Search Results For: buy to rent sector

HMOs Providing the Highest Rental Yields for Landlords

Published On: January 24, 2018 at 10:07 am

Landlords looking to secure high rental yields should consider investing in Houses in Multiple Occupation (HMOs), which continue to outperform standard buy-to-let properties, the latest Complex Buy-to-Let Index from Mortgages for Business reveals.

HMOs produced an average yield of 8.9% in 2017, the report shows.

However, it is interesting to note that this is the first time that the average yield for this type of property has dropped below 9.0% since the index began in 2011.

Jeni Browne, the Sales Director at Mortgages for Business, comments: “The attractiveness of HMOs as a buy-to-let investment has increased in recent years, not only because of the higher yields on offer, but because serious investors are keener to diversify their portfolios.”

With more landlords vying for HMOs, prices have been pushed up more quickly than the rents, which, Browne suggests, is one of the main reasons that their yields have dipped.

Multi-units, such as blocks of flats, also performed well last year, generating an average yield of 8.1%, compared to 8.3% in the previous year. In comparison, standard buy-to-let properties produced lower, yet more consistent returns, at an average of 5.6%.

The average value of a standard buy-to-let property in 2017 was £305,283 – down by 19% on the £375,409 recorded in 2016. Mortgages for Business claims that this means that more landlords are seeking lower value properties, which, in part, explains why more investors are looking to acquire properties in the north of England.

Browne continues: “Savvy landlords like to have a good mix of properties. They like the consistency of vanilla buy-to-lets and the higher returns of more complex property types. Although lower than previously, 8.9% is still an excellent return for HMOs, not only when compared to vanilla buy-to-lets, but also other, non-property assets.”

The index also revealed that there has been a whopping 444% increase in the number of buy-to-let mortgage products on the market since the index was launched in 2011, but Browne believes that many lenders will soon start to reduce the range of mortgages on offer.

She says: “Looking forward, it is widely anticipated that buy-to-let lending will contract this year in response to the tax and regulatory measures being imposed on the sector. As such, I would expect product numbers to peak in Q1 2018, and we have already seen some lenders trimming their ranges, leaving a core of great products which have been designed to reflect the changing needs of landlords.”

You can read the latest rent price and yields figures from estate agent Your Move here.

Stamp Duty Change to have Limited Impact on New Buyer Interest

Published On: January 18, 2018 at 10:34 am

Author: Em Morley

Categories: Property News

The UK housing market continued to display a lack of momentum in December, with buyer interest edging lower, according to the latest UK Residential Market Survey from the Royal Institution of Chartered Surveyors (RICS). The report also highlights that the recent Stamp Duty change is having little immediate effect.

In December, activity in the UK housing market continued to drop. After new buyer enquiries came close to stabilising in November, 15% more respondents to the RICS survey noted a decline in demand (as opposed to a rise) in the month of December.

Stamp Duty change

Furthermore, when contributors were asked whether they have witnessed an increase in first time buyer enquiries following the Stamp Duty change in the Autumn Budget, an overwhelming majority (86%) across the UK said that they hadn’t.

While this could be in part due to the time of year, respondents were also asked to consider the likely impact on the market over the coming months. Nationally, the majority of contributors (66%) anticipated the change having little consequence, while 12% felt it would result in higher overall activity. In London, however, 48% envisaged not much response, but a higher proportion of respondents compared to the national figure (28%) did say that the Stamp Duty change would increase overall market activity. The results for the wider South East are closer to the national picture.

Agreed sales

Stamp Duty Change to have Limited Impact on New Buyer Interest

Agreed transactions also fell at the national level, with 13% more respondents reporting a decline in volumes over the month. Significantly, Scotland, Northern Ireland and the North East were the only areas to suggest stronger sales, whereas transaction trends were either flat or negative across the rest of the UK.

Sales expectations nationally remain flat over the coming three months, but contributors are more optimistic over the year to come, with activity anticipated to pick up across all regions/countries over the next 12 months, with London recording its first positive reading since last June.

Looking at supply, new instructions continued to drop nationally, extending a run of 23 months. Comments from respondents continue to emphasise the adverse impact this is having on the market. There is, however, a possible improvement on the horizon, with 23% of contributors noting that appraisals were higher this December than last (compared to 15% of respondents in November).

Growing house prices

Looking at house prices, the headline balance moved to +8% in December, following a reading of zero in November. As such, this measure is now consistent with a marginal increase in prices nationally (on the most closely followed indices) over the coming months. The three-month price expectations series, however, remains negative at the national level, highlighting a lack of conviction surrounding the near-term outlook.

