Buy-to-Let Market to Faces Challenge of Credit Crunch
Britain ’s buy-to-let market could be the counter-balance to the negativity currently facing the rest of the property market, according to Jeremy Law of Bradford and Bingley.
Although inexperienced buy-to-let investors have discovered the pitfalls of the industry, especially with the oversupply of new build flats in many towns and cities. Those investors who have been in the buy-to-let market over a number of years are expected to weather the storm and, in some cases, continue to increase their portfolio.
The driving factors behind the rental market will remain, added to an increase in the number of first–time-buyers who are unable to get on the property ladder due to the credit crunch. Demand in the rental market could therefore remain high, which could also lead to an increase in rents as competition for rental properties rises. Buy-to-let investors will still face the challenge of rising mortgage rates, although if their yields can be increased they can pass the costs directly on to the tenants.
Jeremy Law, head of buy-to-let at Bradford and Bingley, told PIN: “The information gained from the last ‘Buy-to-Let Confidence Study’ confirms that investors are as confident as before and are looking as much as ever to increase their portfolio. Investors are seeing the current environment as a good opportunity, especially as house prices soften.”
When asked about the availability of mortgage products for the buy-to-let investor, Law told PIN: “The main buy-to-let players are still lending. Even though there are less products available, portfolio investors are still making the market work.”
Office of Fair Trading to Investigate Sale and Leaseback
The Office of Fair Trading (OFT) has launched a study into the process of sale and leaseback.
Sale and leaseback is when a vendor sells their property, sometimes at a reduced rate, under the provision that they are able to lease the property back off the buyer for a mutually agreed period of time.
This process is starting to come to greater prominence due to the current market conditions. With an increasing number of people feeling the financial strain, those faced with the threat of repossession are looking to sale and leaseback as a way of paying off their current mortgage, while still being able to remain in their own home.
Concerns have been raised regarding sale and leaseback, which centres around the vulnerability of the vendors, who could be seen as the most vulnerable in the housing market. It is therefore important that they are fully aware of the agreement that they are entering into and where that leaves them in the long-term.
Jonathan Marciano, press officer with the OFT, told PIN: “The OFT’s investigation will aim to collect further evidence on whether or not homeowners entering into sale and leaseback arrangements are making informed choices, and whether existing protection for such consumers is adequate. If the OFT finds that existing protection is not sufficient for any consumer detriment it identifies, it will consider what further action will be suitable to remedy these concerns.”
RICS Response to Waiting List Figures
The Local Government Authority (LGA) has recently announced that by 2010, five million people will be on council and housing association waiting lists.
The Royal Institute of Charted Surveyors (RICS) has commented on these figures, saying that if these predictions are to be avoided, then action needs to be taken to put the estimated 663,000 empty homes in England back into use. RICS identifies these homes as ‘an enormous wasted asset’, especially in light of recent announcements from the house building industry which said that they are planning to build a reduced number of houses this year.
RICS has identified the use of Empty Dwelling Management Orders (EDMO) as an important part of the process towards reoccupying those empty homes. An EDMO allows a local council to apply to manage a property if it has been uninhabited for six months, with the owner unlikely to return. If the Residential Property Tribunal Service approves the application then the council can rent the property once it is up to a liveable standard. The costs of any repairs are taken out of the rent by the council, but the remainder of the rent goes to the owner.
James Rowland, policy officer for RICS, told PIN: “Local authorities have been reluctant to use EDMOs due to the complexity of the process. There needs to be more clarity in the process both for the local authority and for the landlords, so that they understand that their property is not going to be taken from them.”
Charity Calls for More Support for those Facing Financial Difficulty
The Money Advice Trust (MAT) has announced that there has been a 35% increase in the number of calls to their National Debt Helpline from callers concerned about their mortgage arrears.
The MAT and the Council of Mortgage Lenders (CML) has launched a debt advice campaign which aims to give early advice for those who are due to come off fixed-rate mortgages over the coming year and may find themselves in financial difficulty. The CML has estimated that 1.4 million people are due to come off their fixed-rate mortgage over this period.
The partnership has produced a leaflet entitled ‘Fixed-rate mortgages – Some early advice’. The aim of the leaflet is to provide borrowers with information about what to do both before and after their fixed-rate term ends and where to find independent financial advice for those who find themselves in financial difficulty.
The CEO of MAT, Joanna Elson, recently met with Government ministers to discuss what can be done to support home owners who are facing financial difficulty.
Elson told PIN: “It was good to see ministers in listening mode and keen to assist with the problems currently facing homeowners. The extension of free independent advice to all county courts will make a real difference to people who are facing possession of their homes, and we are now talking to ministers about two further protections - how to extend the regulatory framework which covers first mortgage providers to second mortgages, and how to ensure that advisers have speedy access to the right person within a mortgage lender when problems occur.
“Keeping people in their homes in these difficult times must be our paramount concern, and we are working closely with lenders and the Government to try to ensure this happens.”
Fears Raised Over Use of ASTs for Homelessness
Homelessness charities in Scotland have raised fears that the Government’s plan to eradicate homelessness by 2012 will lead to short term target driven fixes rather than a long term solution.
Speaking at the launch of the new landlord vetting scheme, Scotland’s communities’ minister, Stewart Maxwell, has indicated that the way to meet homelessness targets is for councils to increase their use of Assured Shorthold Tenancies (ASTs). The Government plans to make changes to the Homeless Person Interim Accommodation ( Scotland) Regulations 2002. The changes are expected to allow councils to make wider use of the privately rented sector and therefore increase the use of ASTs.
ASTs are initially only for a period of six months and it has been argued that this is not a long enough period of security for vulnerable people, who have known little stability during the time that they have been homeless.
