Diary of a Property Investor

Mortgage affordability rises in the UK

Mortgage affordability for those looking to buy property in the UK has risen, new figures from Halifax have shown.

According to the organisation, affordability in the country now stands at a 12-year high, with 40 per cent of local authorities being branded as affordable for first-time buyers.

This figure represents a considerable improvement from the same statistic during the market high of 2007, where only six per cent of areas were judged to be affordable.

Halifax claims that the recent stamp duty threshold increase, which meant that only five per cent of fist-time buyers had to pay the tax, should be considered as one of the primary reasons for the rise in affordability.

Martin Ellis, housing economist at Halifax, commented: "The 'noughties' were a difficult period for many looking to get onto the property ladder.

"The substantial rise in house prices over much of the decade prevented many potential first time buyers from entering the market, however, affordability has improved significantly over the past three years."

www.propertyshowrooms.com

House rentals hit new high in November

A recent survey conducted on property rentals show that rates have hit a new high of £692 on average. According to the LSL property index, rentals have grown for the tenth straight month.

Giving some more insights in the UK market, the report said that rentals varied widely among regions. The rental growth however, has slowed down in November and has registered only 0.1% growth over the month of October. However, on the flip side – unpaid rentals have risen also with 9.7% of total due in arrears. The survey covered 18,000 samples, which were rented through letting agents such as Your Move and Reeds Rains.

The report carried some interesting and diverging trends across different areas. For example, London saw rates rise by 1.8% last month due to strong demand.

However, rental rates are actually falling in other areas. Rates have fallen by 3.1% in eastern England and in East Midlands they dropped by 2.4% in November.

The negative trend was also witnessed in the south-east of England where rates were down by 1.9% and by 0.6% in the north-west of England.

Explaining further, David Newnes of LSL said:  “With the limitations placed on the supply of rental property by the lack of mortgage finance, rents have continued to increase”.

However, except London, rent increases have begun to slow in several regions, and we expect this trend to continue across the country in December and January” Newnes added.

Describing the fall in rentals as short-term Newnes said, “The UK’s buy-to-let market still faces a shortage in the supply of rental properties and we don’t anticipate that the slowdown in rent rises will last long into 2011”.

financenews.co.uk

Annual returns from student accommodation reach 13.5% in September 2010

Knight Frank has launched a new Student Accommodation Index - the first industry benchmark to accurately track the performance of this asset class. Average rents for investment class student accommodation rose 2.2% across England & Wales in the year to September 2010. Average rents in London fell back over the period by an average of 3.6%, whereas rents for regional cities rose by 4.1%. Investment returns across England & Wales fell back from 6.56% in September 2009 to 6.25% in September 2010.

Current investment yields stand at 6.00% in London and 6.5% in the regions , while total returns (income and capital value growth) stood at 13.5% in England & Wales in September.

James Pullan, Knight Frank's head of student property commented: "Student property has delivered consistently healthy returns over the past five years. The sector avoided the crash in both capital values and rentals seen in the wider commercial and residential sectors in 2008 and early 2009.

"Across England & Wales rents have continued to rise into the 2010/11 academic year (by 2.2% on average) reflecting the strong demand for accommodation from a rising student population, but also the ongoing process of improvement and enhancement being undertaken by the student accommodation operators."

"Investors are looking increasingly favourably on the sector as they are attracted by what are perceived to be the contra cyclical properties of investing in Education. Specifically investors are seeking security of income and the wider investment case offered by student property and this is demonstrated by the sharpening of yields over the past 12 months by over 30 basis points - from 6.56% to 6.25% in the 12 months between September 2009 to September 2010.

"Full occupancy is a characteristic of the sector. In the regions outside London rents have risen by around 4.1% over the last academic year. In London we have observed some pressure on the high end stock which has resulted in an overall fall of rents this year.

