A tenth of buy-to-let deals are available compared to six months ago
According to Moneyfacts, more than half of buy-to-let deals for landlords with troubled credit histories have vanished in the past month, sparking fears that many investors may be forced to sell their investments.
There were 1,383 sub-prime buy-to-let deals in July and now there are only 149. Only four relatively unknown lenders remain in the market including Preferred Mortgages, Edeus, Manchester Building Society and Pink which is funded by The Mortgage Works.
This means that investors who need to remortgage may no longer be offered attractive rates and will be forced to pay the standard variable rate.
The decline in the sub-prime residential market has also continued, with the number of deals falling a further 20% since October. There are now 63% fewer of these rates on the market than before the collapse of the US sub-prime market.
Julia Harris, analyst at Moneyfacts. co.uk, said: “With the sub-prime buy-to-let market already virtually destroyed, it surely cannot sustain much more pressure before it vanishes. In less than a year, the sub-prime market has grown, flourished, and is now wilting fast.”
The fall in sub-prime residential and buy-to-let deals comes shortly after Kensington Mortgages, which specialised in the market, pulled out. Kensington Mortgages also funded Bank of Ireland’s sub-prime operation. Moneyfacts called for lenders to take a radically new approach to the sub-prime market. However, the Council of Mortgage Lenders (CML) said the problem is to do with funding, not features of mortgage deals.
Rental income at an all-time high, said Paragon
Strong tenant demand for rented accommodation has pushed the average rental income generated by landlords to an all-time high, according to Paragon’s October buy-to-let index. Average rents hit £11,066 during October which is 10.2% higher than a year ago.
In addition, yields have continued to remain steady at 6%, while total annual returns on a property purchased 12 months ago averaged 15.5%, which is up from 14.2% in September 2007.
John Heron, Paragon’s director of mortgages, said: “There is solid and growing demand for decent, affordable rented homes in all parts of the country, but it is essential landlords purchase the type of property that meets tenants’ needs and expectations. These figures show that professional landlords are continuing to invest in the types of property where there is strong and sustainable tenant demand.”
There is strong growth in demand for rented accommodation from immigrants to the UK, with the Government’s recent announcement that 300,000 more foreign migrants have arrived in this country than had previously been announced.
Heron said: “Whilst we may be entering a period of slower homebuying activity, the underlying demand for homes continues to grow as the UK population swells, new households are formed and the population gets older.
“There is a combination of factors at work. People choose to wait before they purchase and stay in rented accommodation for longer. Inward migrants create extra demand for rented homes. With 1.2m foreign migrants having settled in this country since 1997, we estimate that several hundred thousand new renting households have been created in just 10 years - that’s a lot of extra demand. Landlords continue to invest, which explains why buy-to-let lending has held up well, according to latest reports from the Council of Mortgage Lenders (CML).”
Land Securities sells office complex for £131.5m
Land Securities has sold an office complex near London’s City financial district for £131.5m, generating an indicative rental yield of around 4.6%.
The sale, to the Ontario Teachers’ Pension Plan Board, is one of a few £100m+ commercial property transactions since the global credit squeeze added to worries about a UK property slowdown.
Land Securities did not disclose the price it originally paid for the asset in July. The property is let to a range of occupiers including JP Morgan, Skanska AB, Virgin Media and Svenska Handelsbanke, and generates a current annual rental income of around £12.1m.
Land Securities is the UK's biggest real estate investment trust while the Ontario Teachers' Pension Plan is managed by the Cadillac Fairview Corporation, one of North America's largest investors, owners and managers of commercial real estate.
Mortgage fees are paramount
Borrowers, including those with buy-to-let mortgages, should make sure that they pay attention to mortgage fees when choosing their deal, said Moneysupermarket.com.
The firm found that while 74% of borrowers said that the rate of a new mortgage deal is of vital importance to them, just 40% said that they placed a similar emphasis on fees.
Earlier this week Abbey revealed that almost a third of borrowers would opt for a long-term fixed-rate deal if they were to renew their mortgage immediately.
“It's of grave concern that homeowners are placing more importance on low interest rates. With fees having shot up over the past 12 months, people need to factor in the true cost of a mortgage rather than be tempted by the rate”, said Louise Cuming, Moneysupermarket.com’s head of mortgages.
Outstanding buy-to-let mortgages now account for 12% of the entire market, according to the Council of Mortgage Lenders (CML).
Kings Cross £90m regeneration
Construction company, Carillion, will be constructing two office blocks in the Kings Cross regeneration scheme, London, in a £90m contract, which is the first in Kings Cross’ 15-20 year regeneration plan.
The scheme will include a new school, health centre, student accommodation, office and residential buildings, including both new elements and refurbishments to existing buildings.
The first contract comprises the construction of 450,000 sq ft of office space and terms have been agreed for pre-letting 250,000 sq ft to Sainsbury’s. Work is due to start on site in November 2008 and is due to be complete in 2011.
BoE has cut interest rates to 5.5%
The Bank of England has cut UK interest rates to 5.5% from 5.75% amid signs that the economy is slowing.
