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
- According to Halifax data, property prices accelerated at their fastest pace in the eight months to July. Values rose 1.4% month-on-month and 1.3% quarter-on-quarter. However, managing director Russell Galley called into question the sustainability of this growth, commenting that: “Despite the recent modest improvement in mortgage approvals, the latest survey data for new buyer inquiries and agreed sales suggest that approvals will remain broadly flat until the end of the year;”;
- Samuel Tombs, chief economist at Pantheon Macroeconomics also pointed out that: “month-to-month changes in Halifax’s measure of house prices always should be taken with a large pinch of salt. Most other indicators of house price growth remain weak”;
- Similar to Halifax’s predictions, Nationwide (the UK’s largest building society) reported that house prices will remain flat for the remainder of 2018. Reporting that pre-tax profits for the three months to June had fallen to 13% to £281 million, chief executive commented that: “We are observing consumers adapting their behaviours in response to the pressure on disposable income”;
- The UK House Price Index (UK HPI) reported that sold prices grew by 0.3% between May and June 2018, with annual prices rose by 2.7%. This brings the average property value to £245,076. The West Midlands saw the largest monthly price rise (up by 1.9%); the North East saw the largest monthly price fall (down by 1.9%) and London saw the lowest annual price increase (down by 0.7%);
- On the London market, Jeremy Leaf, former Royal Institution of Chartered Surveyors (RICS) residential chairman commented to the Guardian that: “House price growth outside of London is being supported by a continuing shortage of stock whereas the capital and the south-east can’t hide behind this excuse any longer. Price drops are continuing and reflect a new realism in the market – if you want to sell your property, it needs to stand out and price is the obvious way of doing it”;
- Other regional-specific data by Hometrack’s Cities House Price Index reported year-on-year growth (up to June 2018) in Manchester (7.4%), Liverpool (7.2%), Birmingham (6.8%), Leicester (6.5%), Cardiff (6.0%), Sheffield (5.6%), Nottingham (5.1%), Bournemouth (4.9%). Negative price growth was seen in Cambridge (-0.2%) and Aberdeen (-2.8%);
- 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 free new portal PropCast provides users with a ‘weather report’ that shows levels of buyer demand in UK housing markets. Check out our recent interview with creator Gavin Brazg here.
Rental Market Observations
- The most recent HomeLet Rental Index report indicated that average rents across the UK rose by 1.3% in July 2018 relative to July 2017 (average monthly rents are now £937). According to the data, average London rents stand at £1,615 per month – increasing by 3.3% in July 2018 compared to the same month in 2017. Excluding London, the average UK rental value was £777 in July 2018, up 1.0% 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 Monmouthshire (3.2%), Nottingham (2.9%), Conwy (2.7%), Stirling (2.7%), Blaenau Gwent (2.6%), Carmarthenshire (2.6%), Inverclyde (2.6%), Edinburgh City (2.6%), Northamptonshire (2.5%), Bristol (2.4%). Drops in rental values were seen in Aberdeen City (-4.4%), Aberdeenshire (-4.3%), Windsor & Maidenhead (-1.2%), Luton (-1.1%), Halton (-1.1%), Kensington & Chelsea (-0.9%), Hartlepool (-0.9%), Brent (-0.8%), Kingston-upon-Thames (-0.5%), Angus (-0.4%).
- Your Move’s latest England & Wales Rental Tracker reported that there has been a small fall in London rents, South West England has seen rents rising the fastest, landlords in northern areas are enjoying the highest yields and there are fewer tenants in financial trouble;
- According to July’s Pearl Rental Index, rents increased by 1.0% in the 12 months to June 2018. London rents decreased by 0.2% over this period (the first decline since September 2010);
- Royal Institute of Chartered Surveyors (RICS) survey indicated that rents could increase by 15% by 2023 as smaller landlords continue to exit the market. The body attributed that Section 24 tax changes, which have made buy-to-let investment less profitable. Policy manager, Abdul Choudhury commented: “Withdrawing tax breaks that small landlords relied on, placing an extra 3% on second home stamp duty, and failing to stimulate the corporate build-to-rent market, has understandably [had an impact on] supply”;
- Listen to our conversation with David Bond, head of PRS and build to rent at PRSim on the back of the organisation’s 2018 ‘Tenant Survey’ which surveyed over 3,750 tenants across the UK;
- Please also check out other relevant 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
- A survey of 750 business leaders, undertaken by the Institute of Directors reported that confidence in the UK economy has dropped to its lowest point this year. Uncertainty surrounding the Brexit agreement (or potential lack of) was the biggest concern. According to Tej Parikh, senior economist: “despite cautious optimism emerging amongst the business community earlier in the year, any momentum appears to have dwindled”;
- As nine members of the Monetary Policy Committee (MPC) unanimously agreed to raise interest rates since the credit crunch, opinions varied as to what the result would be;
- The Nationwide reported that: “Providing the economy does not weaken further, the impact of a further small rise in interest rates on UK households is likely to be modest. This is partly because only a relatively small proportion of borrowers will be directly impacted by the change. Most lending on personal loans and credit cards is fixed or tends to be unaffected by movements in the Bank rate. Similarly, in recent years, the vast majority of new mortgages have been extended on fixed interest rates”;
- Samuel Tombs of Pantheon Macroeconomics, however, referred to Markit research which showed that only 30% of UK households expected rates to rise in the 3 months following the decision. He commented that: “the committee’s next step could have an outsized impact on confidence, ensuring that house price growth continues to drift lower over the second half of this year”.
Buy-to-Let Investing / Financing Conditions
- The 3-Month London Interbank Offered Rate (LIBOR) increased from 0.758 on 19th July to 0.804 on 17th August;
- The 1-year SWAP rate grew from 0.854 on 19th July to 0.89 on 17th August;
- The 5-year SWAP rate grew from 1.265 on 19th July to 1.283 on 17th August;
- The latest Shawbrook Buy-to-Let report delves into the effects of the changes to stamp duty, mortgage interest tax relief and the tightening of mortgage underwriting rules. The lender also forecasts buy-to-let market activity up to 2023 and compares this forecast with a scenario in which the changes were not introduced;
- Special Purpose Vehicle (Limited Company mortgage rates featured in this month’s property investor’s factfile include a Barclays fixed 2.74% pay rate until the end of October 2023 with a £1,950 loan arrangement fee. Precise Mortgages are also offering a 5-year fixed rate at 3.39% with a £1,875 loan arrangement 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;
- 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;
- Check out Ruban Selvanayagam’s article for South Yorkshire based lettings agency Bricknells: “Landlords, are you prepared for Section 24?”;
- 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.
First Time Buyers
- Official figures have shown that 6,717 households accessing the government’s Help to Buy scheme earn an income of more than £100,000. This accounts for 4% of the 169,102 properties that have been sold under the initiative and supports ongoing calls for reform. Darren Baxter, research fellow at The Institute for Public Policy commented that: “Help to Buy is not supporting the right people. Far from helping those priced out of home ownership, the majority of those who have bought through the scheme would be able to buy at some point without support”;
- According to UK Finance (formerly the Council of Mortgage Lenders), the average first-time buyer borrowed £145,368 in June, the highest amount on record. Low-interest rates mean monthly repayments are currently £605 on average – amounting to only 17.2% of the buyers’ income. Whether this scenario changes as a result of potential interest rate increases remains to be seen.