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.

 


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
Please do not reproduced without my permission

New £1 billion fund announced for building new homes in England

The Government and Barclays have announced a £1 billion housing development fund to help deliver thousands of new homes across England.

Under the agreement loans ranging from £5 million to £100 million, which will be competitively priced, will be available for developers and house builders who are able to demonstrate the necessary experience and track record to undertake and complete their proposed project.

Funding is open to new clients as well as existing Barclays clients, and will put greater emphasis on diversifying the housing market, as at present almost two thirds of homes are built by just 10 companies.

A key priority of The Housing Delivery Fund is to support small and medium sized businesses to develop homes for rent or sale including social housing, retirement living and the private rented sector, whilst also supporting innovation in the model of delivery such as brownfield land and urban regeneration projects.

‘There is a vital need to build more good quality homes across the country. This £1 billion fund is about helping to do exactly that by showing firms in the business of house building that the right finance is available for projects that help meet this urgent need,’ said John McFarlane, Barclays’ chairman.

Housing Secretary James Brokenshire said that it will see Barclays in partnership with Homes England also help to see more design and innovation introduced to new home building.

‘It is a further important step by giving smaller builders access to the finance they need to get housing developments off the ground. This is a fantastic opportunity to not only get more homes built but also promote new and innovative approaches to construction and design that exist across the housing market,’ he added.

According to Sir E Lister, chairman of Homes England, the organisation will play a more active role in the housing market and do things differently to increase the pace, scale and quality of delivering new homes.

‘The Housing Delivery Fund demonstrates Barclays’ commitment to the residential sector and will provide a new funding stream for SME developers to help progress sites and deliver more affordable homes across England,’ he said.

Brokenshire added that it will move towards the target of 300,000 new homes being built a year by the mid-2020s and that with 217,000 homes built last year, England has seen the biggest increase in housing supply for almost a decade.


Scotland and Midlands Lead Greenfield Land Values Growth

Strong demand from housebuilders driving up cost of land and house prices in the Midlands

An increase in the supply of permissioned land has lead to supressed levels of land value growth, according to the quarterly UK residential development land index by Savills.

Greenfield land values grew by 0.8% in Q2 2018 across the UK, bringing annual growth to 2.7%. The strongest quarterly increases recorded were 2.0% in Scotland, 1.5% in the East (includes East Midlands and East of England), and 1.3% in the West (includes West Midlands and South West).

On an annual basis, greenfield land values were up 4.4% in the West and 4.8% in Scotland, with the index noting that the strong growth in land values in the Midlands has been driven by rising demand from housebuilders.

The reason for the muted growth in land values across the UK, however, is due to a sharp rise in granted planning permissions.

In 2017, over 391,000 new homes had planning permission granted, a 21% increase from 2016.

According to the index, demand for land is also being driven by housing associations competing with housebuilders for land as a result of Section 106 requirements.

Strong house price growth is linked to the rise in land values, with Savills reporting that annually prices in the East and West Midlands are up 5.8% and 6.2% respectively, compared to a 3.9% average across England & Wales.

“Land values are currently underpinned by increased demand and a clear political will to maintain high levels of housing delivery, while rising consents and build costs will temper growth potential,” said Savills research analyst Lucy Greenwood.

“The key to boosting housing delivery will lie in unlocking land in locations linked to the strongest housing markets and to those with the most pressing housing need.”