rented sector. A sharp focus on tenant safety and rights has led to enlightened legislation and rules over many years.

“However, it is sad to see the industry in danger of losing its way. The Scottish Government’s adoption of some of the destructive elements in Shelter’s agenda is in danger of leading Scotland into a cul-de-sac.

“Stimulating the supply side should be the absolute priority. Instead, the Scottish Government is moving in the other direction. Misconceived tenancy reform, including localised rent control, seems to be on the way. If this comes, a reduction in supply is certain.”1

Lettings Director of Brighton and Hove’s Mishon Mackay, Talitha Setz, says: “The last five years have seen significant changes, and more importantly, an improvement to the UK lettings industry. Under the guidance of a professional letting agent, when basic steps are followed, the relationship between landlord, tenant and agent is a harmonious one.

“A competent, experienced letting agent with local knowledge and national accreditation will guide landlords through this entire process. Many dual selling and letting agents will manage the process from purchase to tenant, find to full management, whilst limiting the mounting costs where possible and provide a safe and well maintained property for many years to come.”1

Lettings Manager at Capital & Coastal in Bournemouth, Simon Kerley, notes: “Most of the changes brought into the rental market are positive and designed to protect consumers and encourage those providing a service – landlords and agents – to raise their standards.

“Often, the effectiveness of some of these changes can be hard to measure, especially with the market changing so rapidly, making it difficult for regulation to keep pace and remain relevant. Competition for letting agents remains high, especially since there is no legal requirement to have a formal qualification to be an estate agent. Therefore, anything that helps the good stand out from the bad, in our opinion, can only be positive.”1 

Director of East London’s Amilli Property, Kenny Sahota, concludes: “As the demand for renting grows, so has the number of letting agents. Over the past five years, we have seen rogue traders leading landlords and tenants out of pocket. The rules and regulations have been getting tighter to prevent these issues from happening, which is great for landlords.”1 

1 http://www.propertyreporter.co.uk/landlords/the-ever-changing-role-of-letting-agents.html

London Housing Associations Selling Expensive Property to Fund Affordable Homes

Published On: July 10, 2015 at 2:06 pm

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For every pricey home a housing association sells, three affordable homes are funded.

Traditionally, housing associations were focused on housing the poor and needy. Now, they are selling off £1m-plus properties designed by top architects to rich Londoners.

This commercial attitude is turning housing associations into business-oriented firms.

Critics say that selling expensive homes at market value is fuelling spiralling prices, which make it difficult for people to get onto the property ladder. The housing associations argue that private sales generate higher profits that fund affordable housing. For every one pricey property sold, an association can build up to three cheaper ones.

Group Chief Executive of Thames Valley Housing – which has set up a private rental company named Fizzy Living – Geeta Nanda, says: “We are independent bodies and, unlike local authorities, can borrow against our assets to raise finance for development.”

Executive Director for Development & Sales at housing charity Peabody – which owns and manages over 27,000 homes around the capital – Jeremy Stibbe, comments: “We have strong ethics and values, and we are proud to make profits as the money goes back into delivering more homes.”

He sums up the new entrepreneurial attitude as “investing private sector profit into social purpose.”1

Stibbe believes that George Peabody – who founded the Peabody Trust in the UK – would support the strategy. Peabody demanded a 3% return on his initial donation of £500,000, equivalent to over £20m today.

Notting Hill Housing and L&Q have multibillion-pound developments including high-profile central and inner London projects: the 900-home Albert Wharf in Docklands and The City Mills in Hackney.

Most housing associations build private homes in their own name, but some set up separate companies.

Fabrica, the sister company of A2Dominion, is launching penthouses priced from £1.1m in The Chroma Buildings in Southwark. Apartments at City Wharf, a group of warehouse-like blocks with communal roof terraces and courtyard gardens overlooking Wenlock Basin in Shoreditch, cost between £500,000 to £1,095,000.

The 327 flats at City Wharf are aimed at attracting young professionals, with wine fridges as standard in the kitchen and storage for 300 bikes.

Notting Hill Housing is selling £1.8m townhouses in Canonbury, Islington. Peabody is offering homes in the Chancery Building, a new riverside complex that wraps around the US embassy at Nine Elms. One-bedroom flats start at £595,000.

At St John’s Way, near Clapham Junction, 249 of 528 Peabody properties are for private sale, with prices ranging from £530,000 to £1,236,000.

Architecture is intrinsic to many of these developments, bearing in mind the original Victorian estates around the capital.

Similarly to those estates, the new blocks are simple and feature occasional architectural flair, influencing the generally harsh urban setting.

Mint Street, the first completed new scheme in Bethnal Green, has defied its surroundings – a curving railway viaduct and Travelodge – with Pitman Tozer Architects creating a refreshing project.

