Spring is in the air for the buy to let market in the UK

Spring is definitely in the air for the buy to let market in the UK with some new found optimism after a long period of backlash against Government tax and regulatory changes.
It seems as if many landlords are embracing a business like attitude and getting on with making their portfolios work for them. Indeed, London, Manchester and Liverpool are the most popular cities for buy to let investment in the UK going into 2019, according to new research.
And most landlords are planning to increase their portfolio, the survey commissioned by Experience Invest has found while Nottingham, Leeds, Birmingham and Newcastle are also regarded as good bets for buy to let going forward.
When looking at the types of property that investors were considering investing in this year, the survey also found that houses were top at 67%, followed by flats at 54%, new build residential for 39% and 24% student accommodation.
Overall, just 11% of those surveyed said that they plan to reduce their portfolios in 2019. Some 39% are planning on increasing the size of their portfolio over the coming 12 months, while 35% have no intention of buying or selling any property in 2019 and 15% will be selling some assets to then reinvest in new properties.
It comes at a time when rents are steady. Official figures from the Office for National Statistics (ONS) show that in the private rented sector rents increased by 1.1% in the 12 months to February 2019, up from 1% in January.
In England and Wales rents were up 1.1%, while in Scotland they increased by 0.7% and in London by 0.2%. But, overall, rental growth has generally slowed since the beginning of 2016, driven mainly by a slowdown in London over the same period.
Pressure will continue on landlords to raise rents in 2019, according to Kate Davies, executive director of the Intermediary Mortgage Lenders Association (IMLA). She believes that after filing their 2017/2018 tax returns at the end of January, landlords will be more aware that ongoing changes to mortgage interest tax relief are increasing the financial challenges ahead.
It may mean becoming more business-like or adopting new models. The industry is aware that this could mean offering longer tenancies or even shorter tenancies. In this respect a new study has found that short term rents could be worth considering.
The research from short term letting agency Portico Host found that short term let properties in Walton, Liverpool, are achieving the best yields in the North West at 30.68%, compared to landlords of longer term rentals, who can achieve a yield of 7.88%. The Airbnb yield figure is based on an occupancy rate of 60% of the year, which is typical for these types of properties due to seasonal demand.
While this is not the answer for every landlord it is a model that they might want to look at as they seek to improve and grow their business. They should also be buoyed by research showing that buy to let is still a good investment option beating investing in gold, cash and fine art in the last decade in terms of returns.
Investing in the FTSE 100 would have brought the biggest return when considering the annual capital gain and the percentage yield with an increase of 119%, whilst the value of classic cars is up 94% during the same time period.
However, for those that aren’t professional investors a buy to let property is a very good option, according to the research from lettings inventory and property compliance specialists VeriSmart.
The report says that when considering the annual gain in house prices along with the increase in rental yields, an investment in the sector a decade ago would have brought a 92% return today. This is much higher than the 60% return that investing in gold would have brought and a world away from the 16% increase in cash or the 4% drop in fine art.
It also says that the growth in the property market has been by far the most reliable option with the FTSE 100, gold or cash providing a far more volatile option that is also open to a larger degree of impact from political and economic factors as well as influence from other foreign countries.

U.K. Current Account Deficit Widens; Business Investment Falls

The U.K. current-account deficit stood at its highest in two years in the third quarter, raising fresh questions about its sustainability as Britain faces the prospect of a chaotic exit from the European Union in less than 100 days.

The gap grew for a third straight quarter to 26.5 billion pounds ($33.6 billion), the equivalent of 4.9 percent of gross domestic product. The Office for National Statistics left its estimate of GDP growth at 0.6 percent as consumers made up for another fall in business investment and a negligible contribution from trade.

Key Insights

  • Brexit has put the current account back in the spotlight, with economists questioning the willingness of foreign investors to keep financing the deficit by buying British assets after Britain leaves the EU.
  • The gap widened from 20 billion pounds in the second quarter as the trade deficit hit a two-year high and the shortfall in investment income reached the highest since the second quarter of 2016.
  • Sharp negative revision to trade deficit means net trade contributed just 0.1 percentage point to economic growth in the third quarter, rather than 0.8. The economy grew 1.5 percent from a year earlier.
  • But signs are pointing to a significant economic slowdown, with the Bank of England predicting growth of around 0.2 percent this quarter. Firms cut investment by 1.1 percent (revised from 1.2 percent) between July and September amid mounting Brexit fears. Investment has fallen for three quarters in a row, the longest period since the financial crisis.
  • The budget deficit narrowed to 7.2 billion pounds in November, below forecasts and the lowest for the month since 2004, with revenue and spending including investment both growing just under 4 percent on the year. The shortfall in the first eight months of the fiscal year was down over 29 percent versus the same period in 2017.

