A survey of 200 mortgage brokers revealed that the number of first-time landlords applying for mortgages has declined since the beginning of 2002, while the percentage of remortgage and portfolio extension cases has steadily risen over the same period, according to Paragon Mortgages.
This suggests that growth in the buy-to-let market has been driven by experienced landlords building long-term portfolios rather than occasional investors or new entrants to the market. According to the Association of Residential Letting Agents (ARLA), the average buy-to-let investor intends to hold the property for 17 years, while a separate survey from Paragon showed that 93% of landlords have held buy-to-let property for six years or more.
In the three months to the end of February, brokers said four out of 10 landlords taking out buy-to-let mortgages (45%) were remortgaging, while 34% were seeking to extend their portfolios. Only 16% of buy-to-let business comes from people making their first buy-to-let purchase. This figure has declined steadily since May 2001, when four out of 10 buy-to-let mortgages were taken out by first-time investors.
Nigel Terrington, Paragon Group chief executive, said: “There is still demand from new landlords to enter the market and there opportunities remain for those investors, but professional landlords hold the majority of stock in the private rented sector and these larger scale investors account for the bulk of the new transactions.
“These landlords represent the core of the buy-to-let market – they are investors that base their purchase decisions on proven tenant demand for long-term returns rather than speculative investment for a quick profit.”
Britain’s biggest commercial property deal this year
Britain ’s biggest commercial property deal of the year so far is nearing completion.
Henderson Global Investors has had the green light to purchase a series of designer factory outlets in Cheshire, Wales and Wiltshire from limited partnerships made up of several major UK institutions. The £380m deal is now subject to due diligence.
While Henderson closes in on one deal, the prospects of more transactions being made by the London & Stamford property fund has soared.
The fund has signed a deal with Gulf-based Cavendish which will see another £200m added to the pot. Under the terms of the deal, London & Stamford can still make deals of its own worth up to £30m, while Cavendish will take an 80% share of any larger acquisitions.
Emphasis now on residential lettings
Estate agents who deal with lettings are being advised by the Ombudsman for Estate Agents (OEA), Christopher Hamer, to pay particular attention to their dealings with clients.
With uncertainty in the residential sales sector, there is an increasing emphasis on renting property in the private sector as a housing solution for many people as they wait to see what happens with mortgage availability and property values.
But in his first quarterly report for 2008, Hamer revealed an 86% rise in cases investigated that concerned complaints involving residential lettings compared with the last quarter of 2007.
It showed that new cases involving lettings rose from 37 in the last quarter of 2007 to 69 in the period from 1 st January to 31 st March 2008. Of the 19 cases involving lettings closed in the first quarter of 2008, 13 were resolved in favour of the complainant. The disputes considered in relation to lettings arose from agents mainly failing to provide clear communication to either landlord or tenant about the transaction and issues to do with rent collection or repayment of deposits.
“Some of this growth can probably be attributed to the OEA only recently becoming involved with the lettings sector in a big way so people are becoming more aware of my scheme as a means of redress when they have a complaint”, he said.
Where residential sales are concerned, the number of new cases remained around the same level at 220 for the quarter until 31 st March 2008. The overall number of enquiries received by the OEA rose by 9% to 2,983 between 1 st January and 31 st March. But of the 1,655 enquires that came within the Ombudsman’s terms of reference, 448 concerned lettings, a rise of 39.6%, while 1,140 were about sales, a rise of 1.6%.
BoE split in three
The news that the Bank of England’s Monetary Policy Committee (MPC) was split in three directions in its vote this month signals that there is not likely to be any radical reduction in the base rate in the coming months but will not prevent more cuts from still taking place, according to Ross Walker, a Royal Bank of Scotland economist.
Analysing the voting details revealed by the minutes of the meeting, Walker said it showed the “consensus” over the bank rate was crumbling.
He concluded: “I don’t think this is going to prevent further rate cuts but the idea of easing at an accelerated pace is looking pretty unlikely.”
Further interest rate cuts over the summer may lead to falls in the cost of buy-to-let mortgages. The vote was the first time since July last year that a base rate decision has been made with less than seven MPC members voting in favour.
Public and private sectors need to work together
John Callcutt, author of The Callcutt Report, gave measured grounds for optimism to leaders of the real estate industry in a recent speech.
Callcutt told attendees of the Davies Arnold Cooper Real Estate Seminar on Sustainability that the current regulatory burden placed on developers by sustainable development regulations had made the cost of development unviable. He pointed to the thousands of planning applications that had been granted for urban redevelopment where no work has been started as evidence of the inability of developers to develop urban residential sites viably.
Callcutt said that the added cost of regulation - estimated to be adding 12.5% to costs or £20 sq ft - has made urban development unviable.
Callcutt called for a new model for the industry, one where “mature partnerships” between public and private sectors replace the current one. Callcutt believes that without the public sector providing the services and infrastructure necessary to support quality of life in urban living, private developers will never be able to make regeneration work profitable.
Callcutt suggested that for inner city urban regeneration to succeed the Government would need to commit billions of pounds to infrastructure investment. The ultimate aim of this would be to ensure that the social and economic environment of the development provides the quality of life to make it attractive to residents in the long term.
He said: “We are in for a difficult time and if a recession hits we are in for a very difficult time. We need to use the current period productively. If we fail we will reap a very bitter harvest indeed.”
CML believes EC should shelve White Paper
The Council of Mortgage Lenders (CML) has urged the European Commission to shelve its White Paper proposals on the integration of EU mortgage markets.
