Buy-to-let news to Friday, November 10th, 2017

Houses of Parliament at dusk

Mayor Khan critical of draft bill impact in London

London’s Mayor Sadiq Khan has been highly critical of the content in the Government’s draft bill on the letting fees ban, announced last week.

Mayor Khan has voiced his concerns that Government needs to address more issues to support the Capital’s tenants, in what is traditionally the most expensive area of the country to live.

Khan was reported to be disappointed that the draft bill on the letting fees ban eventually suggested a six-week cap on rental deposits, after originally proposing this would be four weeks in the Queen’s Speech – and after he and a number of organisations had wanted this to be three weeks.

His concerns stem from the higher rent that London properties command, but which are often rented by people on lower incomes, who need financial support.

According to Khan, many tenants looking to move have to find around £2,000 in upfront costs, which is twice the amount he had recommended and £500 more than the government had suggested.

Furthermore, Khan had wanted to impose a cap on holding deposits, the cost of references or losses in rent, if a new tenant has to be sourced, of no more than one day’s rent, equating to about £50.

However, the draft bill allows the holding deposit to cover a whole week’s rent, which in London is roughly £340.

“While I welcome the fact lettings agent fees paid by tenants look set to be finally banned, something I and others have called for over many years, the caps on deposits and holding deposits are almost meaningless and will do nothing to make renting more affordable for Londoners," said Khan.

“Instead the Government should cap deposits at three weeks’ rent as I argued, raise the penalty for charging illegal fees to £30,000 or a criminal prosecution, and give local authorities extra funding to enforce these new penalties,” he added.

Birmingham’s rental yields grow 24% in 12 months

Birmingham rental income soarsBirmingham’s burgeoning reputation as a buy-to-let investment hotspot for landlords, has received a further boost as a new report reveals rental yields have grown 24% in the past year.

The city’s appeal continues to grow, with a number of high profile infrastructure plans underway and businesses moving to the area and creating jobs, with the knock-on effect that workers need somewhere to live.

Birmingham’s 20-year Big City Plan is set to increase the city core’s size by 25% and at the same time will lead to enhanced transport links, whilst delivering 5,000 new homes and 50,000 new jobs.

Factor in the city’s five universities and over 750,000 students and it comes as little surprise that the private rental sector is in good shape.

The report, released by IP Global, suggests that Birmingham has now joined Liverpool and Manchester, to form a trinity of major Northern cities very much on the up when it comes to attracting property investment and offering an alternative to London, which remains the best ranking city for property investment in the UK.

However, whilst London continues to prosper, the research highlights that the UK’s ‘Second City’ offers greater affordability for buy-to-let landlords, but also crucially, on future returns. Property prices in Birmingham remain lower than at their peak in 2008, although house prices increased by 5.2% between 2015 and 2016, offering the potential for capital growth too.

Commenting on the findings of this report, Andrew Turner, chief executive at Commercial Trust Limited, said:

“The buy-to-let market continues to deliver strong yields for landlords and the student rental market is one that always provides high demand at this time of year.

“Birmingham offers real potential for buy-to-let landlords, as an evolving city, with the benefit of both capital growth and healthy rental income returns. House prices remain a lot lower than in London and the South East, while rents are on the increase due to demand, making the city an attractive investment proposition.

“Birmingham’s house prices could be set to increase significantly over the coming years, particularly given the levels of infrastructure investment that are now taking place in the city. It has been reported that this is starting to attract new businesses to the area and the local economy is being boosted as a consequence.

“Current low interest rates mean that now might be the best time to take advantage of the Birmingham buy-to-let mortgage market as a serious business opportunity.”

PRA rules could lead to a rise in some broker fees

PRA may force broker fees to riseIndustry concerns have been raised that specialist brokers may need to increase fees to reflect the extra work they are having to do, in the wake of the new PRA buy-to-let lending guidelines.

The PRA guidelines have resulted in additional underwriting work for lenders, who have been required to scrutinise affordability in much greater depth, for landlord applicants who own at least four properties.

However, lenders have interpreted the changes differently, resulting in a confused landscape for buy-to-let landlords and some brokers.

From a broker perspective, the second phase of PRA changes has seen a significant increase in the paperwork and administration needed to place a mortgage with the right lender.

