Buy-to-let news to Friday, 7th October, 2017.

Red houses on coins

Buy-to-let returns over 1000% since 1996

Buy-to-let has truly delivered as an investment proposition, according to new research, which reveals that some private landlords have earned returns in excess of 1000% since 1996.

A study from Sequre Property Investment, shows that landlords who invested £100,000 into UK property back in 1996, could have a portfolio worth £1.23 million today, an eleven-fold increase on the original value that they invested.

According to the report, some landlords could have seen their buy-to-let returns increase by as much as 1,131%, as a result of rental yields and capital growth. The latter has proved a significant factor, with average house prices rising 282.66% over the past 21 years, delivering huge returns that have far exceed other investments such as ISA’s and stocks and shares.

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

This report brings a welcome sentiment of positivity to a number of landlords who, in light of the recent changes in the buy-to-let mortgage industry, may be feeling a little jaded.

“Landlords can enjoy income from property via both rent in the short term and capital growth in the mid to long term and for some this has been exceptionally lucrative.

“Historically the money made from buy-to-let was arguably easier to come by, because factors such as increased stamp duty and changes to tax relief weren’t part of the picture, but with a sound investment strategy informed by professional tax advice and appropriate buy-to-let mortgage solutions, rental property remains a sound investment choice.

“Of course there are many new tax changes coming into place that have caused alarm for many landlords, but equally, there have been plenty of upheavals over the past 21 years such as stock market fluctuations, political change and the financial crisis, and buy-to-let investment has ridden over these and demonstrated its sustainability with spectacular returns.

“The UK population is crying out for an increased volume of homes. Some people wish to buy, but many want to rent, or have to rent due to their financial circumstances.

“Landlords continue to cater to this high level of demand, and benefit from the income it offers at a time when other investment types have perhaps been more susceptible to economic and political instability.

Tory party proposes new renter rights

Parliament at sunsetThe Conservative Party has pledged to deliver more tenant rights as it looks to further shake-up the private rental sector.

Speaking at the Conservative Party Conference, Communities Secretary Sajid Javid announced plans to develop a new ombudsman redress scheme that all landlords would have to sign up to, in an effort to establish a system that helps to mediate in rental disputes.

The proposed legislation would also see all letting agents registered, while landlords will be offered incentives to provide long-term tenancies of at least 12 months in order to offer tenants greater security.

David Cox, the CEO of ARLA Propertymark (formally Association of Residential Letting Agents), commented:

After 20 years of our campaigning falling on deaf ears, we’re very pleased the government has taken the decision to regulate the private rented sector.

“This will be the single greatest step forward in a generation, in terms of consumer protection for private tenants, and will do more to clean up the image of the industry than the hundreds of smaller laws and pieces of legislation introduced over the last 20 years.

Mr Javid also talked of introducing a housing court, which would provide tenants with access to faster, more effective justice in cases where they are unfairly treated by landlords.

Andrew Turner, chief executive at Commercial Trust Limited, said:

It is encouraging to see the Government taking an avid interest in the private rental sector and looking to raise standards.

“A mediation service, in times of dispute, can only be a positive step to achieve a fair outcome for both sides.

“Similarly, long-term tenancies offer stability for both parties.

“No landlord relishes the financial burden of lost rental income and whilst some tenants look for mobility in their accommodation options, many others enjoy the peace of mind that they can make roots in their rental home.

“The plans lack detail at present, but I look forward to hearing more about how this will unfold.

Luton retains its leading status for buy-to-let investment

New research has reaffirmed Luton’s status as the best place in the country to invest in buy-to-let property.

Luton came out on top, with a 4.51% increase in rental price growth and an average yield of 4.51% during the latest quarter, in the latest Buy-to-Let Index from LendInvest.

The Index looks at areas by postcode, across England and Wales, assessing performance on capital value growth, transaction volumes, rental yield and rental price growth.

Luton’s performance – and retention of its leading status, have been bolstered by a thriving student rental market.

Close behind Luton came Colchester, another university town with high demand for rental properties and growth in both rent and property value.

Manchester, leading a resurgence in the North, came third in the report, whilst Hull was a real-eye-catcher, leaping 28 places into fifth place.

