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.

Annual house price growth in the UK has stagnated, latest lender index shows

Annual house price growth in the UK has stagnated this month with a rise of just 0.1% to an average of £211,966, according to the latest lender index.

This follows a subdued December when price growth slowed to 0.5% and in January prices were up by 0.3% compared with the previous month, the figures from the Nationwide show.

Robert Gardner, Nationwide’s chief economist, pointed out that indicators of housing market activity, such as the number of sales and the number of mortgages approved for house purchase, have remained broadly stable in recent months.

But he warned that forward looking indicators have suggested some softening was likely. ‘In particular, measures of consumer confidence weakened in December and surveyors reported a further fall in new buyer enquiries towards the end of 2018,’ he explained.

‘While the number of properties coming onto the market also slowed, this doesn’t appear to have been enough to prevent a modest shift in the balance of demand and supply in favour of buyers in recent months,’ said Gardner.

He also pointed out that uncertainty is exerting a drag on the market. ‘It is likely that the recent slowdown is attributable to the impact of the uncertain economic outlook on buyer sentiment, given that it has occurred against a backdrop of solid employment growth, stronger wage growth and continued low borrowing costs,’ he added.

Looking ahead, near term prospects will be heavily dependent on how quickly the uncertainty lifts, but ultimately the outlook for the housing market and house prices will be determined by the performance of the wider economy, especially the labour market, according to Gardner.

‘The economic outlook remains unusually uncertain. However, if the economy continues to grow at a modest pace, with the unemployment rate and borrowing costs remaining close to current levels, we would expect UK house prices to rise at a low single digit pace in 2019,’ he concluded.

 


Landlords are being taxed out of business, it is suggested

The majority of landlords in Britain are only paying the interest on their mortgages rather than paying off their loans, research suggest.

According to the National Landlords Association (NLA) some 79% of landlords are only servicing the interest on their mortgages and it is due to rising costs with many being taxed out of business.

The NLA points out that there are many costs to running a successful lettings business that tenants are even the wider industry are either unaware of or don’t consider.

‘There are myriad costs to running a letting business, including maintenance, repairs and upgrades, licensing, and insurance. Rents have to cover all these costs, as well as the interest on a mortgage, where there is one,’ said Richard Lambert, NLA chief executive officer.

‘Housing is expensive for everyone at present. The Government needs to encourage the supply of housing in all tenures, including the private rented sector,’ he added.

The NLA is calling for the Government to allow more time, five years, for existing policies in the private rented sector to bed in, and evaluate their effectiveness, before new policies and regulations are introduced.

It also suggests that the Government should be encouraging the building of more housing of all tenures by simplifying planning and borrowing rules.

Crucially, it says the Government should stop taxing professional landlords out of the market and argues that the loss of ‘good landlords’ will not make renting more affordable and will simply drive up the cost for those who want to access decent rented homes.


Londoners buy £30bn worth of property outside capital, the most since 2007

 

More than 75% stay within the south-east, but one in five head for Midlands or north in search of a new life.

Londoners are seeking better value for money by moving out of the capital, according to Hamptons.

Londoners are seeking better value for money by moving out of the capital, according to Hamptons. Photograph: Andrew Matthews/PA

Londoners bought an estimated £30bn worth of property elsewhere in Britain this year – the highest amount since 2007 as buyers seek out better value for money, a report has found.

The total value of homes purchased by Londoners outside the capital previously peaked at £37bn in 2007, Hamptons International said.

 

Londoners purchased 74,350 homes outside the capital in 2018, 3.8% more than in 2017, but below the 2007 peak of 113,640, according to its calculations.

The average price of a home bought by a Londoner outside the capital has also increased and now stands at 398,910.

More than three-quarters of Londoners leaving the capital in 2018 moved elsewhere in the south-East, the south-west or east of England.

But with affordability in the south stretched, an increasing proportion of Londoners are moving further afield, the report found.

In 2018, around one in five Londoners going elsewhere moved to the Midlands or headed further north. This compares with one in six (15%) in 2015 and one in 14 (7%) in 2008.

Aneisha Beveridge, head of research at Hamptons International, said: “Historically most people moving out of London have done so because of changing priorities, such as starting a family or generally wanting a slower pace of life.

“But increasingly as affordability in the capital is stretched, more households are looking beyond the confines of London to buy their first home.

“For many this means moving further afield to areas such as the Midlands and North where they can get more for their money.

“Despite a rise in the number of London leavers this year, 2018 is likely to be a peak. A slower housing market in 2019 will likely mean that we see fewer Londoners buying homes outside of the capital than in 2018.”

The figures are based on data from estate agency and property services group Countrywide, which Hamptons International is part of, and have been scaled up to give an estimate of property purchases by Londoners across Britain.

Here is where Londoners moving to elsewhere in Britain are going, with how the proportions were divided up in 2018, according to Hamptons International (percentage figures have been rounded):

  • South-east England, 37%
  • East of England, 32%
  • South-west England, 9%
  • North-west England, 6%
  • East Midlands, 6%
  • West Midlands, 5%
  • Yorkshire and the Humber, 2%
  • Scotland, 2%
  • North-east England, 1%
  • Wales, 1%

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.