The larger than average flats have double-glazed winter gardens, creating a layer of sound insulation. It is being used as a template for other Peabody developments, including over 100 affordable homes at Merchants Walk in Tower Hamlets, 580 properties at Fish Island, Stratford, and 112 homes at More West in Kensington & Chelsea. Prices start at £626,500.

Chief Executive of Notting Hill Houses – which is collaborating with Sellar Property Group (who built the Shard) on a 1,030-home scheme at Canada Water – Kate Davies, states: “Developing our own homes for sale on the open market allows us to have control over design and quality.”1

L&Q’s Quebec Quarter is another large development coming to London. It will easily attract buyers as it is situated on the Jubilee line between Canary Wharf and the West End.

The Government is planning to introduce new legislation that will require housing associations sell homes to their tenants. Local authorities will fund this through selling their most expensive assets.

Nanda says: “You have to wonder why we have created a system that makes delivering new affordable homes so complicated.”1

Furthermore, a former crime hit council estate in Stockwell has been transformed; old blocks are being demolished and housing association Network Living has built new flats in a white tower that has a roof garden, named Park Heights. Prices are from £435,000.

1 http://www.homesandproperty.co.uk/luxury/property-news/luxury-homes-funding-affordable-housing-london

 

George Osborne Says Landlords’ Profits Will be Cut

Published On: July 9, 2015 at 4:59 pm

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Thousands of buy-to-let landlords will see their profits drop after Chancellor George Osborne announced a crackdown on mortgage interest tax relief in the Budget yesterday.

According to the Chancellor, the measure will “level the playing field for homebuyers and investors”. The amount that landlords can claim as tax relief will be set at the basic rate of tax, which is currently 20%.

The change will be introduced over a four-year period, starting April 2017. Currently, landlords can claim tax relief on monthly interest repayments at the top level of tax they pay – 45%.

A freedom for information request revealed that mortgage interest relief costs around £6.3 billion per year.

The change will affect those with a single buy-to-let property right through to professional landlords with huge portfolios.

Some experts believe this move could force landlords to push rents up to compensate for their losses, which would greatly disadvantage tenants.

However, it could benefit first time buyers, who compete with landlords for property. The housing market is currently suffering a case of demand outstripping supply.

Additionally, the measure arrives as the Bank of England (BoE) revealed it will be monitoring the booming buy-to-let sector in the coming months. This year, buy-to-let lending has accounted for over 15% of all mortgages.

It was also announced after the National Landlords Association (NLA) warned that costs in the private rental sector could increase by £2.6 billion if mortgage interest payments are made non tax-deductible.

Experts have claimed that the 45% tax relief puts landlords at an advantage against first time buyers.

The Budget document states: “The current tax system supports landlords over and above ordinary homeowners. Landlords can deduct costs they incur when calculating the tax they pay on their rental income. A large portion of those costs are interest payments on the mortgage.

George Osborne Says Landlords' Profits Will be Cut

George Osborne Says Landlords’ Profits Will be Cut

“Mortgage interest relief was withdrawn from homeowners 15 years ago. However, landlords still receive the relief.

“The ability to deduct these costs puts investing in a rental property at an advantage. Tax relief for finance costs is particularly beneficial for wealthier landlords with larger incomes, as every £1 of finance costs they incur allows them to pay 40p or 45p less tax.”1 

George Osborne says that he wants to support homeowners, but “act in a proportionate and gradual way.”1

However, one expert cautions that some investors may now struggle to make a profit. Deloitte’s Phil Nicklin, points out: “This measure will almost double the effective cost of borrowing for a taxpayer on the highest rate of tax.

“Currently, interest payments of £100 only cost £55 after tax relief, but will cost £80 from 2020. A landlord who borrows at even a modest level might end up paying more in tax than he makes in profit.

“This measure must make buy-to-let investment a less attractive proposition in future and may reduce the options for those who see it as an alternative to a pension.”1 

Director of Mayfair-based mortgage broker Anderson Harris, Adrian Anderson, comments: “There had been fears among landlords that tax relief on mortgage interest payments for buy-to-let landlords would be completely abolished, so while the changes will hit higher-rate taxpayers, it is not as bad as it might have been.

“It is only fair that there is a more level playing field between first time buyers and landlords, but if this tax break had been completely withdrawn, buy-to-let would have been far less attractive to investors.

“Thousands of landlords may well have struggled to keep up repayments on their mortgage or struggle to pay the tax, especially when interest rates rise.”1

Manager at Blick Rothenberg Chartered Accountants, Robert Pullen, says: “Buy-to-let landlords are now being hit further by a restriction to tax relief on mortgage interest payments.

“The new rules appear complex; basic rate tax relief is permitted only and will be phased in. This may result in a shortage of let properties, or an increase in rental rates charged to compensate landlords.”1

Head of UK Residential Research at estate agent Knight Frank, Gráinne Gilmore, states: “This is a significant change in tax status for those with a rental portfolio, although the measured rate of introduction between 2017 and 2020 will help landlords plan their approach.