Expectations of a rate cut had risen in recent days after figures indicated that economic conditions had deteriorated over the past few weeks. Analysts had said that the Bank's decision was one of the hardest it had faced during the past decade, because of concerns about inflation and the impact that a rate cut may have on price growth.
Ross Bowen, managing director of Connells S&V, said: “The Monetary Policy Committee’s decision to cut rates today is very welcome and we are now looking for the next cut to follow soon to help rebuild consumer and market confidence. We need to avoid the current property market doldrums having a wider detrimental impact on the economy.”
FSA predicts worsening of credit conditions
The Financial Services Authority (FSA) has warned the mortgage industry that there’s a ‘very real prospect’ that credit conditions will worsen further into 2008.
Speaking at the Council of Mortgage Lenders’ (CML) seventh annual conference, Clive Briault, FSA’s retail managing director, pointed out that it is essential for lenders to have in place the management expertise to be able to deal with adverse conditions. Briault said that following a long period of benign conditions in the mortgage market, the senior management of many firms have no direct experience of more difficult conditions and therefore may not necessarily be best placed to deal effectively with a much more difficult and challenging environment.
The FSA also begun a new thematic review last month, focused on lenders, to assess responsible lending. Briault said it intends to report the results in March next year. Briault congratulated the 31 lenders who have alerted the FSA to more than two hundred cases of suspected or proven fraud.
Briault said it is considering finding a way to share the names of suspect brokers and said that it ‘would add enormously to the impact of our joint efforts, and I very much hope that a way can be found to realise the potential of such an arrangement’.
Extra help with infrastructure
Councils and communities which back new homes will get extra help with infrastructure, announced Yvette Cooper, the Government’s planning minister, as she set out the allocation of £732m to local councils in the Growth areas and Growth points for services like transport, schools, health centres and parks. The new Community Infrastructure Levy (CIL) proposed in the Planning Bill could also fund £100m nationally.
The investment will help local authorities fund community facilities and services to back the construction of three million new homes by 2020. The money, which will be available over the next three years, will benefit over 68 towns and cities across England which have already volunteered for housing development as existing growth areas.
The new funding will give local authorities greater flexibility in deciding where money is needed most, without needing to bid to the Government to fund specific projects. The money will complement mainstream funding for transport, education and health services.
Cooper said: “Those councils and communities that are doing their bit to deliver more homes should get more cash. It's only fair that those who are doing most to support homes for the future should get extra support from the Government too. We've already said they should get £500m over the next three years to spend as they see fit. Now we're setting out extra cash for infrastructure too with more to come for other areas who sign up.”
Circle Line most expensive tube line to buy property
Research on the most expensive London Underground line to buy a house has found that the Circle Line is the most expensive tube line with property prices averaging around £1.2m.
The research came from over 3,500 estate agents listing London properties with FindaProperty.com. As the Circle line runs exclusively in Zone 1 it isn’t surprising it tops the list. The least expensive stop on the Circle Line is Aldgate, with average property values hovering around £396,000.
The Victoria Line is the second most expensive line to buy property, with average prices reaching £1,109,107. Green Park was the most expensive stop for property on the Victoria Line with average house prices above £2m and the least expensive stop was Tottenham Hale.
The Bakerloo line was third (average prices around £950,000), closely followed by the Hammersmith and City line (average prices £925,000) and then the Piccadilly line and Jubilee line together at £900,000.
The District Line appeared in the seventh position (£850,000), which is surprising considering it includes areas such as Fulham, Richmond and Wimbledon and follows the Circle Line through many parts of Central London, but the Essex parts of the District Line may have weakened its overall average.
The Northern Line was eighth with property costing on average £800,000 and the Metropolitan line was slightly lower at around £780,000, followed by the Central Line at £760,000. Property on the East London Line was substantially lower at £450,000.
The Waterloo and City Line came in at last place as there are very few residential pockets around Waterloo and Bank stations.
Average BTL rental yield at 6%, says Paragon
According to Paragon, average rental incomes are now £11,066 with typical rental yield being 6% and a standard landlord’s property valued at £183,555 each.
Mainstream rental income rose from £10,718 in September to £11,066 in October, which is the highest increase to date. Over the past year, rents have increased by 10.2% on average, with rents highest in southern parts of the country; Greater London at £20,084, the South West at £12,609 and the South East at £11,065.
Yields are steady at 6%, which is the same level as one, three and 12 months ago. Yields are higher in the northern parts of the country; 6.7% in Yorkshire and the North West, Wales and the East Midlands at 6.5% and the North and West Midlands at 6.4%.
Typically property value is £183,555, which is 1.1% up on three months ago. Over the past year, property prices have risen by 9.5%, with property values highest in Greater London (£370,776) and lowest in the North and North West (£117,988 and £125,328 respectively).
Total annual returns on a property purchased 12 months ago are at 15.5%, up from 14.2% in September, taking into account capital gain plus rental income. Total returns are highest in East Anglia (31.4%), Greater London (29.3%) and the East Midlands (24%).
