Tenant Demand Increase, but BTL Mortgages Approvals Down

Buy to let funding restrictions are set to remain tough this year, according to LettingFocus.com.

David Lawrenson, private rented sector expert at the property website, commented that the banks’ requirement to pay back some of the money lent to them by the government will mean finance could be hard to come by for owners of commercial property in London and other parts of the UK.

“I certainly don’t think it is going to get any easier,” he said. “I expect mortgage fees and the typical level of deposit required to stay high. And there is a pretty strong chance that the base rate will go up – making all mortgages more expensive.”

Mr Lawrenson’s comments follow research from Paragon showing that tenant demand for property to rent in London and other UK towns hit a two-year high in the final three months of 2010.

Four in ten landlords reported an increase in tenant demand during the fourth quarter, compared with 36 per cent in the preceding quarter.

Buy to Let Investment News

Student Accommodation Shortage; Student Rents Rise

Across England and Wales, rents have continued to rise into the 2010/11 academic year, reflecting the strong demand for accommodation from a rising student population.” Reports the Telegraph.

Knight Frank claims rents will continue to increase because there is still a shortage of student accommodation in most areas. Whether that continues if tuition fees choke off demand remains to be seen. Typical student rents in London are now £257 a week for a studio flat and £192 a week for a bedsit, compared with £136 and £98 respectively across the rest of England and Wales.

Buy to let investors in student digs outside London made total average returns of 14.7 per cent during the past year, including house price growth, compared with 8.4 per cent for those in the capital, according to Knight Frank.

Both figures are substantially higher than those from all forms of rented residential property, as measured by the website Rightmove and letting agents LSL Property Services, which estimate yields from all types of tenant are nearer 6 per cent or 4.5 per cent.

Residential Landlords Believe Managed Properties Attract Tenants and Higher Rental Yields

The RLA report that according to research conducted in the third quarter by the Young Group, residential landlords in Britain generally have a positive impression of professionally managed property solutions and believe that this approach often leads to higher rents, longer tenancies and better maintenance of the rental units. Seven out of ten landlords responded to the Young study by noting that they believed that professionally managed properties attracted tenants who were willing to pay higher rents.

Additionally, a slightly smaller proportion of landlords (68 percent) also maintain that professionally rented properties often result in longer tenancy agreements, thus cutting down on vacant periods, especially in areas where the supply of properties is somewhat higher than the demand.

While only 34 percent of respondents indicated that they managed their own properties, the vast majority of those who did (87 percent) found this more hands-on approach to be a worthwhile experience and nearly as many (85 percent) added that saving on rental and administrative costs was the key motivating factor in their decision not to turn to professional management firms or letting agencies.

The Young survey also explored the investment and business atmosphere in the buy-to-let sector. Nearly all respondents (97 percent) indicated that they were not looking to sell properties over the course of the next year, while 54 percent anticipated keeping their real estate for an entire decade.

London’s buy-to-let market also seems to attract many landlords and other buy-to-let investors. More than one third of all respondents (36 percent) are seriously considering buying real estate in the London area.

Rents Rise as Mortgage Approvals Drop

The continued rise in monthly rents witnessed by residential landlords and their letting agents seems to be in direct correlation with a fall in the number of approved mortgages for first-time homebuyers, according to statistics released by the Royal Institution of Chartered Surveyors. Among the country’s chartered surveyors, 27 percent more reported that their rents increased between May and July. During the second quarter, 30 percent more surveyors indicated rental increases than those that experienced drops.

RICS observed that rental increases are related to the fall in the number of prospective homeowners that had mortgage applications approved. But there are two other reasons as well that explain this trend in the buy-to-let sector. Some investors and potential homebuyers are concerned about the prospects of a “double dip” recession or housing crisis, while others are locked out of the real estate market by hefty deposit requirements.

There also seems to be little interest among landlords to sell their properties once a tenancy agreement expires, while new investors are hobbled by the lack of buy-to-let loans. The British Bankers’ Association found that the number of loan approvals fell by 2.5 percent between June and July. Annual statistics show that home mortgage approvals have fallen by 18.5 percent compared to figures from 2009. A total of 33,689 homeowner mortgages were issued this past July.

Concerns about the state of the economy are also weighing heavily on the property market, with many predicting declines in real estate values, as well as a slowdown caused by major government spending cuts. The Bank of England has also published less optimistic predictions for growth.

