“City centre apartments are hardest to let”, says RLA
City centre apartments are the hardest properties to rent out, according to the Residential Landlords Association, and the young professionals, to whom new city centre developments are largely targeted, are the hardest type of tenants to find.
Professional landlords said that city centre flats were the hardest to let (35%) followed by suburban flats (30%). But houses are the easiest (64%) - with the most attractive being the vintage pre-1940 period (27%) followed by 1940-80 (19%) and more recent post-1980 builds (18%).
The biggest surprise came as landlords nominated the sector where it is most difficult to find satisfactory tenants. The results were evenly split between young professionals and housing benefit claimants – both with 26%. Only 12% said that students were the hardest.
“This result reflects two of the most contentious problems in the private rented sector”, said Lee Dribben, chairman of the Residential Landlords Association. “We have long argued that the fashionable trend in oversupplying city centres with new apartment blocks is not sustainable – and this is now becoming even more evident. Supply is just outstripping demand hand over fist.
“But alongside the young professionals are benefit claimants - and that is because of the government’s new system of paying housing allowance direct to them and the rent is not getting passed on. That makes it a difficult area from which more and more landlords are withdrawing.But to see these two very different types of tenant at the top of the ‘problem’ list, for different reasons, still came as a surprise”, he concluded.
Landlords need specialist insurance
Buy-to-let investors could suffer substantial losses by opting for standard household insurance rather than policies designed specifically for landlords, warned Paragon Mortgages.
Most standard household policies are designed for owner-occupiers and can present some serious shortfalls for landlords and buy-to-let investors. One of these concerns is unoccupied property. Ordinary household policies typically exclude burst pipes and theft cover if the property is unoccupied for more than 30 days. Longer periods of unoccupancy are comparatively rare in the case of homeowners, but for landlords that are carrying out refurbishment work or who may experience a void period, this time limit is far too restrictive.
Another shortfall could be malicious damage to the property as standard household polices exclude this whereas a specialist landlord policy should cover malicious damage by a tenant. If the property is badly damaged, standard insurance policies will cover the cost of alternative accommodation but will not necessarily cover the loss of rental income.
Legal bills can also pose a problem if you don’t have the right insurance. For example, homeowners can be held liable if a tradesperson carrying out work to the property is injured, but if you have specialist insurance, personal legal liability should be covered by the policy.
Tony Armitage, Paragon’s insurance director, said: “Landlords need to carefully consider their insurance needs and ensure that they are properly protected. Landlords have sophisticated insurance requirements for which a typical household policy is often unsuitable. The biggest irony is that some landlords are actually paying through the nose for potentially unsuitable cover.”
Slower housing market affects the country house sector
According to Knight Frank’s Prime Country House Index Q1 2008, the annual rate of price growth in the country house sector has slowed to 4.5%, which is the lowest level since Q1 2006.
The sector showed negative house price growth for the second consecutive quarter, with prices falling 0.2% in the three months to the end of March. Prices in both the manor house and the country cottages markets fell for the second consecutive quarter by 0.4%. Farmhouses defied the negative rates of growth in the other two sectors in Q1 2008 with a quarterly increase of 0.3%, and an annual growth rate of 5.3%.
Liam Bailey, Knight Frank’s head of residential research, said: “ It is clear that the influence of the correction we first saw in the wider market towards the end of last year is now gently working its way through the country house sector.
“The weaker market conditions in 2008 mean that sales volumes are down sharply on 2007, we anticipate that sales across the market will be around 25% lower this year compared to their historic average. This points to the real need for those vendors who need to sell their property in a reasonable time frame making sure that their asking price is realistic and for most properties this means accepting a lower price now than you would have done six months ago.”
Completions at auction are quicker than ever
According to Auction Finance Limited, property auction sales are completing in record times as vendors demand increasingly quick completions.
The traditional timescale for completion on properties sold at auction is 28 days now 14-day and 7-day completion periods are becoming increasingly common.
Scott Hendry, new business manager at Auction Finance, said: “We’re definitely seeing an increase in the number of properties being sold with a short completion period. Less experienced bidders tend to shy away from these lots so there are plenty of opportunities for serious investors who have the financial backing to operate within limited timescales. If you can act quickly, you could pick up a real bargain.”
The increase in short completions is thanks to the number of distressed sales which are appearing in auction catalogues. Many vendors are content to sacrifice some of the potential revenue from the sale of a repossessed property in return for a rapid completion. With both the Royal Institute of Chartered Surveyors (RICS) and the Council of Mortgage Lenders (CML) predicting a sharp rise in repossessions during 2008, the number of short completions in the catalogue seems set to follow suit.
New residential developments worth £156m on completion
Redrow Homes has begun work on three residential developments in the south of England with a total completed value of £156m.
