New valuation process for new build properties announced
The Council of Mortgage Lenders (CML) has announced new procedures for the valuation of new build properties, which will take into consideration discounts and incentives offered by residential developers.
From 1st September all buyers and developers will be required to fill out a ‘disclosure of incentives’ forms and provide it to their lender. The CML has responded to concerns raised by lenders that they were unintentionally lending based on the valuation of the property, which was higher than the true price paid.
The CML has been working with surveyors and house builders to ensure that valuations for new-build properties are more ‘reliable and robust’. The new procedures have the backing of the Royal Institute of Charted Surveyors (RICS), the Home Builders Federation and Homes for Scotland, who will all be amending their guidelines to encourage greater transparency about discounts and incentives.
Sarah Robson, spokesperson for the CML, told PIN: “These changes will benefit existing and prospective new build property owners. If a valuation is inflated because the incentives have not been disclosed, then this is at the detriment of all buyers of new build property. Valuations are registered with the Land Registry and used as a basis for other valuations of similar properties in an area, eventually over-inflation is discovered, particularly in a slowing housing market. Later down the track when borrowers go to sell new build properties on which valuations have not been robust, as a result of the direct or indirect effects of undisclosed incentives, they will find the property is now worth less than their mortgage.” Robson added “The changes will help to restore lenders confidence in lending on new build property.”
Buy-to-let remain strong says NLA
The National Landlords Association (NLA) has announced that contrary to recent reports the fundamentals behind the UK buy-to-let market remain strong.
The association points to Paragon Mortgage’s recent Buy-to-Let Index for April which saw the average annual rental income rise to £12,048, a 13.8% rise from that recorded in April 2007. The NLA describes the buy-to-let market as being ‘counter-cyclical’. As the credit crunch continues and an increasing number of would be first-time buyers are forced to remain in the private rented market, this leads to an increase in demand and therefore an increase in rents. They believe that for a professional landlord the current market conditions should be seen as an opportunity to expand their portfolio.
Simon Gordon, head of communications for the NLA, told PIN: “The buy-to-let market has not been immune to the credit crunch and some inexperienced landlords have been caught out as a result, leading to a negative reaction in parts of the media. However we believe that the sector remains strong and most professional portfolio landlords are doing well. Rents are rising in many parts of the UK due to a number of factors. It would be unfair to say that UK landlords are taking advantage of the current market conditions or profiteering but they are simply covering rising costs and responding to increased demand.”
Offices fare worst in May
According to research conducted by IPD the total return of the UK office sector property faired worst out of all commercial sectors reviewed in May, falling by 0.9%.
The UK Monthly Property Index (MPI) records commercial real estate property performance both in total and by sector. Performance is measured by total return of a property which is found by adding income return growth to that of yield and rental value. The all property total return for May (-0.7%) had fallen slightly against the April figure (-0.5%), but was still much higher than December’s low point (-3.7%). On an annual basis the total return hit a record low in May 2008 (-13%).By sector, industrial performed best (-0.5%) followed by retail (-0.7%) and finally office (-0.9%).
The MPI also breaks performance down by its components. Yield growth for all properties remained unchanged in May (-1.1%) as did income return (0.5%) and rental growth fell (-0.04%), the first time it has been negative since January 2004. When broken down by sector, industrial and retail saw no change in their yield growth (-1.1), whereas the office sector experienced a further fall (-1.3%) from April (-1%). Retail also remained the only sector to retain a positive rental growth while there were falls for both industrial (-0.1%) and office (-0.2%).
Malcolm Frodsham, research director at IPD, said: “After eleven months of falling capital values, May 2008 also registered a very small fall in rental values and this is the first month that the yield and rent drivers of capital value growth have been pushing in the same downward direction”.
Chesterfield to receive 1,200 new homes in £350m regeneration
Chesterfield , the largest town in Derbyshire, is to receive over 1,200 new homes in a £350m mixed-use regeneration project planned for the town.
Urbo Regeneration working in partnership with Chesterfield Borough Council will be developing a 40 acre site which will also encompass 400,000 sq ft of commercial floor space. The 1,200 homes are currently planned to be split between 400 houses and 800 apartments. The project has been planned over an approximately 10 year period with a planning application to be submitted in the autumn. The project plans to ‘sidestep’ the current problems in the apartment market by focusing initially on the building of low density houses and then moving on to the apartments. Urbo has described Chesterfield as not suffering from the same oversupply of residential apartments which currently affect some other northern towns and cities.
The site, which is 10 minutes outside of the town centre, will be focused around the Chesterfield Canal. It is planned to create a Canal Head which will be a basin for canal boats, this will be surrounded by high quality retail space. There are also plans for an island community between the canal and the river with high end housing.