The CML said that conditions have changed so much in the months since the White Paper was prepared and published in December last year that it would make no sense to proceed. Instead, the CML urges the Commission to focus its efforts for the time being on work to support financial stability. New mortgage market proposals should only be developed following a detailed analysis of the economic and mortgage market changes that are emerging.
Andrew Heywood, CML deputy head of policy, said: “Many European mortgage markets have changed so dramatically in recent months that the only sensible step at this stage is to drop the proposals and start again from a basis of analysing likely future market conditions.
“Proposals to further the integration of markets are unlikely to produce net benefits in the present climate. We believe that the Commission itself recognises this, and will not bring forward proposals in the immediate future. They have also launched a broad programme of work on financial stability, which is a sensible and timely development.”
Scottish housing market outperforms all UK regions
According to Knight Frank, the Scottish housing market outperformed all other UK regions in 2007, recording a capital growth rate of 13%.
New homes built in Scotland experienced a growth rate of 19.9% over the course of last year. Sales volumes fell by 16% in 2007 and further reductions are expected in 2008 in response to the global credit crisis.
Knight Frank forecasts that Scotland will see house prices grow in value by 1% in 2008 against an average fall of 3% across the rest of the UK.
Liam Bailey, head of residential research at Knight Frank, said: “ Scotland’s housing market is proving remarkably robust in the face of the turbulent market conditions affecting the wider UK market. Analysis published in our latest research on the state of the Scottish residential development market (Steadfast Scotland) showed that house prices across the country grew by 13% in 2007, a rate well in excess of the UK average of a little over 5%.
“Our research showed that these figures disguise varied local market performance. The first is that while house prices in Edinburgh and Glasgow ended 2007 12.9% and 15.5% higher respectively, peripheral towns and suburbs recorded growth of up to 19%. Indeed the new build sector even exceeded this level, returning a growth rate of just under 20% over the year.
“However, while values have increased, partly in response to a lack of supply and rising wealth creation, sales volumes did not. Over the course of 2007 sales volumes fell by 16%, partly as a result of weaker market conditions in the final quarter of the year, but also due to constrained supply in the new build sector, for example only 46% of all major planning applications were processed in the last financial year (51% in 2004-05). This delay cost the Scottish economy £600m through a combination of deferred benefits of infrastructure investment and lost turnover from delays in commercial investment.
“Future housing supply is inevitably set to play a central role in the new government’s domestic policy agenda. However, with the need to invest in areas requiring large scale regeneration (e.g. Glasgow central belt) while simultaneously tackling inflationary pressures in markets needing affordable housing provision and greater supply levels (e.g. Edinburgh) it remains to be seen whether both issues can be achieved simultaneously. In both cities however, the future health of the market is increasingly reliant upon product mix, type and quality and not simply volume.”
“US-style housing market will fail in the UK”, says NLA
The National Landlords Association (NLA) believes the adoption of a large institution-driven, US-style branded rental market in the UK could leave the vulnerable ‘out in the cold’.
Yet more proposals to incentivise large institutions to invest intensively in rental accommodation has the potential to skew the private-rented sector away from a diverse housing market designed to meet different needs and budgets according to NLA.
David Salusbury, chairman of NLA, said: “ We should be wary of calls to mirror the US housing market here in the UK, especially since there are few similarities and the US housing market is suffering considerably. We need to focus on developing the UK rental market around its own specific needs and circumstances.
“Encouraging a diverse UK rental market, including encouraging professional private landlords, will enable choice that will benefit consumers. Where is the evidence that large corporate investors are concerned about developing housing for the more vulnerable groups in society? Or will the focus only be on the high-profit areas of the market, as their shareholders might expect?”
BoE’s liquidity scheme is for the banking system
Speaking at a Debt and Personal Finance All Party Parliamentary Group meeting, the Council of Mortgage Lenders (CML) director general Michael Coogan echoed Mervyn King’s comments to the Treasury Select Committee, when he emphasised that the Bank of England’s special liquidity scheme is designed to improve liquidity in the banking system, not to support the housing market.
Coogan said: “If it is used widely, as I expect it to be, and extends to over £50bn in asset swaps by banks and building societies, we think that some of that money will be recycled responsibly into the mortgage market. However, it was not the Bank’s main intention or aim. This possible outcome of recycled funds is also uncertain in terms of scale and timing."
Coogan believes all mortgage borrowers will be affected by the credit crunch. He said: “All borrowers will be affected in some way over time. In the short term, and contrary to popular belief, customers coming out of fixed rates in 2007 and 2008 appear to be managing the adjustment well so far. For some borrowers coming off fixed rates, higher payments will be affordable because their salaries have continued to go up. For others, the option of extending their mortgage term, switching from a repayment to an interest-only loan, or a short-term payment holiday may be an option if they have good payment histories.”
Inside Track goes into administration
Property investment company, Inside Track, has gone into administration.
The company recently released a statement that said: “Due to the continuing sustained difficulties arising from the credit crunch Inside Track has been placed into administration.”
The firm pledged to transform a generation of Britons into ‘property millionaires’.
It charged investors £2,500 to attend seminars at which they were encouraged to buy new build flats off-plan. However, before the company was placed into administration, a number of its customers had threatened legal action against it after losing thousands of pounds on failed investments.
An over-supply of newly built flats in some UK town and city centres led to falling resale values with rents not always meeting investors' expectations. As a result some lenders withdrew completely or significantly lowered changed their criteria on loan to values (LTV) for mortgage financing for new-build apartments from 2005 onwards.
Back in 2005, Inside Track made profits of £12m, followed by £10.8m in 2006 and finally £6.9m last year.
