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
- After a 3.1% drop in April (the largest since September 2010), the Halifax reported 1.5% house price growth in May. On an annual basis, prices were 1.9% higher in three months leading up to May relative to the same period in 2017. Russell Galley, managing director, commented that continued labour market strength alongside falling inflation, rising wages and low interest rates were “underpinning prices”;
- According to the Nationwide house price index, UK houses prices fell by 0.2% in May, but grew by 2.4% year-on-year. Chief economist, Robert Gardner, commented to the FT: “Surveyors continue to report subdued levels of new buyer enquiries, while the supply of properties on the market remains more of a trickle than a torrent”;
- Office of National Statistics (ONS) data pointed to property prices inflation slowing to its lowest level since March 2017. The average house price was up 3.9% on the year to April. Although there was little mention of the supply-side factors, average prices in London grew by 2.4% with annual price inflation reaching 1%. According to Mike Hardie, head of inflation: “Annual house price growth continued to slow, with weak growth in London offset by increases in the South West and West Midlands. Nationally, rental prices remained unchanged, with rents in London falling on the year for the first time in nearly eight years.”;
- The Royal Institute of Chartered Surveyors (RICS) latest Residential Market Survey reported that: “new buyer enquiries were more or less unchanged during April, arresting a sequence of four straight months in which they had declined fairly sharply”;
- Other regional-specific data by Hometrack’s Cities House Price Index reported year-on-year growth (up to April 2018) in Manchester (7.7%), Leicester (7.4%), Edinburgh (7.2%), Liverpool (6.8%), Cardiff (6.8%), Birmingham (6.7%), Nottingham (6.4%), Sheffield (5.6%) and Bournemouth (also 5.6%), amongst others. Negative price growth was seen in Aberdeen (-7.2%);
- 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).
Rental Market Observations
- The most recent HomeLet Rental Index report indicated that average rents across the UK rose by 2.0% in May 2018 relative to May 2017 (average monthly rents are now £919). According to the data, average London rents are at £1,586 per month – increasing by 5.6% in May 2018 compared to the same month of 2017. Excluding London, the average UK rental value was £763 in May 2018, up 1.3% relative to 2018. Homelet’s interactive infographic is useful to observe broader rental market trends;
- For the 12 months up to April 2018, Landbay’s Rent Check reported increased rental values in Nottingham (3.3%), Leicester (3.2%), Caerphilly (2.8%), Edinburgh City (2.8%), Northamptonshire (2.5%), Falkirk (2.4%), Suffolk (2.3%), Stirling (2.3%), Cardiff (2.3%) and the Isle of Wight (2.3%). Drops in rental values were seen in Aberdeenshire (-6.3%), Aberdeen City (-5.0%), Windsor & Maidenhead (-1.5%), Luton (-1.4%), East Ayrshire (-1.3%), Kensington & Chelsea (-1.0%), Halton (-1.0%), Brent (-1.0%), Hartlepool (-0.7%) and Barnet (-0.7%);
- 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. Note that this data has not been updated since February 2018;
- According to the latest PRISm tenant survey, having pets, high speed internet, parking and garden access are all rental accommodation facilities that tenants would be willing to pay extra for. Additional conveniences such as house cleaning tend to be better received by younger groups with greater disposable income who are more likely to be renting to suit their lifestyle;
- Please see other rental data and statistics in the RENTING section (page 2) of this month’s factfile.
Macro-Economic Conditions for Buy-to-Let Property Investors / Traders
- The Consumer Price Index measurement of inflation remained at 2.4% in May, despite average fuel prices rising to their highest level in 4 years. It is believed that this data could hold off any decision to raise interest rates, particularly when factoring the effects of unexpected slower wage growth;
- The British Chamber of Commerce has cut its 2018 growth forecast, alerting that the economy faces its weakest year since the global financial crisis. Adam Marshall, director-general commented: “A decade on from the start of the financial crisis, the UK now faces another extended period of weak growth amidst a backdrop of both domestic and global uncertainty. Our forecast should serve as a wake-up call to government – as it demonstrates that business as usual is not an option when it comes to the economy”;
- Global consultancy firm Oliver Wyman recently estimated that UK households could be left up to £1,000 a year worse off due to Brexit trade barriers. David Brewer, partner at the consultancy, commented: “A Brexit deal that results in no new tariffs with the EU is still likely to increase the red tape costs of imports, driving down profits for businesses, and driving up prices for consumers.” Brexit supporting economists said such obeservations are “alarmist” and that Britain’s role outside the European Union could flourish;
- According to UBS analysts, “ring-fencing” regulation – aimed at protecting consumers, – could risk the creation of liquidity issues akin to the financial crisis. According to the investment bank, the changes will mean that banks are less flexible and unable to reallocate capital in the event of a downturn. The Treasury defended the policy stating: “Ring-fencing protects the deposits of everyday customers, reduces the likelihood of a future financial crisis and, if a bank fails, ensures that the taxpayer is not on the hook”;
- 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
- The 3-Month London Interbank Offered Rate (LIBOR) fell from 0.64031 on 15th May to 0.63075 on the same date in June;
- The 1-year SWAP rate dropped from 0.8 on 15th May to 0.792 on 15th June;
- The 5-year SWAP rate dropped from 1.374 on 15th May to 1.323 on 15th June;
- Leeds Building Society has introduced a new buy-to-let mortgage product that carries a high upfront fee with a low-interest rate. The product is being viewed as a means of attenuating the effects of Section 24 and the changing economics governing the sector. Borrowers can pay a £2,499 initial fee for a 2-year fixed rate of 1.44% based on a 60% loan to value ratio, or a 1.69% pay rate on a 70% LTV basis. According to David Hollingworth, director at L&C Mortgages (in a comment to the FT): “Landlords facing pressure on margins may start looking towards lower rates and think swallowing that fee is a good trade-off. What you can charge on the rent is only what the market can sustain. Pushing down the mortgage rate is the crucial factor”. However, some observers have warned that top-down controls to stop “gaming” the tax system could be inevitable should products like these gain popularity;
- 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 firstname.lastname@example.org 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 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.
Housing Affordability and Help to Buy
- According to research by Savills (using Land Registry and EPC data), the average London worker with a 25% deposit can afford to buy 292 square feet worth of property space – which is 100 square feet under minimum requirements for a one-bedroom apartment. According to research analyst at Savills, Lawrence Bowles: “in the North, the floor space an average worker can afford is larger and growing faster than in the South and London.” In London, the average worker could buy 32% less space in 2017 than in 2007, but in the north-east, they could buy 38% more;
- There have been wider calls for the government’s Help to Buy to be scrapped after official government statistics revealed that the average household income required to access the scheme lies at just below £50,000. In London, this figure rises to £72,000. The data effectively means that the scheme is only accessible to high-income earners or middle-income earning couples.