Andrew Dainty, director of Urbo Regeneration, told PIN: “Our Council partners have said that Chesterfield Waterside is the most important regeneration project the Town has seen in forty years, so Urbo's job as their developer is to make sure the scheme, when delivered, is of the highest possible quality. The local community has similar expectations having given an almost unprecedented 99% support from our public consultation work earlier this year. Recent market pressures on apartment delivery aren't a great problem for such a long-term project.”
Not all ‘doom and gloom’ for lenders
GB Finance, a bridging loan lender, has announced that they have recorded ‘unprecedented’ growth during 2008 (+46%), both in the number of loans on its books (+37%) and also in the size of the average loan (+6%).
The lender believes some of their success is due to the credit crunch, with the market becoming harder for traditional lenders and brokers, which has led to an increase in the levels of bridging loan business. They also feel that some of their recent growth can be attributed to work that they have carried out educating brokers in the variety of ways that bridging finance can be used.
They point to four key areas in which bridging loans can be used. It can allow for a borrower to have a ‘cash-buyer’ status, as a loan can be formalized in 24 hours and therefore allow for a quick completion of the purchase. It can fund undervalue purchases, allowing a borrower to borrow on the actual value rather than the cost of the property and then refinance through a traditional lender. It can be used as a refurbishment facility, to allow for quick refurbishment before the property is presented to a traditional lender for long term finance and more favorable terms. Finally, it can be used for an auction purchase, with funding arranged within the 28 day auction timescale, while at the same time the borrower can seek out more long term finance.
Gary Gardner, director at GB Finance, told PIN: “The buy-to-let sector is likely to grow as more and more first time buyers cannot get on the property ladder. Requirements in the rental sector are estimated to increase by between 1 million and 1.5 million over the next year. Low acquisition prices and increasing rental sector demand are fuelling a resurgence of this market. The only restriction being raising the finance and this is where we come in as a bridge lender, whereby we are able to work with the investor to assist them in becoming a virtual cash-buyer to enable them to secure the assets within days. As we look at the bigger picture, we will also work with the investor to maximise gearing by arranging the longer term funding”.
Inflation could hit 4% by the end of the year
Mervyn King, Governor of the Bank of England (BoE) has warned the Chancellor that inflation could rise above 4% by the end of the year.
This follows the announcement by The Office for National Statistics (ONS) that inflation reached 3.3% in May. Having increased over 1% above the Government inflation target of 2% King was required by law to write a letter of explanation to the Chancellor. In the letter King stated that the rise in inflation was due to the unanticipated rise in prices of food, gas, fuel and electricity. These increases alone account for over 90% of the steep rise in inflation since December 2007 when the rate was 2.1%. King warned the Chancellor that this is likely to be the first in a sequence of letters as inflation continues to rise
Although King is wary about making predictions, he pointed to the speed with which inflation predictions can change, as it was only last month that the BoE’s Monetary Policy Committee predicted that inflation would rise to 3.5% by the end of this year. King believes that, bar anymore unexpected price increases, inflation should peak by the end of the year. When looking towards 2009, King expects inflation to remain markedly high well into the year but will slowly fall back towards the target level.
Report calls for regulation of estate agents
The recently published Carsberg Review of Residential Lettings has called for the establishment of a regulatory body for the industry and that consumer interests need to be at the centre of all policy making.
The report has recommended that all landlords, letting and management agents should be subject to regulation. Although many agents are signed up to voluntary arrangements, the report found this offered little protection to the consumer when it came to those agents who chose not to enter in to these arrangements. The regulator should be given the power of sanctions over agents, with the ability to exclude people from operating as agents, a power that currently resides with the Office of Fair Trading (ONS).
The report highlighted the need for all agents to obtain a professional qualification with an emphasis on their knowledge of the law, although those highly experienced agents could be exempt from this. This is again something that voluntary associations offer but that now should be made compulsory.
Protection for the consumer was a key recommendation made by the report. Agents would be required to offer greater levels of transparency throughout the transaction especially with regards to pricing, conflicts of interest and fees. Agents should also offer consumers advice on all the different processes involved in a transaction and how they could improve the speed with which a transaction is completed.
Ian Potter, head of operations at the Association of Residential Letting Agents (ARLA), said: “The private rented sector is growing and with the Carsberg Review calling for independent redress and the licensing of letting agents, hopefully the Government will now act to help us with framework legislation. We need to be rid of the cowboy agents who will try to take advantage of this growth.”
Bradford and Bingley find confidence in buy-to-let
Bradford and Bingley’s (B&B) recently released Buy-to-Let Confidence Study has found that despite the current economic conditions the overwhelming majority of landlords remain confident in the buy-to-let market.
The study, which is the largest of its kind with approximately 7,800 responses, found that 90% of investors remain confident in their investments, an increase of 4% on Q4 2007. Over the next 6 months 49% of investors said they planned on their portfolios remaining the same and 41% said they had plans to increase their portfolio. Of all the investors questioned only 1% planned to leave the market completely.