"The general outlook for rents is of continued pressure for annual growth with undersupply of student accommodation still a pronounced feature in most markets. In London we project a stabilisation of rents over the forthcoming year with developers targeting strategically accessible transport hubs to provide high quality accommodation at sustainable rents."

ukpropertyshop.co.uk

Article - What Effect will the Government's Spending Review have on the Buy to Let Market?

Like many government announcements, there’s a lot of noise before the event, leaving the press and pollsters free rein to give their opinions on what will happen and the likely effect.
Once the announcement’s made, they then want to give their opinion on what’s been said, with their prediction of the future.
I’ve searched high and low but struggled to find any details on the effect of the government spending review on the housing market or the rental market.
Sure there was the old chestnut of first time buyers never being able to afford a house and I enjoyed an article in The Times suggesting renters would rent well into their thirties, like the cast of Friends.
As you‘ve probably guessed by now, I like hard facts so I can make up my own mind, rather than listening to someone else’s interpretation passed off as gospel.
So let me give you the facts first and then my opinion of the effect that will have on house prices now and in the medium term as well as the effect on the rental market.

First Change - Single Person Allowance

At the moment anyone over 25 can claim the local housing allowance at the 1 bedroom rate. Below that age, they can only claim the rate for a room in shared accommodation.
After 2012, the age limit will increase to 35, so perhaps the article in the Times wasn’t so far fetched.
That may not sound like a big change, but the impact will be huge. In Stockport, this would mean that a 26 year old could claim £250 pound per month rather than the £450 per month for a one bed place.
One solution would be for two people to share 2 bedroom place, but at the moment, the 2 bed allowance is £550 per month, pricing the two friends  out of the market, unless the government increases the single persons allowance.
If three friends decide to share , pooling their £250 into £750 they’d have far more buying power, but the landlord may be caught by HMO regulation, depending on the local council’s rules.

Change 2 - Social housing rates to increase to 80% of the open market rate.

At the moment much of the social housing is substantially cheaper than the private rental market, sometimes by as much as 50%.
Naturally this has the knock on effect of making it highly sought after, giving long waiting lists and a reluctance for tenants to move out when their situations change and they no longer need the same number of bedrooms.
I’m sure that it won’t be long before the rules change so that a particular house isn’t for life, but depends on the tenants’ needs at the time. Personally, I think that will be a hard sell and opposed by the MPs with constituencies who’ll be affected.
Whilst there will be some objection to this change, the action’s not retrospective, so will only affect new tenants.
There’s been talk about capping the weekly allowance at £400 per week, but this will have little effect on the Manchester market.

Change 3 - New home building target

The government has announced a payment for councils who hit their new homes target, designed to reinvigorate the UK house building market and hopefully make the planning process easier.
This sounds like good news, but the government’s previously predicted a housing shortfall of 120,000 houses per annum, so we’ve some catching up to do.

So what impact will these changes have on house prices and renting?  

I’ve also signed up a deal in Chester which needs buying with a standard mortgage, so I’ve not abandoned the “old ways”.

Market Price £120,000

RICS Valuation £100,000

Our Price to you £80,000

Rent £525

Monthly Cash flow £192 (£80,000 at 5% interest rate)

Monthly Cash flow £258 (£64,000 at 5% interest rate)I

f you'd like to talk about any of these deals, lease options or property sourcing, drop me an email and we'll arrange a time for a chat.

UK Housing market

I don’t know about you, but I’m always surprised that the reports on the UK housing markets don’t say the same thing. I know that opinions differ, but surely the facts should agree.

Like many property investors I use the doom and gloom as social proof when making an offer, but watch my local market and talk to other professionals to form an opinion based on what’s real rather than perceived.
I think it’s a great time to buy, with some fantastic deals around and whilst you may expect me to say that, I’m putting my money where my mouth is and am looking for deals for myself.

In fact, I’m looking for new private investors and am working on a new secured product for the private investment scheme for people who’d rather swap a high return for security.
There are always too many deals around, so let me know if you’d like to talk about me finding you a great deal, or if you’d like me to mentor you.

