Landlords took advantage of stamp duty holiday

Property market improving according to Taylor Wimpey

UK Economy’s recovery will be slower than previously estimated

UK purchasers of overseas property can now use a deposit guarantee instead of cash

Google launches mortgage facility in the US

Rental demand rises by +7%

Residential property yields peaked at 5.1% in March 2009 when house prices bottomed out, according to LSL Property Services, and in contrast yields have now dropped to 4.75% due to decreasing rents and increasing property prices.

Rents fell -0.5% in January 2010 and are now -2% lower than they were in September 2009 following the fourth month of consecutive declines. In contrast, house prices are now +3.3% higher.

LSL Property Services believes that during December 2009, there was a period of intense activity in the housing market as investors rushed to benefit from the stamp duty holiday and this additional supply of rental housing pushed rents lower.

David Brown, commercial director of LSL Property Services, told PIN: “There was a flurry of buy-to-let activity as landlords hurried to buy in the run-up to January. Landlords who missed the boat with the stamp-duty holiday will be facing the prospect of forking out an extra 1% on property purchases. For a landlord using gearing to buy property, that 1% magnifies to a much bigger hit.

“We might now see a short lull in property investment in the short-term. But the underlying fundamentals still look strong for long-term investment - provided landlords can get affordable mortgage finance. Tenant demand is still strong. Arrears performed well in 2009, and continue to do so this year. Average yields may have dipped from their peak, but landlords who continue to pick their properties carefully will still see lucrative returns from rental income and capital appreciation.”   

Total returns in January were 16.7% on an annualised basis. This indicates that a landlord would make a total return of £27,500 on a typical property this year, with almost £20,000 of this return in the form of house price inflation according to LSL Property Services.

Property market improving according to Taylor Wimpey

According to Easier Property, Ian Thomson, regional manager for Taylor Wimpey East Scotland, believes that although the last couple of years have been challenging conditions improved considerably in 2009.

He said: “We saw a return to a more stable market, with small incremental house prices rises, more visitors to our developments and an increase in our reservation rate of 37.5% on 2008. We have also seen a real return in consumer confidence, with a much lower cancellation rate in 2009 compared to the previous year.

"Last year certainly saw savvy buyers take advantage of lower house prices, record low interest rates and the wider range of practical and financial assistance schemes on offer both from house builders and the Government.

"Figures out at the start of January painted a positive picture of the property market in 2009. The Bank of England (BoE) reported that the number of mortgage approvals had more than doubled in the previous 12 months and net lending had increased for the third month in a row, both indicators of increased activity in the housing market. The Council of Mortgage Lenders (CML) predicted that net lending on homes would double in the following 12 months from £8bn to £15bn and the number of housing market transactions are also expected to rise. According to Nationwide, average property prices rose by +5.9% in 2009 and the Halifax First Time Buyer Annual Review revealed that home affordability had improved significantly for potential first time buyers over the past year.

"So what does the start of a new decade hold for the UK housing market? According to Nationwide, property prices rose by +1.2% in January, the biggest advance since August. The Centre of Economics and Business Research has also revised up its forecasts for property price growth in 2010 to +6%.

"The availability of competitive mortgage deals in 2010 will be vital for further improvements in housing market conditions and the fact that both Lloyds Banking Group and Santander have announced that a wider range of mortgages with a loan-to-value (LTV) of 90% should become available over the next few months is also good news for buyers.

"Taylor Wimpey has made a good start to 2010. In the east of Scotland 30% of properties scheduled for completion in 2010 were reserved last year, as buyers bought early to take advantage of 2009 prices.

"We are now actively looking for new land for development and already have plans to open four new sites across the east of Scotland in 2010 including Dunbar and Harvieston Farm in Gorebridge.

"Our focus will remain on providing the right homes in the right location as well as the right kind of financial and practical help that our customers need to get on and move up the property ladder in 2010."

UK Economy’s recovery will be slower than previously estimated

The Bank of England (BoE) has stated that the UK’s economic recovery will be slower than previously estimated, with output likely to remain below pre-crisis levels for the near future.