Property to let

In the lettings market, tenant demand continued to fall during December (on a non-seasonally adjusted basis), albeit the pace of decline eased somewhat from the previous report. Meanwhile, new landlord instructions dropped at a slightly faster rate. As a result, rental growth expectations were modestly positive for the three months ahead (net balance moving to +9% from +4%).

The Chief Economist at the RICS, Simon Rubinsohn, comments: “The initial feedback from the market doesn’t suggest that the change in the Stamp Duty regime announced in the Budget is going to have a material impact on activity. Indeed, the risk was always that a good portion of the benefit would be capitalised in the price, therefore limiting the benefit for the first time buyer.

“Meanwhile, the latest RICS data continues to highlight the importance of disaggregating the headline numbers when talking about the market. Challenges over affordability may have grown across the UK, but they are clearly having a bigger impact in some parts of the country than others. This is clearly evident in the sales expectations figures, which still remain in positive territory in more than half of the areas surveyed in the report.”

Simon Heawood, the CEO and Founder of property investment platform Bricklane.com, also responds to the survey: “Abolishing Stamp Duty was a drop in the ocean, given the affordability challenge of getting generation rent onto the property ladder. Increasing supply of the right kinds of housing will also go some way to stopping ever-rising house prices, but many of generation rent still face the prospect of waiting many years to buy their own home.

“The focus on bridging the housing generational gap must lie on the all-important first rung of the ladder – saving up for a deposit. The issue of housing supply and price is important, but looking at measures to support generation rent’s ability to get together a deposit is crucial.”

He continues: “The current situation will mean a continued reliance on the private rental sector, so it’s welcome news that the Government will be opening a consultation on how to encourage landlords to offer longer tenancies. Some forward-thinking landlords have been offering more stable tenancies for a while now and it is a great win-win – tenants get greater stability, enabling them to feel more at home, whilst investors have the benefit of higher occupancy rates.”

A Thriving Rental Sector is Something to Celebrate, not Mourn

Published On: January 16, 2018 at 9:21 am

Author: Em Morley

Categories: Lettings News

By Ian Boden, Sales Director of LendInvest

Towards the end of last year, there was much handwringing about NatWest Senior Economist Sebastian Burnside’s prediction that, by 2025, there will be more private renters in the UK than homeowners with a mortgage. But, in my view, a lot of the concern this prediction raised is somewhat misplaced.

There is no doubt that we aren’t building enough homes in the UK, and that steps need to be taken to make it much easier for would-be first time buyers to be able to purchase a home. The Help to Buy scheme, in its various iterations, has been a useful tool in helping buyers climb onto the property ladder. Lasting change will only come when first time buyers are given a more significant helping hand than simply enabling a lower deposit.

But I think we also need to move away from the concept of homeownership being the be-all and end-all. It is a very British thing, this obsession with owning your own home. On the continent, choosing to rent rather than buy is seen as a more acceptable choice to make.

A Thriving Rental Sector is Something to Celebrate, not Mourn

Yes, some people are renting because they cannot afford to buy, but it would be wrong to assume that is the case for all tenants. Plenty are actively choosing to rent, recognising that the flexibility offered through being a tenant is better for their circumstances.

It’s easy to understand why. Renting a home is a far more flexible option, allowing you to move around the country – indeed to another country – if you so wish, whether for work or any other reason, without needing to worry about the lengthy process of selling a property or the inconvenience of becoming an accidental landlord.

Equally, there are plenty of tenants who cannot see the appeal of signing up to an enormous loan which will take decades in order to pay off, with all the rigmarole that comes attached to life as a homeowner.

A study by CBRE earlier this year looked specifically at millennials and their attitude towards renting. It found that around 12% of young renters choose to do so because they don’t want the commitment of owning their own home, while 12% prefer the wider choice of affordable properties offered by the rental market compared to homeownership.

If we are to build a healthy housing market, then the needs and rights of tenants must be taken into account, rather than all of the focus going on routes into homeownership. There will always be people who prefer to rent – and that number is only likely to grow in the coming years – so we need to ensure that at least some of the new properties we build are specifically for that rental sector, and that the quality of these homes and the tenancy agreements landlords impose are up to the highest standards. Housing policy needs to reflect all the of the different housing tenures, not simply homeownership.

That will likely mean producing more co-living spaces, like The Collective’s HMO [House in Multiple Occupation] properties that have proven very popular with young professionals in London. We are already seeing the first co-living spaces opening in Manchester, and I would fully expect the likes of Leeds and Birmingham to play host to similar homes before long.

These properties are excellent examples of how the housing needs of those who choose to rent may differ from those looking to own their own home. Recognising that difference, and building it into the way we approach the housing shortage, will mean that the homes we produce actually do meet the needs of future generations.

