Rental yields generated by residential property investors have continued an upward trend, reaching their highest level for almost two years, according to Paragon’s February buy-to-let Index.
The index showed average yields rose to 6.3% in January - their highest level since March 2006 - up from 6.2% in December. Paragon believes this increase followed a long period of yield stability at around the 6% mark throughout 2006 and 2007.
Yields are up this month on the back of rising rents, up 0.2% in January to £11,604, combined with a moderate easing of house prices, down 1.5% to £184,908. The increase in rents follows a steady upward trend since last summer, with tenants paying on average 8% more for a rental property than they did in September 2007.
Regions with the highest yields included Wales at 7.5%, and the North and North West, both of which generated yields of 7.2%. On a yearly basis, terraced properties have shown the best yield performance, growing 8.6%, followed by detached property and semi-detached property, growing 3.6% and 1.6% respectively. However, the yield generated by flats has fallen by 1.4% over the year to January 2008.
John Heron, Paragon’s director of mortgages, said: “Commentators who predicted that the current economic climate would translate into stronger demand for rented homes and higher rents are being proved right. Since September, we have seen one of the strongest periods of rental growth ever. This, together with the easing of house price inflation, has translated into higher yields.”
Council tenants spending £15.7bn buying their homes
Around 425,000 council tenants have exercised their right-to-buy their council homes over the last nine years, spending a collective £15.7bn, according to research by Connells Survey and Valuation.
They have benefited from discounts totalling £10.3bn. In the last year, 16,896 became home owners spending £1.15bn. The numbers are much smaller today than in the past, as new rules have restricted eligibility and reduced the discounts that tenants receive. The peak year was 2003/4 when almost 70,000 families stepped on to the housing ladder by buying their council homes.
The average discount has fallen by almost half from 50% a decade ago to 27% this year, but there is huge regional variability. The highest discounts available are in the North West with 34%, and in London they are lowest, at just 14%.
Ross Bowen, Connells Survey and Valuation’s managing director, said: “ In the late eighties and early nineties, right-to-buy provided an opportunity for many families to get onto the property ladder. But as the political climate changed, councils have reduced the discounts available in an effort to retain levels of social housing stock and stop what some see as profiteering.
“Nonetheless, thousands are still benefiting from these schemes but they need to be careful. There are some pitfalls associated with ex-local authority properties which they should be aware of.”
Concerns that brownfield development incentives are ineffective
The British Property Federation (BPF) has written to the HM Treasury over concerns that tax incentives designed to encourage brownfield development are ineffective.
In the letter, BPF’s director for finance and investment, Gareth Lewis, described the measures as ‘limited’, saying that ‘the scope of the relief is too narrow’ to have any real effect.
The BPF wants to see legislation expanded to recognise the wider range of costs incurred in bringing derelict land back into use. Particular limitations over this brownfield relief mean that there is a large amount of uncertainty about whether any savings would be made.
Lewis said: “It is clearly important that the Government, in developing these proposals, is minded to the difficulties and expenses of making a claim under the current regime. The new proposals must be well publicised to the industry and the benefits of the system must be tangible and easily claimed. This will significantly improve the incentive offered to owners of derelict land.”
New housing strategy targets the elderly
The Town and Country Planning Association (TCPA) have welcomed the Government’s ‘National Strategy for Housing in an Ageing Society’.
The strategy sets out the challenge that of the increase in the total number of households by 2026, older people will account for almost half (48%).
Gideon Amos, TCPA’s chief executive, said: “ To tackle the growth in households sustainably we must positively plan for housing that reflects the needs, aspirations and changing lifestyles of all of us. Through improved prosperity, healthcare and technology we are all living longer and planning has a vital role in ensuring that older people have access to good quality housing, helping them remain independent, comfortable, and confident and secure in their homes. This important National Strategy highlights that housing in an ageing society is a priority for all of us. ”
Commissioned by the Department for Communities and Local Government (DCLG) to carry out a study of the criteria for new eco-towns, the TCPA is providing practical advice to Housing Minister Caroline Flint and DCLG, who are promoting the eco-towns initiative as part of the drive to create more affordable homes set in communities that are sustainable in environmental, social and economic terms.
New 15-year fixed rate
Mortgages for Business is offering a new 15-year fixed rate portable buy-to-let mortgage. It is claimed that this new mortgage product marks a shift by lenders in recognition that the buy-to-let market conditions are changing, with the market now dominated by portfolio investors who, according to Association of Residential Letting Agents (ARLA, have no intention of selling their property for at least 17 years.
Previously the maximum term available for a fixed rate buy-to-let mortgage was 10 years. The 5.99% 15-year product has been launched by specialist lender The Mortgage Works, and is offered through Mortgages for Business.
Jonathan Moore, head of marketing at Mortgages for Business, said: “This mortgage is rather clever as it is portable. This means that it can be moved between properties should an investor decide to sell and buy a new property.”
Mortgages for Business expects that the mortgage product will suit cash-rich or inactive investors who choose not to regularly remortgage properties in their portfolio in order to raise capital to fund further purchases. Remortgaging is the cornerstone of a portfolio building strategy allowing investors to release equity from capital appreciation to invest in further properties.
Reforms to empty property rates
John Healey, Local Government Minister, announced regulations in Parliament to enable the introduction of reforms to empty property rates on 1 st April.
Announced in the 2007 budget, empty property rates were designed to revitalise run-down communities and ensure the effective and efficient use of buildings. The reforms are to increase the empty property rate from 50% to 100% of the basic occupied business rate, to encourage owners to re-let, re-develop or sell their properties to reduce the need for new development on Greenfield sites; to enable ministers to respond to changing conditions in the property market; to allow for measures to be implemented to tackle deliberate dereliction by ensuring those who deliberately render their property beyond economic repair continue to be liable for empty property rates and to extend the exemption from empty property rates to companies in administration, as well as those in liquidation.
