Scottish landlords are benefiting from the credit crunch
Landlords across Scotland are seeing benefits from the credit crunch, with demand for rented property being fuelled by economic uncertainty according to Citylets’ latest quarterly report, Trends in Scottish Residential Lettings.
The report showed an increase in rents, homes being let more quickly and increased tenant demand across the board.
The oil boom in Aberdeen saw demand far outstrip supply so that the average rent shot up to £561 for one-bed flats, almost 19% up on the previous year. However, a sign of a possible slowdown in energy sector employment may have contributed to a slight drop in demand for two bedroom properties. The spikes of high demand seen in Q4 of 2005 and 2006 have not been repeated – indeed average two-bed rents dropped 7% from December 2006 to December 2007 to £819.
In Edinburgh, the average rent for a one-bed flat at the end of 2007 was £518, an increase of 4% on the previous year. Two-bed properties also recorded year-on-year growth of 3.7%, putting average rents at £669.
Average rents in Glasgow for one bedroom properties in the final quarter of the year were £439, up 3.5% on the 2006 figure. Modest growth was also recorded in Glasgow’s two bedroom sector, where average rents were £578, an increase of 1.6% on the previous year’s figures.
Thomas Ashdown, managing director of Citylets, said: “What seems in little doubt is that landlords and letting agents had a healthy finish to 2007 – and so far a phenomenally busy January. We see no reason why that should abate during the first quarter of 2008.
“Heightened tenant demand is likely to continue through the first quarter of this year, even if the Bank of England’s latest interest rate cut boosts confidence. In the meantime higher borrowing costs for landlords allied with that increased demand are likely to see rents rise again in the first quarter of 2008.”
UK landlords don’t want out
According to The Money Centre, UK landlords are still committed to buy-to-let in the long-term despite recent market turbulence.
In a survey of almost 500 landlords, over half said they expect to stay involved in property letting for more than 10 years. Around 26% said they expect to stay involved in property letting indefinitely, 5% for over 20 years, 22% for 11-20 years and 19% for 6-10 years. Around 17% said less than 5-years and 11% said they were unsure. Additionally, only 13% of landlords questioned said they were likely to sell any letting property during the next quarter.
Lynsey Sweales, marketing and PR director of The Money Centre, said: “We welcome the news that the vast majority of landlords don’t seem to be making snap decisions and selling properties in panic over the recent market instability.
“This year is likely to offer opportunities for investors who can capitalise on the uncertainty in the market and continued rental demand. Buy-to-let has become more and more accessible over recent years and we expect to continue to see landlords build on their existing property portfolios as well as see people join the buy-to-let market for the first time, whether that be in order to get on the property ladder, to supplement their income or to secure their financial future.”
Fitch highlights dangers of buy-to-let market
Fitch Ratings highlighted the danger of the buy-to-let market at its Global Non-Conforming Mortgage Backed Securities Conference in London.
Matthew Taylor, senior director at Fitch, said the dangers of lending to the buy-to-let market were less apparent than those of the sub-prime realm. However the regional concentration of buy-to-let loans and potential implications of amateur investors made for a risky proposition.
Fitch Research revealed a high regional concentration of buy-to-let loans which it said left such areas vulnerable if a recession occurred, resulting in mass selling.
For example, London and the South East account for nearly 35% of all buy-to-let properties in the UK. If a sell off were to take place the value of properties in the region could plummet exacerbating existing house price issues and further affecting confidence and market deterioration.
Mortgage approvals on the up
Mortgage approvals for house purchases rose 3% in January to 75,300 from the December low of 73,000 according to Connells Survey and Valuation’s latest data.
Non-seasonally adjusted approvals rose to 50,600 from December’s 50,000, which is the first increase in mortgage approvals since May 2007.
Despite this improvement, the January figure is the weakest January since Bank of England records began in 1994. Compared to January 2007, the decline in approvals is 38%. Mortgage approvals have fallen in 10 of the last 12 months.
Ross Bowen, managing director of Connells Survey & Valuation, said: “The mortgage market may finally be finding a floor after months of decline caused by higher interest rates, the reduced supply of credit from mortgage lenders and the lack of consumer confidence. We should not read too much into one month’s numbers as this is still the weakest market in 13 years and the ongoing impact of Home Information Packs (HIPs) following full implementation in December is unknown.
“Nevertheless, Connells has seen a rise in housing stock coming onto the market and renewed interest from househunters. The latest rate cut will help to stimulate demand, but only if mortgage lenders pass on lower rates to their customers.”
More affordable housing for Bracknell
An enhanced scheme to enable a higher percentage of affordable housing has been submitted to Bracknell Forest Borough Council by English Partnerships and appointed developer Taylor Wimpey, in relation to the former RAF College site, now known as The Parks.
The application for 781 dwellings will bring the total number of units on the site to 1,150. The enhanced scheme would provide an additional 336 affordable homes and increase the total allocation of affordable accommodation to 437 homes.
David Ashworth, area director for English Partnerships, said: “The enhanced scheme provides an opportunity to introduce higher quality specifications to the next stage and to ensure that there will be a 20% reduction in energy demand by using renewable energy through a variety of solutions. We plan to introduce homes which are affordable to purchase and economical to live in.”
To date 104 homes at The Parks have been completed by Taylor Wimpey following Bracknell Forest Borough Council’s approval in 2003 to build 730 dwellings on the brownfield site.