“Those planning to purchase a buy-to-let property will have to factor these new rules into their calculations and this could affect the offers they are willing to make.

“If the relatively low yield environment seen today, especially in the South of England, is still evident when these changes start to come into force, there could be upward pressure on rents.”1 

The Budget document also reveals that the current system that allows landlords to claim 10% of their rent for wear and tear will be abolished. From April 2016, landlords will only be able to deduct costs that they actually incur.

Additionally, the Chancellor announced an increase to the amount homeowners can earn in rent from lodgers before being charged tax. This arrives after many have campaigned for a higher earning level in the rent-a-room scheme.

For the last 18 years, the level has been £4,250 of income, but will rise to £7,500 from April 2016.

Director of SpareRoom.co.uk, Matt Hutchinson, who has campaigned for this for the past six years, explains: “There are an estimated 19m empty bedrooms in owner-occupied properties in England alone.

“Freeing up just 5% of those rooms would accommodate almost a million people – the equivalent of a city the size of Birmingham.

“Encouraging people to take in lodgers could help them avoid repossession when interest rates rise and their mortgage repayments are adjusted.

“The threshold has remained unchanged at £4,250 for 18 years. Only a fifth of UK towns and cities have average room rents of below that mark, while all rooms in London are way outside of the threshold.”1

1 http://www.thisismoney.co.uk/money/buytolet/article-3153541/Profits-slashed-wealthy-buy-let-landlords-Budget-crackdown-mortgage-tax-relief.html

 

Huge Increase in Property Valuations in June

Published On: July 9, 2015 at 2:52 pm

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A strengthening property market resulted in a huge increase in home valuations in June, with activity rising 23% annually, recent data reveals.

Huge Increase in Property Valuations in June

Huge Increase in Property Valuations in June

The research from Connells Survey & Valuation found that June’s total of property valuations was also up 42% on a monthly basis. Valuations for established owner-occupiers moving house were particularly high, up 34% in June compared with June 2014 and 51% compared to May 2015.

Home movers in June surpassed those looking for a property in the buy-to-let sector, with demand growing in the residential market.

According to the data, valuations for first time buyers in June were up 16% annually and 42% compared to May’s figures.

The amount of valuations in the buy-to-let market increased by 24% compared with 12 months previously and 22% on May 2015.

The number of valuations for those remortgaging rose by 17% in June compared to June 2014 and 44% on the previous month.

Connells Survey & Valuation’s Corporate Services Director, John Bagshaw, explains: “First time buyers haven’t benefitted from higher house prices in the same way as those already on the property ladder.

“An era-defining shortage of suitable first time homes, combined with still rapid rises in average prices, are keeping many would-be homeowners renting for the time being. Yet despite this, numbers of valuations for new buyers have shown double digit growth.”

However, he says that annual growth in the remortgaging market is still behind most other sectors: “This could also be a sign that the numbers remortgaging to access a better mortgage rate may have reached a plateau.”1

1 http://www.propertywire.com/news/europe/uk-residenital-property-valuations-2015070810722.html

 

 

 

Mortgage Expert is Against BoE Warnings about BTL

Published On: July 8, 2015 at 5:56 pm

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Mortgage Expert is Against BoE Warnings about BTL

Mortgage Expert is Against BoE Warnings about BTL

The director of the Intermediary Mortgage Lenders Association (IMLA) is against the Bank of England’s (BoE) warnings about the risk of the booming buy-to-let market.

In its Financial Stability Report, the BoE cautioned that buy-to-let could pose a threat to the UK economy, as many more pensioners are expected to use the new pension rules to enter the private rental sector.

However, the IMLA’s John Heron says that buy-to-let lending was at a record high of £45.7 billion in 2007, but even after the recent recovery in the housing and financial markets, it is only forecast to reach £30 billion this year.

Heron states: “The BoE’s comments on buy-to-let are based on their observation of strong growth in lending in recent years. It should be understood, however, that while there has been substantial growth, this has been from a low base post-crisis, and lending today is still no greater than it was ten years ago and is well below the levels achieved before the crisis in 2007.

“The rising cost of homeownership is among many factors driving demand for rental properties, including the fall in social housing, changing work patterns, growing numbers of students, high levels of immigration, later marriage and rising separation rates.”

He concludes: “Housing needs are changing and, in fact, the IMLA analysis shows fewer than one in three extra properties to enter the private rental sector since 2007 have been backed by a buy-to-let mortgage. Lending has therefore been responding to, rather than leading, demand.”1 

1 https://www.lettingagenttoday.co.uk/breaking-news/2015/7/mortgage-chief-tells-bank-of-england-to-back-off-buy-to-let