Ian Boden, sales director at LendInvest, said:

This quarter’s data supports the strong market sentiment that the impact of price sensitivity in London and the South East isn’t being felt to the same degree elsewhere around the country. Cities such as Hull and Nottingham making significant gains in the index (up #33 to #5 and #35 to #12 respectively) is encouraging, and points to competitive market conditions in those areas and higher than average levels of activity.

The leading buy-to-let areas according to LendInvest:

Yield Capital gains Rental price growth Transaction volume growth
Luton 4.51% 10.29% 6.81% -5.00%
Colchester 4.22% 13.02% 3.34% -5.05%
Manchester 6.04% 6.04% 7.39% 6.20%
Rochester 4.45% 8.41% 5.36% -5.32%
Hull 4.65% 11.12% 2.53% -6.24%
Stevenage 3.96% 9.54% 4.84% -7.14%
Romford 4.78% 11.99% 1.01% 5.98%
Southend-on-Sea 4.19% 10.50% 2.10% 6.44%
Ipswich 3.98% 10.04% 2.33% -5.81%
Ilford 4.19% 12.65% 1.15% -4.86%

 

Andrew Turner, chief executive at Commercial Trust Limited, said: 

Of late it has been widely reported that tenants are being priced out of London and are having to move to cheaper, commutable areas in the vicinity.

“This data bears this out, with Luton and Colchester coming out on top. Both have their own thriving micro-economies, but are also close enough to London to sustain a rental market for commuters.

“One of the big considerations for potential landlords when considering whether to invest in a buy-to-let property is location. This data gives a good indication of the potential returns that landlords can make by owning properties in these areas, both in terms of rent and capital growth.

 

Up to 5% of rental homes would fail new Minimum Energy Efficiency Standards

A new report has suggested that up to 5% of buy-to-let properties are likely to fail to meet new Minimum Energy Efficient Standards (MEES) that come into effect in April 2018.

One in 20 rental properties poses an ‘excess cold hazard’ to residents and are rated in Bands F and G, according to a study by AXA. By next April, rental homes will need to have a minimum rating of E in England and Wales, unless they meet exemptions, before landlords will be able to establish new tenancies.

At present, the findings of this research suggest that over 200,000 homes are now at risk of being banned from the private rental market next April when minimum standards come into force.

Gareth Howell, managing director of AXA Direct, said:

Our study has found that landlords are making significant investments into improving the energy efficiency of their properties. And this is part of a bigger trend: when we look at our surveys of tenants and landlords over the past five years, we see progress across the board – on security, maintenance and numbers with proper tenancy agreements in place.

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

The deadline is fast-approaching when landlords will need to act, to ensure that the properties they own meet the energy standards required to continue to be lettable.

“The new MEES rules are designed to help improve conditions for tenants, who often end up paying more for energy in homes with lower standards.

“It is in everyone’s interests to ensure that properties meet these new standards, to not only keep tenant costs down but also to prevent longer-term damage to the homes themselves.

Government delivers huge Help to Buy pledge

The Government has announced a major commitment to its Help to Buy Equity Loan scheme, with the intention to invest a further £10 billion.

To date, over 130,000 completions have taken place under the Equity Loan scheme, which assists people with the purchase of a new build home by making a property purchase more affordable initially. The Government provides an equity loan of up to 20% of the property’s value, which is repaid when the home is sold, or after 25 years, whichever comes first.

No interest or repayments are due during the first five years of the loan meaning the homebuyer does not need to save up as much money for a deposit, as they will initially only have to find 5% of the property value. The home must be no more expensive than £600,000.

The popularity of the scheme – and its ability to help people take that first step on the property ladder as homeowners, is a key driver in the Government decision.

It is estimated that the funding will assist a further 135,000 people to purchase their own home by 2021.

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

This represents good news for the thousands of people who want to buy properties but are struggling to find the finances to fund this life-changing event. 

“However, it does not change the fact that there is a chronic housing shortage and more needs to be done to build the new homes needed to meet demand.

“So whilst some people will find home purchase within their financial parameters thanks to Help To Buy (subject to meeting lender criteria and affordability testing), many more will still have to wait until there are sufficient homes available.

“In the meantime, these people will need to live somewhere and the rental market will continue to see high demand, which is good news for landlords providing private rental homes.