Around 202 apartments will be built in Bournemouth, which will have a finished value of £56m. Lymington will be home to Redrow’s development of 308 one and two-bed apartments including 55 shared-ownership properties, 10 live-work units and 38 affordable units as well as properties for commercial use (restaurant and retail outlets). Once complete, the venture will be valued at £80m.
In Downton, Wiltshire, Redrow is creating a new development of 50 ‘greener’ homes. Redrow claims that 33 new four and five-bed homes and 17 affordable properties will all achieve level three of the code for sustainable homes, which is the Government’s target in two years for all properties. This development will have a completed value of £20m.
Minimum application fee of £1,000 for SVR
Woolwich has introduced a minimum application fee of £1,000 to all buy-to-let borrowers applying for its Standard Variable Rate.
It said that the 1% application fee must be paid at the time of the application. The lender has also increased rates on its buy-to-let product range with effect. It also increased rates on its 5-year buy-to-let fixed rate from 6.39% to 6.89%. In addition, it increased its application fee from £995 to a minimum of £1,500. Loan-to-value ratios remained at 75%, with the minimum loan size being £50,000.
Woolwich has withdrawn its lifetime tracker +0.89%, and its 2 and 5-year fixed rate is at 6.39%.
Consumer price index remains static
The latest figures from the Office for National Statistics (ONS) revealed that the consumer prices index measure of inflation remained static in March at 2.5%.
Research by the ONS established that inflationary factors such as rising transport costs were balanced out by falling furniture and household equipment prices. The figure surprised analysts who expected an increase to 2.6%.
Such a figure may be evidence that inflationary pressures are starting to tail off, which may make it easier for the Bank of England’s Monetary Policy Committee (MPC) to make further rate cuts. This in turn could lower the cost of buy-to-let mortgages.
In its recent announcement of a rate reduction, the MPC said it expected the inflation rate to rise in the near future but to then fade as economic growth slowed.
Possible plans to increase licensing for houses with multiple occupation (HMOs) will have no affect on the average buy-to-let investor, according to the Association of Residential Lettings Agents (ARLA).
Responding to suggestions that such moves in university towns with high numbers of HMOs could have an effect on investors, spokesman Malcolm Harrison said: “HMOs are very much for the professional end of the market, it’s not for typical buy-to-let investment”.
He suggested that this would pass by the ‘middle’ buy-to-let market ‘because that’s not really where they are’, and concluded that any market saturation of such homes in university towns would be prevented by the market rather than licensing. The suggestion that there is a saturation of HMOs is one that has been applied to a number of university towns.
It is one of the issues being examined in the review of HMOs by Housing Minister Caroline Flint.
The future is…student accommodation
A survey carried out by the North West-based property company CBS Group revealed that student accommodation is considered one of the strongest investment areas for private sector landlords.
In the poll of existing and intending property investors 43% put students top of their tenant wish list and young affluent professionals only drew in 33% of the poll. They were followed by the family sector (11.5%), then commercial (7.5%), with overseas property (5%) being the lowest investment priority of all.
Of the 72% polled who were existing landlords, 56% owned properties in the student sector and 46% of those thought they provided the highest rental yields compared with 30% who favoured young professionals.
But all is not rosy for students – 25% of landlords complained they were a ‘hassle’ to have as tenants - with 18% citing house damage among the main ‘challenges’ and another 18% complained they had to chase rent payments.
Surveyor sentiment hits an all-time low
According to the Royal Institute of Chartered Surveyors (RICS), house price falls increased to a historical low in March, as 78.5% more surveyors reported a fall than a rise in prices, which is an increase from 65.7% in February.
Surveyors reported that prices declined at a faster pace than in the previous month across all regions in England and Wales, except for Yorkshire and Humberside where the pace of decline remained unchanged. The sharpest house price falls took place in the East Midlands (89%) and East Anglia (86%), while less heavy falls took place in the North West, Wales and London. In Northern Ireland, surveyors are still reporting sharp price falls, although encouragingly, the pace of decline eased back slightly. In
Scotland, house prices are still rising, albeit moderately so.
Demand continued to weaken as new buyers’ enquiries fell further. Around 49% more surveyors reported a fall than a rise in new buyer enquiries, up from 39% in February. It is clear that price falls are being driven by the inability to secure finance rather than an influx of supply into the market.
The ratio of completed sales compared to the stock of unsold property on the market fell to 24.8%, down from 26.3%, which is the lowest figure since September 1996. Both sales expectations and price expectations fell. The net balance of surveyors expecting prices to rise is at an all time low of -73%.
Jeremy Leaf, RICS spokesperson, said: “Sentiment is at a very low ebb and will continue to remain depressed while the economy suffers from this unique liquidity blight. The next six months will be a crucial period for homeowners but would-be buyers with larger deposits may see this market as an opportunity to acquire property in areas to which they could not previously aspire as recently as the end of 2007.”
