Buy-to-let news to Friday, December 22nd, 2017

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Buy to let landlords cast their nets wider

A new report suggests that buy to let landlords may be changing their investment strategies and looking to buy properties further afield.

As residential property prices in England and Wales rose in November (the first time in eight months), there was a suggestion that rising prices in the South West, North West and the West Midlands, were partly down to fresh impetus for buy to let investment.

Mike Richards, director at Mortgage Concept Associates, commented:

“London and the South East were overpriced and I am sure it has to realign itself, and it has been doing.

“I have seen down-valuations – not a great deal, but just a little bit knocked off each time. It is getting more difficult, and I think [this pattern] will continue, slowly.

“The rest of the country is seeing increases, possibly because buy-to-let landlords are looking further afield to the Midlands, the North, Wales and the West Country.”

Demand for London rental properties increases

London rental demand increasesLondon’s appeal for renters was underlined as demand increased significantly in the third quarter of 2017, according to new research.

The average number of tenants applying for new property went up from 7.7 in 2016 to 9.2 this year, Foxtons reported, as some property types recorded lower asking rents.

This was particularly pertinent for studio flats, where there was a 5.6% fall in asking rent to £50.06 per square foot from Q2.

Elsewhere, one bedroom flats saw an increase of 3.2% to £37.97 per square foot, while two bedroom flats also increased, reaching £31.77 per square foot, a rise of 5.6%.

However, the report highlighted that location was also an important factor in London, with all property types in Zone One seeing rents fall.
Conversely, in Zone Two, almost all property types saw rent go up, with the exception of bigger apartments. Studio rents rose sharpest, at 8% year on year, while one bedroom and two bedroom flats increased by 2%. However three bedroom flats and bigger reduced by 1.1%.

Zones Three to Six also saw falling rents across the Capital, with one bedroom flats falling 2.9%, while studio flats fell by 2.6% on average and two bedroom flats dropped 3.5%. The biggest fall was with bigger properties, with three bedroom flats or bigger, seeing a 6.6% reduction in asking price.

The report also indicated that gross yields for flats across London were on a par with 12 months before, while stock levels declined, resulting in a more stable supply and demand position.

Sarah Tonkinson, director at Foxtons, commented:

“The oversupply of properties, created in part by a surge in the number of buy to let property purchases in advance of stamp duty changes in April 2016, has now been absorbed by the market.

“After benefiting from a softening in prices as a result of that oversupply, tenants opted for longer term contracts, and this has helped stabilise the supply demand balance further.”

The Government launches consultation on energy efficiency changes

Consultation launched on MEESThe Government has launched a new consultation which will look into amendments to its new minimum energy efficiency standards and the current rule that enables landlords to exempt their property on the grounds of a lack of third-party funding.

Among the proposals is an idea to introduce a cost cap of £2,500, a reduction from £5,000, on the amount of capital that a landlord would need to invest in an individual property to ensure that an existing property meets new Minimum Energy Efficiency Standards (MEES), which come into effect from April 1st, 2018.

From that date, landlords will be unable to grant a new tenancy or renewing an existing lease on a property with an EPC rating of F or G.

At present an exemption exists meaning improvements cannot be funded fully by central government, a local authority, or any other person other than the landlord.

The National Landlords Association (NLA) responded by welcoming the move as a step in the right direction, but stopped short of fully endorsing the concept of a cost cap.

Another topic under discussion is the Department for Business, Energy & Industrial Strategy’s (DBEIS) proposal to remove the existing ‘no cost to the landlord’ principle by creating a new ‘landlord funding contribution’ component if a landlord is unable to obtain suitable ‘no cost’ funding.

Should these plans receive approval, landlords would be expected to invest in the necessary improvements up to the £2,500 cap, to ensure their property reaches at least an EPC rating of E.

The consultation runs until Tuesday, March 13th, with the Government set to issue its response in the spring, with any regulatory amendments likely in the autumn of 2018 and taking effect from April 2019.

The NLA commented:

“The NLA will be responding to the consultation in due course. While the reduction in the cost cap to £2,500 from the previously floated £5,000 is a welcome move, the introduction of any cost cap is not a policy that the NLA can support.

“We are disappointed that the proposals outlined in the consultation do not include the reintroduction of the Landlords Energy Saving Allowance (LESA), which was scrapped in 2015. The NLA had called for its reintroduction in last month’s Budget as a means to incentivise and encourage energy efficiency improvements across the whole sector, not just at the bottom.

“We have not been alone in this call: the Labour party including the policy in their 2017 manifesto and the Government’s own Committee of Fuel Poverty has recommended LESA’s reintroduction.”