I’d also like to hear any questions you’ve got on property, as I’d like to base future articles on readers’ question, so send me an email with any questions you’ve got. Get in touch at my usual email address, peter@propertymadesimple.com

More Great Mortgage Deals as Lenders Fight for Customers

Stiff competition on the high street has resulted in some fantastic offers, especially for those looking to remortgage. Experts are already signaling that borrowers should be taking advantage of the situation and are advising people to take a look at their current mortgage deal to see if they can save money by switching to a new deal.

Recently www.mortgagerates.org.uk reported what was looking like a price war between banking giants HSBC and Barclays. HSBC had just announced that it was extending its 1.99% offer and all eyes were on Barclays to see how they could counter HSBC’s move.

Well, Barclays has now extended its new mortgage offering and made it more accessible  to borrowers by reducing the deposit that was needed by increasing the loan to value (LTV) from 70% to 75%. At the same time the Skipton Building Society revamped their mortgage offering by launching a new range of fixed rate mortgages. Their 5 year fixed mortgage has a loan to value (LTV) of 70% with a rate of 3.98% for remortgages and new house purchases.

Melanie Bien, director of Private Finance, the mortgage broker said: “Remortgaging levels have picked up not so much because borrowers think interest rates are going to rise but as a result of the extremely attractive deals on offer, particularly on trackers,”

Many mortgage brokers are seeing an increase in in the number of households looking for a new deal which is probably a result of the new deals driving prices down in the market. Some broker firms are already seeing large increases in remortgage figure with one leading firm highlighting that remortgage deals have already account for over 50% of their business during the month. Another broker, Countrywide, pointed out that their remortgages had increased by 8% taking figures to 25% of their whole business.

Another mortgage broker highlighted that borrowers were now realising that they could save money by remortgaging on one of the new deals. He went on to say:  “It’s definitely worth borrowers doing a review of their mortgage to see what options are now available for them,”

The sudden increase in remortgage applications shows that borrowers moods are changing. Since the drop in interest rates to 0.5%, many borrowers have chosen to remain on their lenders standard variable rate as a way of saving money but these new products mean that its not always the best and most cost effective option.

These new deals include great offers like the Royal Bank of Scotland’s 1.99% tracker which tracks at 1.49% above the current 0.5% base rate. It has a loan to value of 60% so a 40% deposit is required and the fee is £999.

Natwest has a great 5 year fixed rate deal at just 3.75% but requires a whopping 50% deposit as the loan to value is 50%. Some brokers are warning that such deals wont be around for long so borrowers should start looking as soon as possible. A spokesperson said: .“Some of the recent remortgage deals launched by lenders will be engineered to bring about a bit of business before the end of the year, so the rates aren’t guaranteed to stay around,”

Story link - More Great Mortgage Deals as Lenders Fight For Customers

mortgagesrates.org.uk

U.K. Rightmove's Survey Shows 42% Predict Higher Property Rents in 2011

The proportion of Britons expecting an increase in property rents rose in the fourth quarter from a year earlier amid a shortage of homes, Rightmove Plc said.

Forty-two percent of 2,636 people surveyed last month said rents will be higher 12 months from now, up from 37 percent in the last three months of 2009, the London-based operator of Britain’s biggest property website said in an e-mailed report today. In the third quarter, 45 percent predicted higher rents.

A shortage of landlords buying property to let is limiting the supply of rented accommodation and keeping rents high, the report said. U.K. mortgage lending fell 9 percent from a year earlier in October, and the level of loans is “too low,” the Council of Mortgage Lenders said last week.

Prospective tenants are “experiencing a struggle to find suitable rental accommodation and losing out on properties to higher bidders,” Miles Shipside, director of Rightmove, said in the report. “The momentum for further rises continues.”

Rightmove conducted the survey of people who are currently renting and expect to be renting in a year from Oct. 4 to Oct. 18.