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  • Britons splurged during the summer heatwave — consumer spending rose 0.5 percent on the quarter — but pressures remain. Households were net borrowers for an eighth straight quarter, the longest stretch since the 1980s, as they continued to spend and invest more than they received.
  • Real disposable income was unchanged and the saving ratio remained at historically low levels, with households saving 3.8 percent of their income compared with 4.1 percent in the second quarter.
  • Widening in deficit on income was driven by an increase in the profits generated by foreign investors on their direct investment in Britain. Imports of goods and services rose 2.2 percent in value terms, while exports climbed 1.2 percent.
  • Simple extrapolation of fiscal data suggests deficit for 2018-19 as a whole will come in around 29 billion pounds, higher than the 25.5 billion pounds (1.2% of GDP) forecast by the Office for Budget Responsibility in October. The gap in the first eight months of the fiscal year was 32.8 billion pounds.
  • Budget deficit in November was almost 1 billion pounds lower than a year earlier, with the improvement due entirely to local authorities. Central-government revenue was boosted by value-added tax and income tax, both growing over 6 percent on the year. Current spending rose just 1.5 percent but overall outlays were lifted by an increase in net investment.

SOURCE  https://www.bloomberg.com/news/articles/2018-12-21/u-k-current-account-deficit-widens-business-investment-falls

Flat outlook for the property market in 2019 should not be a surprise.

It really should not be a surprise that the outlook for the residential property market in the UK for 2019 is a bit flat as indicated by various figures and forecasts being published.   It is Brexit year and no one could have predicted a brilliant rise in the economy or the political outlook so people are going to be nervous about moving house unless they have to.   But I was a little bit surprised by the forecast from Rightmove that nationally, average asking prices in the UK are unlikely to rise at all in 2019, although that statement needs to be tempered by the points that the property portal does expect the north of the country to see growth.   It is a topsy turvey outlook, with prices and sales in the South, particularly London, still negative and prices in the North, particularly cities such as Edinburgh, Manchester, Liverpool and Leeds seeing record growth.   One reason is that markets in these cities have not grown as much since the economic crisis and therefore as not enough new homes are being built, the demand is there and pushing prices up.   Rightmove also points out that overall the housing market is sound and predicts that asking prices could rise by between 2% and 4% in some Northern regions while the London commuter belt regions could see asking prices fall by around 2% and in Greater London the market is predicted to slow from its current annual rate of decrease from -2.4% to an average fall of -1%.   The latest report from Knight Frank shows that property prices in London’s prime property markets are continuing to fall but the number of new buyers registering in the market is rising, suggesting that there is still interest there.   It is important to keep an eye on the prime market as movements there can reflect on the wider property market. Knight Frank reports prices are down by 4% in the central London market year on year and down by 4.8% in the outer London market.   Meanwhile, Halifax’s index shows that house prices fell by 1.4% in November and at an average of £224,578 are just 0.3% above where they were a year ago. But it also points out that this is within the 0% to 3% rate forecast a year ago, with Brexit, no doubt having been taken into account. However, it is the lowest rate of annual growth in six years.   Other forecast reports also point to the market continuing to be slower. Chestertons, for example, says it is due to Brexit uncertainty and tax changes affecting buyers. But the outlook is encouraging, it adds, as there has been a noticeable increase in buyer interest with registrations and viewings both up on last year.   Looking back at 2018, it points out that London has suffered more than the rest of the county in the wake of tax increases while Brexit has had a greater impact due to the number of international buyers traditionally in the market.   In Brexit year, expect not much movement, although the market could dip considerably in the New Year if a No Deal looks likely. There are still several months to go until B-Day. But what the market, and the country as a whole does not want is either another referendum or a decision not to leave after all.   Both scenarios would be damaging to the economy, there would likely be another general elections so steadily forwards is a better outlook so that the markets can pick up in the second half of the year.