The main concern is the potential for delays in processing applications, given the volume of additional paperwork required from clients, combined with the extra administration work. Delays in turn could affect profit margins for broker firms, with the fear that this could lead to a rise in fees from some.

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

“The PRA measures have changed the landscape for broker firms and the volume of work on applications from portfolio landlords has increased.

“As a specialist broker firm, dealing specifically in buy-to-let applications, Commercial Trust has worked closely with our lenders to ensure that we are organised to cope with the additional volumes.

“We have seen an increase in the work involved for portfolio applications, and clients in this scenario should expect applications to take a little longer. We will be briefing clients from first contact with us as to the nature of the information they should have to hand and will work closely with them to expedite a timely completion. We welcome applications from anyone looking to invest in buy-to-let.”

English landlords could face compulsory 5-year electrical checks in private rented homes

Mandatory 5-yearly electrical checks could be on the cards in EnglandEnglish landlords could face extra costs if a call for compulsory 5-yearly electrical safety inspections in England’s rental homes is followed through.

The proposal for enhanced electrical safety standards comes from the Electrical Safety Standards in the Private Rented Sector Working Group report, which has suggested that the Housing and Planning Act 2016 is the ideal platform in which to enforce this change.

According to the report, tenants who are renting privately are more likely to suffer from electrical faults in their homes, than those living in social housing.

This point was borne out in 2014, when a report highlighted that just 59% of homes in the private rental sector had all of the recommended electrical safety features installed, compared to 72% of local authority homes and 77% of housing association homes.

The working group report set out its recommendations, stating:

“The aim of the regulations would be to ensure that the electrical installation is safe for continued use and reduce the risk of death, injury and damage to property from electrical hazards in the private rented sector.”

Mandatory five yearly electrical checks, carried out by a registered electrician, have been in force in Scotland since December 2016, while the Welsh Government is reviewing its position.

The report acknowledged the potential financial impact of any legislative changes, recommending that any changes introduced should take into account the associated costs for landlords or agents.

Average UK rents rise slows in October

Average UK rent rises 0.9%The average cost of rent across the UK continued to rise in October, but the rate of increase slowed to 0.9%.

According to HomeLet’s latest Rental Index, October was the fourth continuous month of year on year rental increases, as the average cost of rent in the UK reached £909 per month.

London saw a modest rise of 0.6% in the 12 months to October, with average rent per month now at £1,556.

The report indicated that 11 of the 12 areas of the UK witnessed annual rental growth, with just the south east failing to build on the previous year.

Perhaps more tellingly, the average growth across the UK for October, is less than half of what it had been in September and August, when figures of 2.0% and 2.4% were recorded. This represents a clear slowing down in rental price increases.

At the same time, the data showed that October rents on new tenancies were lower in all areas of the UK than in September.

The report perhaps suggests that rising rental costs are beginning to create affordability issues for would-be tenants, which in turn is slowing down the number of new tenancies.

New data highlights London’s rental hotspots

London property hotspots revealedInfrastructure regeneration, good transport links and cheaper rents have seen a shift in rental growth prospects for different areas of London, new research reveals.

Bexley has seen the greatest rental growth since 2012, while Newham recorded the lowest, according to research from CBRE.

The company is predicting that London’s population will increase by a further 11% over the next ten years, resulting in the need for another 52,000 home to be built every year to meet the demand that such a rise would create.

CBRE believes that the next “hotspots” for rental growth in the Capital will be Southwark, Camden, Islington and Tower Hamlets, while Kingston, Havering and Barking are expected to see the lowest increases.

Mark Collins, chairman of residential at CBRE, believes that each borough has its strengths and differing factors for why a tenant wants to live there, with Barking and Dagenham currently the most affordable borough and as such, a popular choice for first time buyers:

“Residents will benefit from the ongoing regeneration and the potential price growth this offers,” he said.

Jennet Siebrits, head of residential Research at CBRE, added:

“Regardless of the ongoing political upheaval, London remains an attractive place to buy a property. Its success is down to a variety of factors, such as education, language, time zone, fiscal policy and strong business environment.

“The report highlights the continued importance of regeneration and infrastructure to safeguard the future of London as a thriving home for people from all around the world, opening up relatively affordable pockets of London for buyers and job seekers, and encouraging positive house price growth,” she continued.

The report also predicted strong long-term growth potential for houses prices in the Capital, forecasting 9.1% annual increases, a third greater than the UK average rate.

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

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