Buy-to-let news to Friday, November 3rd, 2017

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The North West moves up to second best place for buy-to-let yields

With the fastest-rising rents during 2017, the North West is now the second best place in England and Wales for buy-to-let yields, according to new data from the Your Move buy to let index.

At 3.6%, the region saw the biggest growth in rents in the year to September, which promoted the North West to second, with a yield of 5.0%, just behind the North East at 5.1%.

Both regions have strong business hubs and are renowned for their large student populations in cities like Newcastle, Liverpool and Manchester, where rental demand is traditionally high, although average rents actually fell 0.3% in the North East.

After the North West, the East Midlands saw the next best annual rental growth of 3.4%, with the East of England third at 2.9%.

Martyn Alderton, national lettings director at Your Move and Reeds Rain, said:

“There was a stellar performance in the North West, with rents increasing by 3.6% over the year and landlords seeing a high yield rate of 5%.

“Yield levels have started to stabilise across surveyed areas after being squeezed at the start of the year. This is good news for landlords and demonstrates the resilience of the sector.”

Andrew Turner, chief executive officer at Commercial Trust Limited, commented:

“This data shows the value in casting your net further afield as a landlord looking to invest in buy-to-let, by looking at the most dynamic areas for attaining a good yield.

“Typically the cost of rent is less in the north, but at the same time, property prices are also normally less than in the South of England – and the result can be attractive yields from private rental properties that are in great demand.”

Buy-to-let rates on the increase

Buy to let rates increaseWith lenders bedding in their adjustments to the PRA rules and amid ongoing speculation that a Bank of England base rate rise is imminent, buy-to-let mortgage rates are starting to rise, according to Moneyfacts’ data.

The PRA rules have seen the implementation of tougher affordability assessments on buy-to-let applications, whilst the recent news that inflation had reached 3%, has added further fuel to the rumours of a base rate increase.

In this environment, Moneyfacts says that the average cost of a buy-to-let mortgage is starting to rise now.

The Norwich-based data business outlined that since the beginning of October, when lenders falling under PRA rules had to make changes, there has been a clear correlation between those applying more stringent underwriting processes and an increase in rates for a two-year fixed rate buy-to-let mortgage, which has risen by an average of 0.05%.

At the same time, the report says there has been a 13% fall in the number of products that lenders have made available to landlords owning three or less properties.

Charlotte Nelson, Finance Expert at Moneyfacts, said:

“It has been a turbulent time for the buy-to-let market thanks to multiple rule changes and there’s no sign of calmer waters as rates are starting to creep up from their record lows. While a 0.05% increase appears insignificant, it marks a turnaround in the BTL sector, so landlords are now faced with not only more hoops to jump through but higher rates as well.”

Commenting on the findings, Andrew Turner, chief executive at Commercial Trust, said:

“There has been much speculation as to how affected lenders would adjust to the PRA rules and how much of a cost burden this would mean.

“At the same time, there has been enormous debate as to whether or not the Bank of England’s Monetary Policy Committee will increase the base rate on Thursday, November 2nd.

“Off the back of the rumours, SWAP rates (the fixed rates at which lenders borrow between each other) have increased and because the cost of borrowing may go up for mortgage lenders, they have increased their rates on products to take this into account.

“However, it must be remembered that buy-to-let mortgage rates have been at an historically low mark for some time now, so at some point it is inevitable that rates will go up.

“I would urge any landlords concerned by the speculation or the impact of increasing mortgage interest rates to get in touch to discuss their options.”

Mortgage rates may increase as Bank of England raises the base rate

base rates rise 0.25%Some buy-to-let landlords may see an increase to their mortgage repayments, following today’s news that the Bank of England Monetary Policy Committee has voted by 7-2 to increase the base rate by 0.25% to 0.50%, the first rise in a decade.

For a generation of landlords and homeowners, this is the first time they will have experienced such an increase, but Andrew Turner, chief executive at Commercial Trust Limited, is urging landlords to take the opportunity to assess the impact fully before making any decisions.

In a statement, the Bank of England described its decision “to tighten modestly the stance of monetary policy in order to return inflation sustainably to the target (to 2%).”

It said:

“The steady erosion of slack has reduced the degree to which it is appropriate for the MPC to accommodate an extended period of inflation above the target. Unemployment has fallen to a 42-year low and the MPC judges that the level of remaining slack is limited. The global economy is growing strongly, domestic financial conditions are highly accommodative and consumer confidence has remained resilient. In line with the framework set out at the time of the referendum, the MPC now judges it appropriate to tighten modestly the stance of monetary policy in order to return inflation sustainably to the target. Accordingly, the Committee voted by 7-2 to raise Bank Rate by 0.25 percentage points, to 0.5%. Monetary policy continues to provide significant support to jobs and activity in the current exceptional circumstances. All members agree that any future increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.