Rents Rise as Mortgage Approvals Drop

The continued rise in monthly rents witnessed by residential landlords and their letting agents seems to be in direct correlation with a fall in the number of approved mortgages for first-time homebuyers, according to statistics released by the Royal Institution of Chartered Surveyors. Among the country’s chartered surveyors, 27 percent more reported that their rents increased between May and July. During the second quarter, 30 percent more surveyors indicated rental increases than those that experienced drops.

RICS observed that rental increases are related to the fall in the number of prospective homeowners that had mortgage applications approved. But there are two other reasons as well that explain this trend in the buy-to-let sector. Some investors and potential homebuyers are concerned about the prospects of a “double dip” recession or housing crisis, while others are locked out of the real estate market by hefty deposit requirements.

There also seems to be little interest among landlords to sell their properties once a tenancy agreement expires, while new investors are hobbled by the lack of buy-to-let loans. The British Bankers’ Association found that the number of loan approvals fell by 2.5 percent between June and July. Annual statistics show that home mortgage approvals have fallen by 18.5 percent compared to figures from 2009. A total of 33,689 homeowner mortgages were issued this past July.

Concerns about the state of the economy are also weighing heavily on the property market, with many predicting declines in real estate values, as well as a slowdown caused by major government spending cuts. The Bank of England has also published less optimistic predictions for growth.

Average Buy to Let Rent Rises

Landlords see continued rise in rents reports the RLA News Service

The average monthly rent in the residential buy-to-let sector now stands at £676, according to figures released by LSL Property Services. This rise is largely due to very high demand among tenants, particularly in the London area and in the southeast. The main reason for the large number of tenants and tight supply of properties is the continued dearth of both residential mortgages for first-time buyers, as well as buy-to-let products for landlords looking to expand their existing portfolios.

Further tightening the supply of rental properties in the buy-to-let sector was the fact that a growing number of temporary or accidental landlords have by now sold their properties.

Yet there are very significant differences in what £676 per month would get a tenant seeking to rent a home. In the Midlands, it may be possible to even find a semi-detached house, while one may have trouble finding even the smallest flat for this amount in Central London.

PriceWaterhouseCooper’s research suggests that house prices will increase each year by approximately 2% over the next decade and this may also serve as positive news for landlords. But specialists point out that the rate of increase may be lower in the next few years than the average annual rise of 4% per annum, measured through much of the nineties and until the end of 2007.

UK Interest Rates To Remain Low

According to economists associated with Ernst & Young, the Bank of England is likely to keep the country’s base lending rate at or near the historic low of 0.5% until late 2013, primarily to ensure that inflation does not slip below 1%.

At the moment, inflation is expected to surpass 2%, but this is mainly due to the rise in VAT, as well as increasing energy prices, but it may fall to around 1% in the near future.

Ernst & Young believes that the Bank of England will have to keep interest rates at 0.5% for the next two to three years, in order to avoid this scenario. This may serve as a welcome relief for many residential landlords who worried about how they would manage if interest rates on their buy-to-let loans were to increase at the end of this year or in early 2011, as had been predicted.

Buy to Let; Red Tape and Regulation Cut

Prime Minister David Cameron’s Conservative-Liberal Democrat coalition decided to avoid the introduction of more regulation and red tape in the buy-to-let sector. Grant Shapps, the new housing minister, told the House of Commons that there was no compelling need to regulate private residential landlords any further, as a clear majority of the 3 million English residents who live in rental accommodation seem satisfied with their lodging. Shapps pointed out that the government’s role is to ensure that there is a healthy balance between the rights and obligations of residential landlords. At this point, the minister sees no reason to tinker with this balance.

The previous Labour government drafted plans to introduce a new set of red tape and regulations to govern residential landlords. These included requiring landlords to join a national register program, mandating everyone in the buy-to-let sector to draft written agreements with tenants and the introduction of a new set of rules that would have governed letting agents. Shapps spoke directly to landlords, promising not to increase bureaucratic red tape, while also calling on local councils to make effective use of the authority that they already have to deal with a small minority of landlords who provide substandard service.

While the decision not to further regulate the buy-to-let sector may serve as a relief to landlords, some are still concerned that there is too little oversight when it comes to letting agents. The alternative, which was not chosen by the government, would be to launch a set of national standards and rules to ensure the professionalism and ethical conduct of all letting agents.