UK property market heading for a slow end to 2018

In the final months of the year the housing market can speed up, with buyers looking to complete sales in time for Christmas, but it would appear that this is not happening this year.   Today’s figures from Rightmove show that asking prices in Britain have fallen by 1.7% this month, the largest November drop since 2012, and asking prices are now 0.2% below a year ago, the first annual fall for seven years.   All regions recorded a monthly price fall, with the largest falls in the South and the upper end of the market with wealthier commuter towns around London, where prices have risen by over 40% since 2011, seeing significant price falls.   This isn’t a sudden trend. Indeed, last week another asking price index report from Home.co.uk showed that price cutting is widespread in the housing markets in England and Wales as they adapt to reduced demand and increasing supply.   Figures are suggesting that the property downturn that began in London is now affecting other parts of the country such as the South East and the East of England, and also Yorkshire and Humberside.   This comes against a background of slowing annual price growth which is confirmed by the latest official figures published by the Office for National Statistics (ONS) showing that over the past two years, there has been a slowdown in house price growth, driven mainly by a slowdown in the South and East of England.   The figures also show that prices fell by 0.3% over the year in London but this was up from a fall of 0.6% in the year to August 2018 while on a non-seasonally adjusted basis, average house prices in the UK were unchanged between August and September.   But Scotland appears to be bucking the trend. House prices in Scotland increased by 5.1% in the 12 months to September and by 1.9% month on month, the figures from the latest Your Move index show.   It means that Scotland is outperforming England and Wales where prices fell by 0.1% over the same 12 month period. Inverclyde saw annual growth of 12.2%, Argyll and Bute were up 12% and in Edinburgh prices not only increased by 9.6% year on year but also by 6.6% month on month.   It would seem that estate agents and sellers in England and Wales are reacting to market forces and lowering their price expectations by more and sooner than the usual January slowdown.   There is also the continued uncertainty about Brexit as the March 2019 deadline approaches and the political machinations at Westminster regarding a leadership challenge on the Prime Minister and the European Union making it clear it is not willing to change anything in the draft leaving deal are not helping.   When it comes to making big decisions likes moving home, only those who really need to do so are in the market, or so it would appear. Yet this is not happening in Scotland. North of the border there is the same lack of stock but prices are rising. The housing market is strong while largely inactive, an interesting scenario and one to keep an eye on.

Budget was all about buyers with nothing for landlords or tenants

It was never going to be a Budget for landlords and many in the industry will be disappointed that nothing was done to boost the flagging private rented sector where demand continues to be more than the supply of homes to rent.
The overwhelming message from the announcements, or perhaps lack of them, is that the Government still sees the UK as a nation of home owners and does not acknowledge that the rented sector is vital to the housing market.
There was good news for first time buyers in terms of a reduction in stamp duty for those opting for shared ownership and an extension of the Help to Buy scheme to 2023 but with conditions.
There is little doubt that the private rented believes that the Chancellor Philip Hammond failed to address the concerns of landlords in his Budget and the lack of positive change could drive more to sell up.
Those working in the sector have pointed out that many buy to let landlords have sold up due to a restrictive tax regime introduced in the last couple of years, including the extra 3% stamp duty on additional homes.
They are also warning that while the announcement that lettings relief will be cut and the Capital Gains Tax exemption period reduced to the final nine months of ownership, could adversely affect some landlords.
From April 2020, lettings relief will only apply in circumstances where the owner of the property is in shared occupancy with the tenant, in other words it will be abolished for non-resident landlords, selling properties they had previously lived in while the final period exemption is also set to be reduced, from the current 18 months to nine months.
Although cutting lettings relief might see more properties coming up for sale, the rental market will be the loser at the end of the day but the biggest blow is perhaps the lack of recognition that there is a direct relationship between financially squeezed landlords, many of whom struggle to invest in their properties, and tenants struggling to find homes that are fit for purpose.
Whilst the Chancellor again outlined the Government’s desire to boost home ownership, he failed to address the needs of the millions of people who cannot or do not want to buy. Those who do rent and do want to buy still struggle to save for a deposit at a time when rents are rising.
Indeed, the latest figures from Rightmove show that average asking rents outside of London have reached over £800 per month for the first time, fuelled by fewer available rental properties for prospective tenants to choose from.
Rents increased by 0.8% in the third quarter of 2018, the biggest jump recorded at this time of year since 2015 and at the same time there are 8.7% fewer rental properties available compared to this time last year and in London the number of available rental properties is down by 19.4%, with agents finding tenants four days quicker for landlords’ properties than a year ago.
Rightmove says that the continuing trend of fewer landlords purchasing buy to let properties has led to record high rents and a lack of available rental properties this quarter, increasing competition among many prospective tenants looking for the right home.
While the exit of landlords from the private rented sector is a combination of factors you cannot help but think that the Budget did not just do nothing, it just ignored landlords and that will have an impact down the line.
Author Gary Lawson
Smart Invest UK
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