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Property Investor’s Factfile – May 2018 Commentary

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May 2018 Property Investor´s Factfile

The Property Investor’s Factfile presents a range of relevant data for buy-to-let investors, traders and developers.

Below are some noteworthy observations over the last month:

Property Market Trends

  • The latest Halifax house price index reported that prices dropped by 3.1% in April, the largest since September 2010. Arguing that a strong jobs market will support a certain level of market buoyancy, managing director Russell Galley commented that: “housing supply, as measured by the stock of homes for sale and new instructions, is still very low”;
  • Other data from the Halifax indicated that UK flats had grown in value by an average of 48% over the last five years (from £157,061 in Q1 2013 to £232,135 in Q1 2018).  This was followed by terraced houses (41%), semi-detached houses (39%), bungalows (38%) and detached houses (27%);
  • Sam Tombs from Pantheon Macroeconomics (@SamuelTombs) advised against reading too much into any monthly declines: “Prices will fall rapidly only when a large proportion of homeowners are forced to sell up. With unemployment and borrowing costs low and credit freely available, few people are being forced to sell their homes quickly. A period of broadly flat house prices, therefore, remains the most likely outcome”;
  • Although Nationwide data indicated a slight uptick in annual property price growth, chief economist Robert Gardiner commented: “Looking ahead, much will depend on how broader economic conditions evolve, especially in the labour market, but also with respect to interest rates. Subdued economic activity and the ongoing squeeze on household budgets is likely to continue to exert a modest drag on housing market activity and house price growth this year. We continue to expect house prices to rise by around one percent over the course of 2018”;
  • The Royal Institute of Chartered Surveyors (RICS) most recent monthly house price forecast pointed to its biggest dip since April 2012, with London heavily weighing down the overall value profile.  With a balance of 65% of London-based surveyors seeing prices fall over the month, the report suggested that: “the upper and middle priced tiers of the market are proving the most challenging”;
  • Other regional-specific data by Hometrack’s Cities House Price Index reported year-on-year growth (up to March 2018) in Edinburgh (8.1%), Nottingham (8.0%), Manchester (7.4%), Birmingham (7.0%), Leeds (7.0%), Leicester (6.5%), Liverpool (6.1%), Sheffield (6.1%), Bristol (5.8%), Cardiff (5.6%), Portsmouth (5.5%), Bournemouth (4.6%), Southampton (4.4%), Belfast (4.4%) and Newcastle (3.9%). Slowdowns in price growth were seen in Cambridge (-1.2%) and Aberdeen (-6.9%);
  • According to Savills, following the slump in prime central London property values, central London residential land values have dropped 2% in the first quarter of the year and 12% over the past three years.  Nonetheless, the property group believes that outer London land continues to attract high demand, in spite of developers looking for opportunities outside of the capital.  Land values are also increasing in key towns and cities in the Midlands and Scotland, with Birmingham being the “standout performer”;
  • In an EG magazine article entitled Talk of London Housing Crash is Nonsense, Savvas Savouri, partner and chief economist at Toscafund Asset Management commented: “Three decades working in capital markets have provided me with innumerable instances where asset prices move for no fundamental reason; with the cryptocurrency phenomenon merely the most recent instance. The London housing market is no such bubble. I make this claim because the demand to ‘nest’ remains strong and so too does demand to rent”;
  • Wales and North West England are the most affordable areas to buy a property, according to Which?.  Using Land Registry and ONS data, the consumer magazine also said that London and the South East have the highest number of non-affordable local authorities;
  • This interactive map produced by Bloomberg tracks London’s property prices, median sale values, sales volumes and price changes (using Land Registry data);
  • If you have not the chance to check it out, this excellent house price tool by the BBC (covering England and Wales) shows how real values (factoring in inflation) have performed since the Credit Crunch (thanks to @HenryPryor for sharing this resource on Twitter).
  • A survey by the Home Owners Alliance, IMMO and YouGov reported that sellers in the UK are losing more than £400m in aborted sales costs. According to the data, broken chains are resulting in 1 in 10 sellers losing over £5,000.


Rental Market Observations

  • The most recent HomeLet Rental Index report indicated that average rents across the UK rose by 1.5% in April 2018 relative to April 2017 (average monthly rents are now £918).  According to the data, average London rents are at £1,588 per month – increasing by 4.5% in April 2018 compared to the same month of 2017. Excluding London, the average UK rental value was £761 in April 2018, up 0.9% on 2017.  Homelet’s interactive infographic may be of use to observe some broader rental market trends;
  • Your Move’s latest Buy-to-Let Index indicated that average rents are up 2.5% year-on-year in England and Wales.  With average rents estimated at £829 per month, according to the data, London and the North East saw a price fall and yield levels have stabilised at the start of the year;
  • For the 12 months up to April 2018, Landbay’s Rent Check reported increased rental values in Edinburgh City (3.7%), Conwy (3.3%), Leicester (3.0%), Nottingham (3.0%), Gwynedd (2.8%), Northamptonshire (2.4%), Bath & North East Somerset (2.4%), Glasgow City (2.3%), Peterborough (2.2%) and West Lothian (2.2%).  Rental value drops were seen in Aberdeenshire (-8.1%), Aberdeen City (-5.4%), Kensington & Chelsea (-1.4%), Hartlepool (-1.2%), Luton (-1.1%), Windsor & Maidenhead (-1.1%), Kingston-upon-Thames (-1.0%), Hammersmith & Fulham (-0.8%), Tower Hamlets (-0.8%) and Wokingham (-0.8%);
  • Please see other rental data and statistics in the RENTING section (page 2) of this months factfile.