It also warned that inflation is set to rise further, forecasting that growth will reach 3.2% by Q2 2011, having previously predicted a rise to 4%. The BoE went on to state that inflation will have been above 3% in January 2010 and will reach a peak of 3.5% before falling as low as 0.9%.

Mervyn King, governor of BoE, said: “The UK economy has continued to bump along the bottom, but a gradual recovery in output may now be in prospect. Spare capacity will press down on inflation in the medium term. But the near-term outlook is for inflation to rise further as the restoration of the standard rate of VAT to 17.5% and higher petrol prices impact on the CPI measure of inflation.”

The Monetary Policy Committee (MPC)'s new forecasts come amid fears about the fragility of the recovery. The economy has been reported to have come out of recession in the final three months of 2009.

UK purchasers of overseas property can now use a deposit guarantee instead of cash

UK purchasers of overseas property will now be able to use a deposit guarantee instead of a cash deposit after Casualty & General Insurance expanded their product range to include overseas property purchases.

A deposit guarantee can be used by a property buyer as an alternative to paying a cash deposit to the vendor at exchange.

Grant Bailey, C&G spokesperson said: “C&G have taken the view that the overseas property market has specific areas that have recovered from the events of 2007 & 2008 and have since been performing positively over the past twelve months. We believe it is therefore a good time to enter this market with our product.

“The product is for asset rich and cash poor purchasers. It saves the purchaser tying up cash for extended periods with the developer and therefore provides an incentive to commit to buying the property now.”

The deposit guarantee can be used to provide up to 30% of the usual cash deposit required by vendors at exchange. However the insurer does not provide the cash to the vendor at exchange but rather a legal guarantee that they will pay the developer upon demand if the purchaser does not complete on the purchase.

Each buyer had been pre-qualified on their ability to complete the purchase, which provides comfort to the vendor.

Bailey said: “Agents and Vendors want completions, so to know the buyer has been financially vetted by a third party prior to committing to the purchase gives them comfort. The deposit guarantee is not for everyone but our initial response from the overseas property market has been positive. Agents and Developers know they have to look at all possibilities to assist purchasers and make it beneficial for them to buy the property.”

Google launches mortgage facility in the US

The search engine Google has launched a mortgage lead-generation facility for the US, called AdWords Comparison Ads. It is currently available to people in 15 US states and allows consumers to compare mortgages from participating lenders which pay Google a fee if the customer requests a quote.

The service has prompted speculation that it could become available in the UK and has subsequently raised fears on the impact it could have on mortgage brokers.

Ian McKenna, Financial Technology Research Centre director, has warned that if the internet search giant sets up the same model in the UK and links up with lenders, it could have a big impact on mortgage brokers’ business.

Rental demand rises by +7%

There was an increase in demand for rental accommodation by +7% in January 2010 compared to January 2009, which was also up by +7% on January 2008, according to Leaders.

The number of lets increased by +3% in January 2010 compared with January 2009 but Leaders believe that the figure could have been higher if it wasn’t for the disruption caused by adverse weather in the first two weeks of the month.

Paul Weller, managing director of Leaders, said: "Despite the disruption of the snow during the first two weeks of January, most of our branches experienced an incredibly busy month, with high demand for all types of properties, from studio and one or two bedroom flats to big and small family homes. We are finding that good quality properties are being snapped up quickly with many people waiting for more to come onto the market. This is an excellent time for anyone considering buying a property to let, or renting out their home, to enter the lettings market."

Despite the UK officially coming out of recession, the lack of finance according to Leaders is certainly having a stifling effect on the buy-to-let market, however it has seen an increase in enquiries from landlords, both those looking to extend their portfolios and new landlords looking to buy a property to let for the first time, since the start of the year.

Weller said: "Overall, we are very positive about 2010 as we expect the high demand for rented accommodation to continue in the face of both the slow sales market and the wider economic uncertainty."

Leaders’ covers the following areas of Sussex, Hampshire, Surrey, Hertfordshire, Berkshire, Buckinghamshire and Dorset.

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