CML Encourage Higher Investment in Private Rental Sector

Data published today by the CML shows that buy-to-let activity in the first three months of this year settled back to former levels, following a modest upturn in house purchase by investors at the end of last year triggered by the stamp duty holiday. As a result, the number of buy-to-let loans declined by 15% to 22,000 in the first three months of 2010. Over the same period, the value of lending also declined, by 12% to £2.1 billion.

Leaving aside the impact of the stamp duty holiday, however, buy-to-let lending has now remained broadly flat over each of the last five quarters. Compared to the first quarter of 2009, the value of buy-to-let lending in the first three months of this year is unchanged, while the number of loans declined by just 2%.

Low interest rates are continuing to contribute to a modest improvement in buy-to-let arrears. At the end of March, the number of loans with arrears of more than 1.5% of the mortgage balance totalled 19,300 (1.56% of all buy-to-loans), compared with 20,700 (1.69% of loans) at the end of 2009, and 28,800 (2.47% of loans) a year ago. The number of buy-to-let properties taken into possession in the first quarter of 2010 totalled 1,400, an increase from 1,200 taken into possession in the preceding three months but unchanged from the total a year ago. Meanwhile, cases where a receiver of rent had been appointed totalled 11,200 at the end of March, down from 11,900 three months earlier but up from 9,200 a year ago. These cases are similar in many ways to a lender taking possession of a mortgaged property, with the landlord being removed and the receiver collecting rent and passing it on to the lender to apply to mortgage payments.

Commenting on the figures, the CML’s director general Michael Coogan said:

“Ignoring the effect of the stamp duty holiday, the lending figures show that the buy-to-let market has settled into a period of stable, low-volume activity. Generally, prospects for the rental market are good. But uncertainty over house prices, interest rates and the availability of mortgage funding is continuing to hold back the buy-to-let market at this stage.

“We also want to see how the new coalition government takes forward the Treasury’s initiative to encourage higher investment in the private rented sector, bearing in mind the scope for growth that exists to meet future demand from tenants. There is a case for targeted measures in the Budget, even though the primary focus will be the fiscal deficit.”

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Buy to Let Lending Remains Steady

Data published today by the CML shows that buy-to-let activity in the first three months of this year settled back to former levels, following a modest upturn in house purchase by investors at the end of last year triggered by the stamp duty holiday. As a result, the number of buy-to-let loans declined by 15% to 22,000 in the first three months of 2010. Over the same period, the value of lending also declined, by 12% to £2.1 billion.

Leaving aside the impact of the stamp duty holiday, however, buy-to-let lending has now remained broadly flat over each of the last five quarters. Compared to the first quarter of 2009, the value of buy-to-let lending in the first three months of this year is unchanged, while the number of loans declined by just 2%.

Low interest rates are continuing to contribute to a modest improvement in buy-to-let arrears. At the end of March, the number of loans with arrears of more than 1.5% of the mortgage balance totalled 19,300 (1.56% of all buy-to-loans), compared with 20,700 (1.69% of loans) at the end of 2009, and 28,800 (2.47% of loans) a year ago. The number of buy-to-let properties taken into possession in the first quarter of 2010 totalled 1,400, an increase from 1,200 taken into possession in the preceding three months but unchanged from the total a year ago. Meanwhile, cases where a receiver of rent had been appointed totalled 11,200 at the end of March, down from 11,900 three months earlier but up from 9,200 a year ago. These cases are similar in many ways to a lender taking possession of a mortgaged property, with the landlord being removed and the receiver collecting rent and passing it on to the lender to apply to mortgage payments.

Commenting on the figures, the CML’s director general Michael Coogan said:

“Ignoring the effect of the stamp duty holiday, the lending figures show that the buy-to-let market has settled into a period of stable, low-volume activity. Generally, prospects for the rental market are good. But uncertainty over house prices, interest rates and the availability of mortgage funding is continuing to hold back the buy-to-let market at this stage.

“We also want to see how the new coalition government takes forward the Treasury’s initiative to encourage higher investment in the private rented sector, bearing in mind the scope for growth that exists to meet future demand from tenants. There is a case for targeted measures in the Budget, even though the primary focus will be the fiscal deficit.”