Macro-Economic Conditions for Buy-to-Let Property Investors / Traders

  • With consumer price inflation falling to 2.5%, the Bank of England base rate continues to be held at 0.5%.  Bank of England Deputy Governor Ben Broadbent confirmed that the institution’s communication is addressed to the wider public and not the interests of the City of London.  He also commented that the economy may be undergoing a period of slower growth as we await the next scientific breakthrough, perhaps artificial intelligence;
  • According to Credit Suisse analysts Neville Hill and Sonali Punhani, consumer spending may slow in response to recent signs that Brits have stopped taking on further debt and started to save. Hill and Punhani commented to Business Insider UK: “We increasingly judge that the UK consumer is retrenching and rebuilding its saving rate, having allowed it to plummet in the wake of the Brexit vote. That retrenchment may be due to consumers realising that the damage to their real incomes from the Brexit vote is permanent, not transient”;
  • According to UK finance, the number of homeowners in mortgage arrears is at it’s lowest level since records began in 1994.  78,800 mortgages were in arrears of 2.5% or more, during the first three months of 2018 (8% down on a year earlier).  Jackie Bennett, director of mortgages at UK Finance believes that these figures have been: “helped by low-interest rates and lenders supporting borrowers through periods of temporary financial difficulty wherever possible”.  She did note, however, that recent changes to Support for Mortgage Interest (SMI) from a benefit to a loan, plus concerns over rising interest rates, could change the tide in the coming year;
  • UK Finance also reported that the number of interest-only mortgages (including partial interest-only) is down 46% since 2012.  There are currently 1.7 million outstanding mortgages on these terms.  Of the one million interest-only mortgages
  • According to research by the Centre for Ageing Better, 414,000 people over the age of 60 are living in rented accommodation – up from 254,000 in 2007.  The organisation estimates that a third of people in their 60s will be renting by 2040;
  • The online estate agency Emoov are reported to be operating at a loss in a drive to ‘attack’ the offline market.  Jo Morgan also commented that Purplebricks could account for as much as 15% of the market by 2022;
  • Our extended  “Section 24 “Landlord Tax” – Expert Insights on Phase 2” post collates a wide range of indispensable commentary from professional accountants and tax advisors actively working in the buy-to-let industry.


Buy-to-Let Investing / Financing Conditions

  • According to Shawbrook Bank’s recent Broker Barometer, landlords are taking a ‘wait and see’ approach when it comes to the buy-to-let market.  Many are reflecting on recent governmental and regulatory changes and to assess how the market adapts to Brexit uncertainty before making further purchases.  The annual survey reveals the biggest challenges facing investors over the next 6 months, with landlords citing regulation (22%), interest rate movements (21%) and lending restrictions (16%);
  • 5,500 buy-to-let loans were taken out in March 2018, down from 6,800 in the same month in 2017.  According to Jackie Bennett, director of mortgages at UK Finance (formerly the Council of Mortgage Lenders): “The buy-to-let market remains subdued, as recent tax and regulatory changes continue to have an impact on demand”;
  • The 3-Month London Interbank Offered Rate (LIBOR) rose from 0.54663 on 15th February to 0.60591 on the same date in March;
  • The 1-year SWAP rate dropped from 0.952 on 17th April to 0.788 on 17th May;
  • The 5-year SWAP rate dropped from 1.452 on 17th April to 1.414 on 17th May;
  • Josephine Meertens, an analyst at M&G Investments, commented to the Times that mortgage lenders will need to raise pay rates due to the £127 billion Term Funding Scheme drawing to a close in February. The scheme was launched in August 2016 to enable lenders to access low-cost finance in response to the EU referendum decision;
  • Special Purpose Vehicle (Limited Company mortgage rates featured in this month’s property investor’s factfile include a Barclays fixed 2.69% pay rate until the end of April 2023 with a £1,950 arrangement fee (a similar product is available without the arrangement fee, but with a higher pay rate of 3.09%).  The State Bank of India continues to offer a 5-year SPV mortgage with a 3.24% tracker pay rate and a £937 loan fee.  For more information and to discuss your specific borrowing circumstances please get in touch with Paul Lowcock at or direct on 01133 203240.  Also, check out Paul’s commentary on the impacts of Section 24 and Prudential Regulation Authority (PRA) criteria on the mortgage lending landscape;
  • The Q1 Buy to Let Index published by Mortgages for Business contains insights into lending trends, product pricing, effects of the underlying cost of funds, borrowing by property type amongst other information;
  • The BM Solutions’ full rental income calculator checks the eligibility for buy-to-let loans prior to submitting a case.  To see the results, enter the number of applicants, type, income, product rate, term length, maximum loan to value, property value, loan required and anticipated monthly rental income.  Note the disclaimer that the calculations are for illustrative purposes only and do not represent a full mortgage offer;
  • Please see our post on mortgage underwriting (within the buy-to-let sector) for some insights into the key influences of buy-to-let mortgage pay rates.


Build to Rent News

  • Grainger, the UK’s largest build to rent developer, posted 3% growth in rental values on its private rented sector (PRS) homes – representing an annual growth level of 5.4% on its regulated tenancy reviews;
  • The second largest property company in the UK  announced its expansion into London’s build to rent sector with initial plans focusing in Ealing, West London and within the £4 billion redevelopment plans in Rotherhithe, in the south-east of the capital;
  • It is well worth checking out consultant Richard Berridge’s insights into the build to rent sector (such as La Grande Illusion and BTR: #SubscriptionLiving).


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