House price balance drops for the sixth consecutive month
The balance of surveyors that reported house price falls increased again in January according to the Royal Institute of Chartered Surveyors (RICS).
The RICS house price balance dropped for the sixth month in succession, signaling half a year of negative market sentiment. Around 54.7% more chartered surveyors reported a fall rather than a rise in house prices, an increase from 49.1% in December.
According to its surveyors, the only part of the UK where prices continued to rise was Scotland with the net balance of surveyors reporting price rises rose from 3% to 7%.
The decline in demand picked up speed as new buyer enquiries fell at the fastest pace since October 2007. Prior to October, the previous occasion when buyer enquiries reached this level was August 2004. Around 35% more chartered surveyors reported a fall rather than a rise in new buyer enquiries, down from 25% in December.
This weak trend in demand is having a visible impact on the market despite a lack of supply. The stock of unsold property on surveyors’ books jumped by more than 10% and has increased by 40% since September 2007. Currently the average level of unsold property per surveyor stands at 85 – the highest level since February 1999 when the average figure per surveyor was 86. As a result, the ratio of completed sales compared to the stock of unsold property on the market fell to 28.6% down from 30.7%.
Jeremy Leaf, RICS spokesman, said: “A lack of demand and confidence in the housing market is clearly behind the recent price slowdown. Tightening mortgage lending criteria is a block to many who are keen to take the housing market plunge. Agents are finding it difficult to market properties to an audience which has decided to watch the current economic theatre from the wings.
“However, if mortgage lenders filter the recent interest rate cuts into the market, demand should begin to increase. In the near term, the housing market will continue to be shielded from significant price falls while employment conditions are strong.”
Declining affordability hits London the most
Government statistics indicated a drop of 83,000 in owner-occupier households, with a corresponding rise of 107,000 in the number renting, according to Halifax Bank of Scotland (HBOS).
It was the second year in a row that the number of owner-occupiers has fallen, while longer-term trends indicated that London has been particularly badly affected by the trend, which Halifax blames on declining affordability. The number of owner-occupier households in the capital dropped by 111,000 during the period between 2001 and 2006.
Martin Ellis, Halifax chief economist, said: “The figures for owner-occupancy clearly demonstrated that these affordability issues are most pronounced amongst younger people and in southern parts of England.”
The figures come a day after Sainsbury's Bank revealed that the value of buy-to-let properties in the UK grew by £69.5bn in the year to November 2007.
Tracker rates fend off other borrowing routes
Andrews Mortgage Services has reported that 35% of new borrowers followed the tracker route this January as interest rates were cut once more.
On 7 th February 2008, The Bank of England’s Monetary Policy Committee (MPC) voted to reduce interest rates to 5.25%. This is the second cut in just over two months the previous being 5.5% from 5.75% on the 6 th December 2007.
Chris Chapman, director of Andrews Mortgage Services, said: “This second fall in interest rates is a welcome respite for many borrowers who will see repayments on an average 25-year mortgage of £150,000 fall by around £45 per month since the end of last year.
“Following the MPC’s latest announcement, the Woolwich was the first to announce it will cut standard variable rate and base rate tracker products by 0.25% on the 1 st of March. This paves the way for other high street lenders and I would expect many, if they have not done so already, will soon follow suit.”
Increasing demand for energy assessors to slow rental market
A sharp increase in demand for energy assessors will be seen later this year according to new research commissioned by Big Strategies.
New measures to be introduced on 1 st October 2008 will see energy performance certification becoming a legal requirement for all rented housing and it has estimated that approximately 3,500 rental energy assessors will be needed to carry out the work.
This figure is based on data published by The Department for Communities and Local Government (DCLG) which revealed the new measures will generate a demand for over 3m Energy Performance Certificates (EPCs) in 2008 for rented homes alone.
Property industry experts feel the new regulations will cause problems due to the lack of trained assessors. Chris Larner of Steggles and Larner Property Management said: “The new measures will undoubtedly have an adverse affect on the rental market as we will be under pressure to comply with the new regulations and from a practical perspective it will be a struggle as there won’t be enough trained assessors to cope with the high demand.”
The new regulations are another step in the phased implementation process designed to meet the demands of the European Directive for the Energy Performance of Buildings. The directive requires all houses and buildings in the UK to have EPCs by 2009. The first step in December 2007 saw the introduction of EPCs for all homes marketed for sale in the UK.
Industrial warehousing rents soar in Scotland
Industrial warehousing rents rose in both Glasgow and Edinburgh as the value
of land soared, according to Jones Lang LaSalle.
The latest European Distribution Warehousing Property Clock report shows
that prime warehousing rents rose by 4.1% in Glasgow and 7.2% in Edinburgh.
The figures confirm that Edinburgh is ranked 6th and Glasgow 13th out of 32
European cities for prime warehousing rental levels. The rent for a quality
warehousing unit in Glasgow currently stands at £6.75 sq ft and £7.25 sq ft
for Edinburgh.
The research, which shows rental warehousing rents are accelerating in the
UK as a whole, is based on the top open-market rent that could be expected
for a prime distribution warehousing unit.
Neil Cockburn, director of Jones Lang LaSalle, said that industrial land
values had risen as more owners recognised they could secure alternative
planning consent to transform their sites into residential, retail or
leisure uses.
"Despite the uncertainty in the capital markets, demand on the occupier side
remains good with a number of larger Scottish-based manufacturing companies
looking at potential re-locations."