When asked about rents, only 3% found that their rents had decreased, 38% found that they were now increasing their rents from 12 months ago. Investors showed continuing confidence in the market with 99% believing that rents would remain stable or increase over the next six months.
The study concludes by saying: ‘At a time when the vagaries of the housing market are under even closer scrutiny than usual, buy-to-let landlords have yet again proved themselves resilient to market conditions and dire predictions about the future of property investment.’
Greater planning needed for increase in rental properties
According to research conducted by the Centre for Cities (CfC), the Government needs to focus more on increasing the numbers and standards of private rented homes rather than on home ownership.
The CfC expressed concerns regarding the Government’s focus on home ownership because in the current economic climate those people who are financially vulnerable run a heightened risk of repossession. According to figures by Hometrack, over 3.2 million people could be renting by 2021. If these figures come to fruition, at the current rate of house building, one in five new homes will need to be for the purpose of renting.
The study has called for cities to work more closely with developers, landlords and tenants to target areas of the country which need rental properties and to avoid the oversupply of buy-to-let properties seen in some UK cities. The CfC believes that encouraging large institutional investors such as pension funds and insurance companies to invest in rental homes will deliver more homes at a quicker rate and therefore offer potential tenants a far greater choice.
A spokesperson for CfC told PIN: “This is a very good time for institutional investors to move into the rental sector, with 25% higher unmet demand for rental property, compared to buying a house. They could see gains in both rental yields and the long-term value of their investment. There will always be demand for the flexibility renting offers, however it is absolutely crucial that cities work more closely with developers, landlords and tenants who can advise investors and property developers on what homes are needed and where, avoiding an over-supply of unwanted and unsuitable buy-to-let properties.”
When PIN asked how receptive the Government will be to these recommendations, she added “The mood may be changing, most notably with the soon to be published government-commissioned review of the private rented sector. But if the private rented sector is to be expanded, this will require more than the announcement of yet another review.”
Green business park planned for South Wales
Alder King has recently been appointed joint agents with Charnwood Group for the new £60m Wales 1 business park in South Wales. When completed the 17 acre development will comprise of nine three-storey buildings which will contain 264,000 sq ft of office space.
Wales 1 will be located immediately adjacent to the M4 at Magor and there are plans for a dedicated bus service which will serve Newport and Bristol train station. Work on the first of the nine buildings has already started and is due to complete by March 2009
Wales 1 has been designed to provide sustainable office buildings, which the developer hsaid will be the first of its kind in South Wales. Charnwood expects the sustainable features of the development to reduce the day to day running costs and be an attractive advantage for occupiers.
Owen Young, partner at Alder King, said: “Occupier and legislative trends show that environmentally friendly developments are the future. Business parks like Wales 1 are leading the way, incorporating the latest advances to reduce the schemes carbon footprint. Hopefully this development will be the first of many for South Wales.”
Mortgage News
In PIN’s latest weekly mortgage recap, Tim Warburton reports…
Abbey has introduced a £150 non-refundable booking fee on its mortgage range. Abbey now joins Lloyds TSB, the only other lender to charge a booking fee (£99). Concerns have been raised that other lenders may now follow suit putting a further cost on the shoulders of the borrower. Abbey has also stipulated that on any mortgage with a loan-to-value (LTV) of greater than 90%, the £2,499 arrangement fee must now be paid upfront rather than being added onto the total loan.
Abbey has also announced an increase in rates on a range of its mortgages. The increases will be between 0.07% and 0.26% and will include those with a 75% LTV and those on five-year fixed-rate mortgages. A five-year fixed-rate with a LTV of 75% now has a rate of 6.45%.
Bradford and Bingley (B&B) has increased the rates on its buy-to-let mortgages by up to 0.55%. For a three-year fixed-rate mortgage with an 85% LTV there has been an increase from 6.89% to 7.44%. For those with an 80% LTV the rate is now 7.19% up from 6.64%. B&B has also increased its non buy-to-let mortgages by up to 0.2%.
Mortgage Express, a buy-to-let arm of B+B, has also increased all of its mortgage rates by 0.55%.
Woolwich has increased rates on a number of mortgages and included an early repayment charge (ERC). A two-year fixed-rate, with a 60% LTV and a £995 arrangement fee will now have a rate of 6.39% up from 6.19%, the ERC will be 3%. For the same product with a 90% LTV the rate has increased from 7.09% to 7.29%. For a five-year fixed-rate with an 80% LTV the rate has increased from 6.29% to 6.59%, the ERC will be 3%. A buy-to-let tracker will be set at base rate plus 1.99% for life with a £295 per property arrangement fee and two months interest for three years for early repayments.
Skipton has withdrawn its buy-to-let standard variable rate mortgage. Leeds Building Society has announced that its buy-to-let mortgages will be offered to borrowers with no less than an 80% LTV. Egg has withdrawn from the mortgage market.