Research reveals 26% of tenants choose to rent

A new survey has suggested that whilst 87% of tenants hope to own their home in the future, very few have the intention of buying a property at the current time and over a quarter choose to rent.

According to research from Upad, 24% of tenants could not afford a mortgage, while 26% choose to rent as it fits with their work or education lifestyle, underlining the importance of the rental market and buy-to-let landlords.

Despite the lack of tenants looking to buy property at the moment, only 13% have no desire to ever own a home, while one in five tenants have owned a property previously.

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

The findings from this report outline that over a quarter of the UK population chooses to rent.

“That is an enormous number of people and properties and underlines the significance of the buy-to-let market and the role it plays in the overall housing picture.

“However, the Government has made numerous changes in the past couple of years, which have made it much harder for landlords to let out properties and that has added further stress to the industry.

“It would be good to see the Government recognise the role of the private rental sector – and the very clear need for it; and to make it easier and less expensive for landlords to rent out properties, to meet demand.

19% growth for UK specialist mortgage lenders

New data shows that the UK’s specialist mortgage lenders, offering buy-to-let mortgages and lifetime residential mortgages, have experienced annual lending growth of 19% per year since 2009.

Overall, specialist lending increased more than threefold from 2009 (when it totalled £5 billion) to 2016, when it reached £17 billion per year.

The report from the Intermediary Mortgage Lenders Association (IMLA) suggests that specialist lenders are now in a position of strength following the market’s turbulent past, and are able to provide lending products for the growing number of non-standard borrowers in the UK, who do not meet mainstream lenders’ criteria.

Specialist lenders have enjoyed strong growth since the end of the recession, largely through their focus on classically niche, less well-served areas of the market. Mortgages are not one size fits all products and as such the number of borrowers with non-standard needs is increasing,’ said Peter Williams, IMLA executive director.

“Through innovation and flexibility, combined with strong underwriting standards, specialist lenders have capitalised on the growing demand for products like specialist residential and lifetime mortgages,” he added.

The report outlined that the success of this area of the financial services industry has been one of opportunism, as more mainstream lenders opted to stick to more traditional standard borrowing products and customers, in the aftermath of the financial crisis. The added complexity for lending to less orthodox customers was less appealing to mainstream borrowers and thus created opportunity.

IMLA data indicates that four key products have been the cornerstone of specialist lenders’ business during these growth years; buy-to-let mortgages, specialist residential mortgages, bridging loans and second charge mortgages.

The report suggests the outlook for specialist lenders is positive; market and economic conditions mean demand from ‘non-standard’ borrowers is likely to remain buoyant and therefore specialist lenders are well-equipped to provide the finance they need.

Recent years have seen diversity within the lender market, offering a widening choice of products to borrowers.

Within the buy-to-let industry, the variety of products currently available is greater than it has been for a decade.

Given this array of buy-to-let products it becomes a greater challenge to match the needs and circumstances of the borrower to a product that offers both an appropriate solutions and the best possible saving to the borrower. For this reason, the role of the specialist buy-to-let broker is also anticipated to flourish.

Theresa May issues Conservative boost for council housing

Hot on the heels of Jeremy Corbyn’s Labour plans to put a cap on the amount of rent that private landlords can charge tenants, Prime Minister Theresa May today announced plans for the Government to fix the UK’s “broken” housing market.

Addressing the Conservative Party Conference in Manchester, Mrs May revealed that the Government would look to boost the number of UK council houses. This proposal sits against a background of reduced numbers of homeowners, driven by inadequate provision of housing stock and stagnant wage rises, rendering would-be buyers unable to buy due to a lack of affordability.

Mrs May pledged to take personal charge of "getting government back into the business of building houses", and instructed builders to "do your duty to Britain and build the homes our country needs.

So whether you're trying to buy your own, renting privately and looking for more security, or have been waiting for years on a council list, help is on its way," she said.

That help is set to take the form of an additional £2 billion in Government funding, which it claims will help to unlock an additional £3 billion in public and private investment in housing.

The plans will look at areas of the country where rents are particularly high and will concentrate on delivering social housing, providing rents which are normally 30-40% lower than the market rate.

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

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