So much of the talk in recent months when it comes to the rental market has been on the Prudential Regulation Authority underwriting rule changes, and understandably so when so many different lenders have chosen to interpret them in different ways. Keeping on top of the varying requirements of lenders is a big ask for brokers, so it is understandable that this has been the focus.

But the truth is that, no matter what underwriting or tax changes take place, the fundamentals of buy-to-let remain incredibly strong. Yes, the days of the dinner party landlords may be over, but for the professional landlord, the future still looks promising. We just need more focus on delivering the homes that both the tenants and owner-occupiers of the future will want.

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The Outlook for the Build to Rent Sector in 2018

Published On: January 12, 2018 at 10:21 am

Author: Em Morley

Categories: Property News

2018 will be a year of continuing evolvement for the emerging UK Build to Rent sector, with several factors influencing the type of assets that developers deliver, as well as the returns available to investors.

Jonathan Ivory, the Managing Director of Build to Rent owner/operator Atlas Residential, explains the changes and what they will mean for the sector’s future:

“2018 is going to be an important year for the UK’s Build to Rent sector. As the industry flows into the next stage of its evolution, we’re going to start to see clear winners and losers emerge in the portfolio aggregation arms race.

“The total number of investors will begin to consolidate over the course of the year, with investors who have failed to raise sufficient capital to reach the necessary scale starting to think about selling their assets and unwinding their platforms. However, as investor numbers consolidate, the expansion of lenders willing to finance Build to Rent schemes will expand, and this will occur against a backdrop of an ever increasing number of international investors seeking to deploy capital into the UK Build to Rent sector.

“At the same time, the changes in Corporation Tax, which have reduced returns for non-resident investors, may well begin to rebase land values. Thus, the shape of the sector – particularly in terms of those backing it financially – is going to shift over the year ahead, laying the foundations for its future growth and maturity.

“Changes will also occur that impact on how Build to Rent is operated. Incumbent property managers who find themselves underperforming are likely to face replacement, as investors seek better and more efficient services from their providers, in an attempt to ensure that operating expenses remain in line with underwriting.

“While the investment base is reconfiguring, phase two of Build to Rent will emerge as developers seeking to monetise their value creation will be looking to institutional investors for the first sales of their stabilised, purpose-built, multifamily homes. Furthermore, there are signs that we could see the first contractor bankruptcies of this cycle, which would create significant fallout, but also opportunity for developers and investors alike.

“In geographic terms, the appetite for London will continue, but 2018 will also see increasing investment in the regions, as low yields and continued challenges regarding affordable housing provisions in London work to reshape the locations that Build to Rent investors – and developers – consider viable. Those viability challenges will factor in construction cost inflation, relating to labour shortages, vis-à-vis the ongoing uncertainty over Brexit and free movement of labour. Equally, the softening of rents in London and Manchester, as multiple Build to Rent assets come online at the same time in 2018 and compete for identical market share, will also influence the location of future schemes.

“Despite the continued proliferation of Build to Rent, UK housebuilders will largely continue their indifference to the asset class for as long as the Government’s Help to Buy programme remains in place. Regardless, the building blocks of the sector’s future have now been firmly laid, and it remains incumbent on its practitioners to press on and deliver the homes the nation needs.”

Are you looking to get involved in the Build to Rent sector this year?

80,000 Homes Brought onto the Rental Market by Accidental Landlords

Published On: December 11, 2017 at 10:18 am

Author: Em Morley

Categories: Landlord News

A slower sales market in the south of England has revived accidental landlords, as more sellers chose to let their properties this year instead of waiting for a sale, according to the latest Monthly Lettings Index from Countrywide.

Around 80,000 homes that came onto the rental market in 2017 had been up for sale within the previous six months, led by London, where 12.5% of homes coming onto the lettings market had previously been up for sale.

With a stronger sales market outside of the capital, hopeful sellers across the rest of the UK were far less likely to put their homes up to let.

Compared with traditional investors, accidental landlords tend to stay in the rental sector for a much shorter period of time. While the average buy-to-let investor owns their rental property for 17 years, a typical accidental landlord lets their home for an average of just 15 months, Countrywide has found.

In fact, the firm reports that almost nine in ten (89%) accidental landlords put their property back up for sale after their first tenant moves out, rather than looking for a new tenant.

The Monthly Lettings Index also reveals that the annual rate of rent price growth picked up in November, with the average price of a new let rising by 1.2% over the previous 12 months, led by gains in the Midlands (2.8%) and northern England (2.3%).

Johnny Morris, the Research Director at Countrywide, says: “While most landlords are in the business by choice, the last three years have seen an increase in the numbers letting out a property they had previously tried to sell. With mortgage rates remaining low, these discretional sellers can afford to let their home while they wait and see what the future holds for the sales market.