Healey said: “Empty business premises are a blot on the landscape for our most deprived communities, giving a signal to both residents and potential investors to move onto the next town. These changes to empty property rates will encourage owners to keep their premises in use, revitalising deprived areas as new businesses move in bringing much-needed employment opportunities, and making these towns and cities better places in which to live.”
However, the Royal Institute of Chartered Surveyors (RICS) believes there is the potential for a repeat of the situation in the 1970s when an empty rate was introduced in the form of penal rating surcharge. No new lettings were created by the surcharge and it lead to the deliberate vandalising of property, such as removing roofs, in order to avoid rate liability.
RICS would like the Government to pay attention to the recommendations of the Lyons Inquiry and allow for proper consultation on all rate reliefs and exemptions, rather than rushing into reform without considering the adverse effects; postpone changes to the system of empty property rate relief until at least April 2009 and retain empty property relief in the most disadvantaged areas.
All new homes will be rated on their green credentials
The Government has announced that all new homes are to be rated on their green credentials from 1 st May 2008.
A rating against the Code for Sustainable Homes, which measures nine categories of sustainable design including energy, water and waste, will be required for all new homes. Homes which exceed the sustainable standards in existing building regulations will be awarded up to six stars. Those homes that have not been assessed against the code will score a nil-rating.
Caroline Flint, housing minister, said: “ We need to tackle climate change by improving how green and energy efficient our homes are. New build housing will play an important part in this, and we are already committed to all new housing being zero carbon from 2016. These measures are essential in tackling climate change.
“By requiring a rating for all new homes against the Code for Sustainable Homes in the run up to 2016, we are creating an important incentive for house builders to provide greener, more sustainable homes. Providing these ratings will also give buyers valuable information about their home, allowing them to make an informed choice and helping people to reduce their own household carbon emissions.”
Blackpool’s £300m regeneration
According to Hazel Blears, communities’ secretary, Blackpool is set to benefit from significant Government support for future regeneration.
In response to a report from the Blackpool Taskforce, Blears has confirmed a funding package of nearly £300m to support future development initiatives for the town. Projects in the pipeline include an investment of over £100m for new schools, a new further education college campus in the town centre and a higher education facility; a £100m transport package, including the recently announced funding to modernise the Blackpool and Fleetwood tram system, and investment in Blackpool Airport and £82m to improve sea defences and invest in local events.
The North West Development Agency has also pledged support for the regeneration of Blackpool town centre, while English Partnerships will allocate up to £35m towards housing in the North and South Beach areas.
Blears said: “This funding will provide a real boost for Blackpool. Our response to the Blackpool Taskforce report builds on the £85m already confirmed for the tram, and will continue to drive forward the transformation of Blackpool’s future.”
OFT issues High Court proceedings for extortionate renewal fees
The National Landlords Association (NLA) has welcomed the decision by the Office of Fair Trading (OFT) to issue High Court proceedings against Foxtons Limited.
The NLA has received vast amounts of correspondence supporting its recent campaign against these extortionate renewal fees from landlords who are being sued by letting agents for refusing to pay up. Currently, many landlords in London and the South East who have been managing a property on their own and want to renew the tenancy agreement for a further 12 months can expect to pay 10-11% of the annual rents as a renewal commission to the letting agent. For many properties in the region, this could be a figure running into thousands.
John Socha, vice chairman of NLA, said: “The NLA has been pivotal at encouraging landlords to come forward and complain about these ‘money for nothing’ fees which seem to have become the norm in London and the surrounding region.
“We very much welcome the OFT’s decision to seek an injunction in this case and hope this sends out a signal that this fee, where the agent has done nothing to earn it, is unwarranted and unfair and should be abolished as soon as possible.”
Most letting agents in other parts of the UK charge a small administration fee for a ‘let only’ renewal. This covers contacting the tenant, negotiating the length and level of the tenancy along with signing the renewal and returning completed paperwork. This often costs less than £95 plus VAT.
Developer wanted to transform major gateway in Bristol
The South West of England Regional Development Agency (RDA) and Network Rail want to transform a major gateway to Bristol city centre but needs a private developer as a partner to deliver the scheme.
The land, known as Plot 6, measures 4.5 acres and lies between Temple Quay and Temple Meads Station. It is currently used for car parking and storage. The joint landowners want to develop it into a mixed-use scheme including 300,000 sq ft of residential, retail and office space. Network Rail and the South West RDA are looking for a private developer to help them deliver the scheme.
The development will mark the beginning of the third phase of work on the £750m Temple Quarter project to revitalise the eastern end of central Bristol, which has already seen derelict land at Temple Quay transformed into a ‘thriving’ office district.
Mick Martin, Network Rail’s director of commercial property, said: “All over the country we are seeking opportunities to release the commercial potential of our property portfolio in order to invest in passenger and freight facilities. The realisation of these opportunities will not only improve the railway for all who use it but can also be a catalyst for the regeneration of communities.”
Construction is expected to take about three years and, subject to the necessary planning consents, is scheduled to start in 2009.
Developers are invited to submit expressions of interest, in accordance with the Individual Contract Notice and Pre-Qualification Questionnaire, to Savills (L&P) Ltd at Queens Avenue, Embassy House, Bristol, BS8 1SB or to Hartnell Taylor Cook LLP at Somerset House, Queens Avenue, 18 Canynge Road, Bristol, BS8 3JX, by March 25, 2008.