“There remain considerable risks to the outlook, which include the response of households, businesses and financial markets to developments related to the process of EU withdrawal. The MPC will respond to developments as they occur insofar as they affect the behaviour of households and businesses, and the outlook for inflation. The Committee will monitor closely the incoming evidence on these and other developments, including the impact of today’s increase in Bank Rate, and stands ready to respond to changes in the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target.”

Turner commented:

“The effects of rising inflation which hit the 3% mark in September, along with the ongoing uncertainty of the UK’s future trading relationship with the European Union, have been cited as key factors in the MPC’s decision earlier today.

“Of course any borrowers on a tracker or variable rate mortgage are likely to see their repayments increase, whilst others on fixed term rates will be protected from the effects of today’s decision, for the duration of that term.

“There is a psychological effect to this change in policy but that should not override the fact that rates have been at an all-time low and the increase is very small.

“For some landlords, now might be the perfect time to review their borrowing options and the team here are, as ever, delighted to help.”

Government unveils letting fee ban specifics

Government unveils letting fees ban detailsThe Government has released details of its draft Tenant Fees Bill, which will impose limits on the amount of money a tenant has to pay on a holding deposit or a security deposit in England, whilst imposing a ban on letting fees and announcing steep fines for offenders.

Under the proposed new legislation, tenants will have to pay no more than one week of rent for a holding deposit and a maximum of six weeks’ rent on a security deposit, while the draft bill also establishes the processes that a landlord or agent will have to meet when returning a holding deposit.

Communities Secretary Sajid Javid believes that the proposed change will bring relief to millions of renters by eradicating many of the expenses associated with moving home, in a move that will eliminate letting fees, mirroring an approach already outlawed in Scotland.

Overseeing the enforcement of the new rules will be the responsibility of Trading Standards, who will provide a protocol by which tenants can reclaim any unlawfully charged fees. This will involve the creation of a lead enforcement authority within the lettings industry.

Any landlords or letting agents falling foul of the new rules could face an initial fine for a new civil offence of up to £5,000. In cases where an individual has already been fined or convicted of the same offence within the previous five years, a criminal offence will be registered, with a civil penalty of up to £30,000.

The responses to the draft bill consultation indicated that nine out of ten tenants were in favour of the lettings fee ban.

In a further move, the Consumer Rights Act 2015 will be amended to ensure that property portals reflect the same level of transparency as letting agents, under the new rules.

Javid commented:

“This Government is determined to make sure the housing market works for everyone. Tenants should no longer be hit by surprise fees they may struggle to afford and should only be required to pay their rent alongside a refundable deposit.

“We’re delivering on our promise to ban letting agent fees, alongside other measures to make renting fairer and increase protection for renters. As part of wider plans to improve the rental market, government has already introduced measures that crack down on the small minority of rogue landlords that shirk their responsibilities,” he added.

Nationwide warns Brexit could see a fall in rental demand

Nationwide predicts a fall in rental demandNationwide has suggested that rental demand in the UK could drop as a result of lower migration figures in the aftermath of Brexit.

The building society has predicted a “significant slowing” in housing demand with London in particular, feeling the effects, where currently 60% of the Capital’s private tenants were reportedly born outside of the UK.

According to data from the Office for National Statistics, EU migration has in recent years had a significant impact on housing in England, helping to drive a 2% rise in the number of households between 2011 and 2015.

Nationwide has suggested that recently arrived migrants are more likely to rent than purchase property and that Brexit will see less migration and consequently a fall in rental demand.

Robert Gardner, the building society’s chief economist, said:

“With the ongoing uncertainty around Brexit and the rights of EU citizens once the UK leaves the EU, we may see a slowing in housing demand - and particularly rental demand - in the years ahead, if it results in slower migrant flows.

“Recent data points to a significant slowing, though the data can be volatile.”

Fears that the base rate rise will lead to rental hikes

Rates rise could lead to rental increasesThe Bank of England’s raising of the base rate by 0.25% could ultimately be the catalyst for a rise in rental costs for thousands of tenants, it has been reported.

Not long after the Monetary Policy Committee announced the increase to 0.50%, a number of mortgage lenders increased their mortgage rates, while others had begun to raise rates or withdraw lower rate products before November 2nd.

Consequently, many landlords will now see a rise in their monthly mortgage payments, which in turn could see those extra costs passed on to tenants.

“The first rate rise in a decade could fire the starting gun for an increase in residential rents,” said John Goodall CEO and co-founder of Landbay.

Meanwhile, a recent YouGov research, commissioned by the, revealed that rent accounts for more than half the take-home pay for nearly a quarter of private tenants.

Nick Marr, co-founder of, commented:

“Should we see a more significant rates rise in the next few years, we could see a substantial increase in the number of tenants struggling to keep up with rent payments.

He added: "While the new rates rise should not cause immediate alarm for mortgage holders, it should prompt anyone with a stake in the housing market to re-assess their investments and plan ahead to take account of the new direction of travel that the Bank of England has signalled with this announcement."

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.