Archie Stoddart, director of Shelter Scotland, told PIN: “There are issues about security, management and cost when looking at using the private rented sector as a way of housing people who are homeless. Six month ASTs are not enough to give people a secure start after a period of homelessness. At the very least we would want to see the period significantly extended. We look forward to responding to the forthcoming consultation on this.”
BPF calls on councils to promote build-to-let
The British Property Federation (BPF) has urged councils not to wait for a Government green paper and to promote build-to-let now.
The BPF has welcomed the news of the green paper but also said that councils already have the power to promote the build-to-let sector and that waiting for the green pay and following legislation could ‘take years to come through’.
The BPF is pushing for councils to make section 106 agreements less restrictive for the build-to-let sector. Section 106s, are agreements between councils and property developers where a certain level of affordable housing must be built. The BPF argues that by their nature build-to-let offers ‘affordable’ housing and therefore the same level of restrictions need not apply.
Ian Fletcher, director of residential policy at the BPF said: “The public needs assistance now, and any green paper cum legislation will take years to come through. Local councils already have the powers to treat developments built for let differently, and to reduce the level of S106s they have to pay. Councils can already recognise the fact that build-to-let is a form of affordable housing, and we hope that more of them can make use of this great opportunity to increase the supply of quality, professionally managed housing.”
The call from the BPF comes in the wake of recent announcements, that due to the credit crunch, house builders will be slowing or postponing new developments and that the rental market is to continue expanding as first time buyers remain unable to get on the property ladder.
Unrealistic south seen as reason for property rise
According to Rightmove, the average asking price for a home in the UK increased from £239,521 to £242,500 in May, a rise of 1.2%.
The May increase should not solely be taken at face value as prices vary throughout the country. Rightmove has indicated that it believes the rise in prices is due to new sellers in the South of England having unrealistic price expectations.
Miles Shipman, commercial director of Rightmove, told PIN: “May is the traditional time of year for larger family homes to come on the market. Due to a shortage of these kinds of homes, estate agents like to have them on their books and will often initially try for a higher price. Sellers, of these homes, are happy to do this because they often have plenty of equity in their homes and they are currently not in a position of financial distress.”
When PIN asked Shipman how long he thought this increase would last he said: “I expect it to carry on for a couple of months, until greater reality sets in. A small percentage of sellers may get a higher price but many will not and will have to lower their asking price.”
This is not representative of much of the UK, where property prices continue to fall, on a year by year basis. Shipman added “The north is generally more realistic than the south in the price that can be achieved.”
Buy-to-Let landlords still positive about investments
According to The Money Centre (TMC) over half of buy-to-let landlords are still positive about the future of their investments.
TMC released a quarterly survey of buy-to-let investors which revealed that, 52% of respondents believe there prospects are good or very good. Of those interviewed, 54% believe property offers a strong or reasonable potential for growth, when compared to other types of investment, this is rise of 10% from the figures released in December 2007.
Lynsey Sweales, director of TMC said: “Buying property is always best viewed as a medium to long term investment option and that’s how most buy-to-let landlords see it. The research shows the average length of time landlords expect to be letting a property is 17.5 years, which is why scaremongering over house prices dropping is not a major concern for professional landlords.”
The survey also showed that some buy-to-let investors see current market conditions as an opportunity for expanding their portfolio, 20% said that they are currently looking into buying more property, which is a greater percentage than those looking to sell.
The research also looked into the areas of the country where buy-to-let investors have property. Central London remained the most popular choice among landlords, followed by Glasgow, Manchester and Birmingham. Interestingly, Cambridge came in at fifth, the first time it has entered the top five.
£750m of regeneration for old car factory
A regeneration plan worth £750m has been announced for Longbridge in Birmingham, on the site of the old MG Rover car factory.
After three years of standing empty the site will eventually be home to a new town centre for Longbridge including approximately 2,000 new homes, Bourneville College and three parks. Nanjing Automotive also plans to restart car production in what remains of the car plant during August. The investment is part of the Longbridge Area Action Plan, which will help to create 10,000 new jobs over the next 15 years.
The announcement will be welcomed by former workers of the MG Rover factory, who had raised concerns regarding how long it was taking for redevelopment to begin and new jobs to be created.
Planning applications have been submitted to Birmingham City Council and Bromsgrove District Council by property developer St Modwins and Advantage West Midlands, a regional development agency. A public hearing is set for late summer with approval from the secretary of state hopefully following sometime in the autumn.
Alan Turner, project team leader told PIN: “The total timescale for the development is about fifteen years. Regeneration has already started at the site with house building set to begin soon after planning approval is gained. The houses should be completed in five years.”
Intermediaries increasingly popular with first time buyers
According to the Council of Mortgage Lenders (CML) the use of mortgage intermediaries by first time buyers has increased in Q1 2008.
The figures released by the CML show that 82.5% of first time buyers used a mortgage intermediary, a rise of 10% from Q1 2007. The CML also looked at the number of remortgages achieved through the use of an intermediary, this also showed a rise of 10% to 79% from the same period last year.
Tracy Elwick, director of public relations and marketing for the Association of Mortgage Intermediaries (AMI), told PIN: “Intermediaries are proving to be an ever popular route for first time buyers for a number of reasons; they are able to identify the most appropriate product at the best price and will take into account the individual circumstances. The service they offer is more flexible, not sticking to office hours and often visiting the client in their home long after local branches have closed for the evening.”
Richard Farr, director of AMI, was asked by PIN whether he felt this trend would continue once market conditions improved? He said: “Yes we do believe that this trend will continue throughout market turbulence and when the market returns from its current state of flux. The current CML figures clearly show that there is consumer demand for advice through the intermediary channel and this must be recognised.”