Calls for a specialist mortgage trade body

Call for specialist mortgage lending bodyThe growing role of specialist mortgage experts has been highlighted by the newly-formed Financial Intermediary & Broker Association (FIBA), who have called for the creation of a specialist mortgage trade body.

FIBA is the rebranded name for the former Association of Bridging Professionals, an organisation looking to diversify beyond the constraints of bridging loans, to reflect the changing specialist lending market.

Top of FIBA’s agenda is to improve industry knowledge and skills around specialist mortgages, with training a top priority.

Spokesman Wayne Smethurst stated:

“There is a definite need in the trade body market for people to have more access and more training, knowledge and information about specialist mortgages and products, those who haven’t really got anywhere to go and call their home. That’s why we’re going for this.

“There is a definite need in the market for more information, training and specialist education. As the market has grown and lenders have come back to the market, I think the need has grown. I think it was a matter of time before someone put two and two together and filled the gap.”

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

“There is a growing market for specialist lending and many investors will not be aware of the full range of options available to them, requiring expert guidance from a knowledgeable industry, to understand the choice of products available and to identify the most suitable for their circumstances.

“Certainly I would encourage any specialist lender to up the ante and broaden product knowledge when it comes to training, to help identify client opportunities.”

70% of landlords avoid student letting

70% of landlords avoid student letsNew research has revealed that the vast majority of landlords – 70%, would not let property to students.

A report from SPCE highlighted that 61% of students cited finding and renting accommodation as their primary worry, with landlords indicating a lack of trust and fears over property damage.

The data indicated that two thirds of current university students felt poor communication from landlords and estate agents were a big concern, with 7 out of 10 saying rental accommodation for students is often in a poor, run-down condition.

However, the general consensus among both students and landlords was that a new system providing ratings to tenants and landlords based on previous tenancies, would be a step in the right direction, with 77% of students agreeing to this and 84% of landlords.

Leon Ifayemi, CEO at SPCE, commented:

“Today’s research provides valuable insight into a key section of the property market. Evidently, students and landlords are dissatisfied by the current state of student lettings, underpinned by a lack of trust and communication between both sides.

“It’s interesting to see many landlords refusing to let their properties to students, perceiving them as bad tenants. This couldn’t be further from the truth – with parents acting as guarantors, there’s a very low risk of students not being able to pay rent on time or provide compensation for damages. What’s more, students are also not deserving of lazy stereotypes of them as reckless party animals; they are far more conscientious than that.”

Mish Liyanage, Managing Director of The Mistoria Group said:

“We have seen a large increase in international investors’ appetite for student accommodation. They are attracted to the UK because of the relatively low-cost student property on offer and the excellent net yields that range between 12% and 15% in the North West. Investors have a wide choice of accommodation to choose from, such as HMOs to purpose-built accommodation.”

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

“The student lettings market is a thriving one and one offering sustained demand. Recent analysis from Savills suggested that investment in student property will reach £5.3 billion by the end of 2017, a 17% increase on 2016.

“The Mistoria Group also reported significant year on year growth of 38% in demand for student property in the North West.

“However, whilst demand and returns can be good on student lettings, clearly many landlords need some reassurance that they will receive rent on time and that their property will be looked after.”

Rate roundup

Buy to let rates round-upBelow are the top 3 buy to let mortgage deals, by lowest initial rate, for fixed, tracker and variable products.

This table updates twice daily with the latest deals from a diverse range of specialist and high street lenders. Call our team to discuss any deal or click through for the full range.

Rate Product Monthly cost LTV Lender fee APR
1.39% then 5.00% Fixed for 26 months Fixed for 26 months £115 60% £2,178 4.70% Enquire
1.50% then 5.19% Variable for 24 months Variable for 24 months £125 75% £295 4.78% Enquire
1.49% then 5.00% Tracker for 24 months Tracker for 24 months £124 60% £2,178 4.76% Enquire
1.73% then 4.99% Fixed for 26 months Fixed for 26 months £144 70% £2,239 4.75% Enquire
1.50% then 5.19% Variable for 24 months Variable for 24 months £125 75% £295 4.78% Enquire
1.89% then 5.00% Tracker for 24 months Tracker for 24 months £157 70% £2,178 4.82% Enquire
2.94% then 4.99% Fixed for 24 months Fixed for 24 months £245 80% £1,825 4.94% Enquire
2.89% then 5.19% Variable for 24 months Variable for 24 months £240 80% £295 4.98% Enquire
3.90% then 5.50% Tracker for 24 months Tracker for 24 months £325 80% £500 5.43% Enquire
4.59% then 6.58% Fixed for 24 months Fixed for 24 months £382 85% £3,110 6.73% Enquire
4.64% then 6.58% Variable for 24 months Variable for 24 months £386 85% £3,110 6.74% Enquire

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

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