“Rental growth in London is once again positive. Every region of Great Britain now has average rents higher than a year ago. And it’s likely that relatively low numbers of rental homes coming onto the market will keep rental growth firmly in positive territory. But growth remains well below the long-run average, with November 2017 marking the second year anniversary of the date when rents last rose by more than 3%.”

Are you an accidental landlord? If so, how long do you plan to stay in the rental market?

Tax Changes and Tighter Regulation Slowing the Growth of the Private Rental Sector

Published On: December 8, 2017 at 9:05 am

Author: Em Morley

Categories: Finance News,Law News

A series of tax changes and tighter regulation for landlords is slowing the growth of the private rental sector, despite its value hitting a new high, according to the seventh edition of Kent Reliance’s Buy-to-Let Britain report.

The value of the private rental sector in Great Britain currently stands at almost £1.4 trillion – an increase of 6.4% (or £82.6 billion) in the past year. Rising house prices have been the key driver of this growth, with the average rental property climbing in value by 4.2% in the last year.

The total number of households living in rental housing is growing much more slowly. There are nearly 5.6m households across Great Britain living in private rental homes – just 2.2% more than a year ago. This is less than a third of the rate of growth recorded in 2014.

Tax Changes and Tighter Regulation Slowing the Growth of the Private Rental Sector

Slower growth reflects landlords’ fragile confidence in the sector. Just 41% of landlords are confident about the prospects for their portfolios. While this is a slight recovery from the record low hit in the second quarter (Q2) of 2017, back to the level seen at the start of the year, it remains far lower than in recent years. Confidence has been hit by tax changes regarding the amount of mortgage interest that landlords can offset against tax, rising costs and new mortgage rules that have tightened criteria.

Tenant demand is growing more slowly too. Just 5% more landlords reported rising tenant demand than those reporting a decline – the lowest balance in at least five years.

This has been reflected in easing rent price growth. The average rent across Great Britain now stands at £895 per month. Although this is another new high, the typical rent increased by 1.5% annually – down from 2.4% a year ago – with sluggish growth in London weighing on the national average. Rents are likely to continue to climb, as 29% of landlords expect to increase rents over the next six months – ten times the number who expect to reduce them. As taxation rises over each of the next three years, buy-to-let landlords could look to pass on higher costs to tenants where possible.

Where supply is expanding, larger-scale landlords are driving it. In a survey of 856 landlords, carried out in association with BDRC Continental, among those that bought or sold properties in the last three months, investors with more than ten properties made a net addition of one property. There is no growth among those with fewer than five properties. Given that investors with just a single property account for 62% of the landlord community, a lack of growth in this segment of the market is dragging on the expansion of supply.

Those landlords still buying properties are increasingly doing so as a limited company, rather than as an individual, which allows them to continue to offset mortgage interest costs against tax. Kent Reliance’s data shows that, in the first three quarters of 2017, more than 70% of buy-to-let applications for property purchases were via limited companies – up from 45% in 2016. As the amount of mortgage interest that landlords can offset against tax progressively diminishes over the next four years, interest rates rise and tax bills climb, this will spur on demand for incorporation.

Professionalism in the private rental sector is also being driven by the Prudential Regulation Authority’s (PRA’s) recent intervention in the market. Since the end of September, lenders must account for much more detail of a landlord’s portfolio (if they have four or more mortgaged properties), their experience and track record, assets and liabilities, and business plan before lending. For many landlords, this means creating business plans for the first time and considering longer-term planning for their portfolios.

Andy Golding, the Chief Executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in buy-to-let, says: “Landlords are swallowing the unpleasant cocktail of higher taxation and tighter regulation, and this is undermining the expansion of the private rented sector. A fundamental shift in the landlord population is now underway, as buy-to-let moves from being a popular past time for hundreds of thousands of British amateur landlords, to the preserve of committed long-term investors with experience and expertise. The pace of professionalisation will only increase following the PRA’s latest moves, and incorporation continues apace.

“Creating a more professional sector is no bad thing, but there is a limit to the amount of change the sector can absorb before we see a damaging reduction in supply – an outcome that would see rents increase for tenants and reduce their ability to save for a deposit for house purchase. Landlords’ confidence is better, but still clearly fragile, and, as the new tax reforms gradually come into force, any further financial burdens may prove to be a tipping point.”

He continues: “The need for a strong and stable private rental sector has not changed, notwithstanding the Government’s housing announcements in the Budget. The removal of Stamp Duty for 95% of first time buyers should provide some help for those with savings, but it will also bolster house prices – the same side-effect Help To Buy is having. The housing market is significantly more complex than can be solved with some demand side stimulus. The private rental sector fulfils a vital role in our society and our economy, a role that needs to be reflected in an evolved housing policy.”