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

www.bloomberg.com

Over 61,000 new tenants enter the rental market

Tenant demand reached new heights in quarter three (Q3) 2010 with over 61,000 new tenants registering for rental accommodation - a 19% increase compared to the previous quarter - according to Countrywide.

The latest figures from Countrywide's network of 1,300 letting and estate agency branches show the number of tenants looking for rental accommodation has jumped by 44% during 2010, with July seeing over 20,000 applications - the highest number for a single month since records began.

A combination of record demand and supply issues have caused the total number of properties available to rent in the UK to fall by 6.9% in Q3 2010 compared to Q2 2010 - a 27% fall on the total number of properties available to rent in Q3 2009.

There is now an average of 5.8 tenants vying for each property across the UK - up from 5.5 in Q2 2010. Whilst apartments made up the greatest percent of stock on agents books, two bedroom houses continue to be most popular with an average of 10.2 tenants vying for each property. In contrast to Q2 2010 when houses were the most sought after property type, demand for one and two bedroom apartments have jumped sharply, most notably in London and the North West.

The latest findings also reveal that properties are being rented out within 13 days of entering the market - a reduction of one day compared to Q2 2010 and 7 days quicker than at the start of the year, with many properties let within hours of coming onto the market.

Couples under 35 made up the highest percentage of new tenant applications in Q3 2010. However the demographic of tenants remained broadly similar to Q2 2010 levels despite the seasonal influx of student tenants experienced during the summer months.

John Hards, Co-Managing Director of Countrywide Residential Lettings said: "Record levels of demand are seeing the number of available properties reaching critical levels with many properties having lets agreed before the previous tenants' contract has ended.

"Our findings prove that new tenant applications have increased dramatically and existing tenants are choosing to rent for considerably longer periods of time, which is impacting on the amount of properties available to rent. With demand at an all time high, now is exactly the right time for private home owners to consider renting their property if they are unable to sell but still want to move.

"The private rental sector is the only viable option for a growing number of people and this issue will only intensify, especially in the wake of the government's cuts to the social housing budget. The government must do more to incentivise cash investors and help private landlords in need of buy-to-let mortgage funding as rental supply is a growing national concern."

www.countrywide.co.uk

Bank of England keeps Bank Rate at 0.5%

The Bank of England's Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion.

The Committee's latest inflation and output projections will appear in the Inflation Report to be published at 10.30am on Wednesday 10th November.

The minutes of the meeting will be published at 9.30am on Wednesday 17th November.

The previous change in Bank Rate was a reduction of 0.5 percentage points to 0.5% on 5th March 2009. A programme of asset purchases financed by the issuance of central bank reserves was initiated on 5th March 2009. The most recent change in the size of that programme was an increase of £25 billion to a total of £200 billion on 5th November 2009.

www.bankofengland.co.uk

October house prices recover 1.8%

The latest Halifax House Price Index reports that prices increased by 1.8% in October. The change for the last quarter was down by 1.2%, however the change for the last twelve months shows an overall increase of 1.2%. The average house price is now £164,919.

Commenting, Martin Ellis, housing economist, said: "Prices in the three months to October were 1.2% lower than in the preceding three months. This measure gives a better indication of the underlying trend in house prices than the monthly changes. There has been a very mixed picture of monthly house price rises and falls throughout 2010, which continued in October with prices rising by 1.8% following September's decline, reflective of flat house prices. The rate of decline in prices on the three month-on-three month measure is markedly less than the quarterly declines of more than 5% recorded during the second half of 2008.

"An increase in the number of properties available for sale in recent months, together with a decline in demand, has put some downward pressure on prices in recent months. We do not believe that prices are set to fall sharply over a sustained period. Interest rates are likely to remain very low for an extended period, which will continue to support the improved mortgage affordability position for homeowners. Low rates and stable employment levels are benefiting homeowners."

www.lloydsbankinggroup.com