“Today’s Funding for Lending Scheme data for Q2 shows that mortgage approvals for home purchases have increased slightly indicating a follow on rise in net lending to individuals later this year.
“Common sense dictates that when you facilitate an increase in demand by making money more available you must increase supply or accept the consequences and in this case it is sky-rocketing property prices in London and the South East. The government needs to consider the easing off of support for London house prices by excluding London and the South East from the second Help to Buy scheme to be introduced next year.
“This will pull back mortgage support in these same regions to moderate demand and at the same time moving support to the rest of the country. The government needs to start making tough decisions on the housing market in order to get construction creating GDP growth whilst avoiding a housing boom in some parts of the country.”
As the Help to Buy mortgage scheme drives up demand, without a correlating increase in supply, property prices will continue to surge, keeping potential purchasers off the bottom rung of the ladder. Buy-to-let specialist Assetz is calling on the government to rethink the implementation of both the first and second phase of the Help to Buy scheme in January 2014 by excluding or reducing availability in London.
Data released on 13th August by the Office of National Statistics* showed that house prices remain stable across the UK but are rising at an above average rate in London (8.1% in just one year). When London is excluded from the equation, prices across the UK only went up by 1.5% annually. Recovery of the property market throughout the rest of the country has not been as strong as in London. For example, the North East and North West saw annual rises of 0.4% and 0.1% respectively.
Stuart Law, CEO of Assetz, commented:
“What commentators should be pointing toward is the easing off of support for London house prices by abandoning Help to Buy in London and the South East. The government also needs to ensure the acceleration of construction in these regions through encouraging more aggressive planning policy in the South at the expensive of NIMBYism, in order to provide a balance to increasing demand, and give more affordability.
“Extending Help to Buy to second homes in the form of a government guarantee as planned in January 2014 will accelerate home building further by freeing up house purchase chains but this again should be concentrated outside of London and the South East. This should provide a satisfactory outcome for most, except perhaps the NIMBYs, by improving supply where prices are under most pressure, pulling back Government mortgage support in those same regions to moderate demand and at the same time moving support now to the rest of the country. The government needs to start making tough decisions on the housing market in order to get construction creating GDP growth whilst avoiding a housing boom in some parts of the country.”
Overseas buyers and local demand from better off families earning above average wages in London have driven up prices there and Government support is no longer needed as builders know they can build and sell well. What is now needed is support to kickstart the rest of the country and get large scale housebuilding there too.
* ONS House Price Index June 2013 (released 13th August 2013).
“Today’s figures from CML yet again highlight that the buy-to-let sector continues to boom. We are seeing more people approaching pensionable age investing in order to bolster their retirement income at a time when the Bank of England indicates base rates and therefore savings rates will stay low for at least three more years.
“While the growth of the sector in London is clear to see, the house price ripple effect is only just beginning now in the North where there are excellent opportunities for investment – particularly in key cities like Manchester, Liverpool, Birmingham and their suburbs. Many Southern investors are broadly unaware of the lucrative yields available in northern market, at prices that represent the beginning of the next cycle.”
“We have seen the age profiles of buy-to-let landlords broadening significantly, particularly over the last five years. Retired and semi-retired people are starting to invest in BTL in increasingly greater numbers since the credit crunch annihilated their income from bank savings accounts with near zero savings rates. This is in contrast to the situation in the last ‘boom’ which saw savvy 20-somethings speculating on property. Now the bias is more towards cash rich 40 to 60 year olds looking for pension provision.”
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1) Can you learn anything from buy to let courses or are they a waste of money? What are the best sources of advice, tips and info for landlords?
“While education in property investment is important, investors should avoid paying significant sums for buy to let courses which are unnecessary and generally don’t teach anything which cannot be found out for free. The fundamentals of buy to let, such as understanding yields, costs and returns, can be learned from free courses or by seeking advice from a property investment company. It is also always worth speaking to local estate agents to assess demand in the local market, the profile of tenants and the kind of yields you can expect to receive.”
2) There is pressure on landlords to make their properties more energy efficient and soon they will have to by law. How is this affecting landlords? Is the energy efficiency of a property something the landlord should pay good attention to when they buy an older property? Are new builds a better bet for this reason? What about reducing other bills a landlord faces – what are the biggest sources of woe for landlords that they have to fork out on and how can they try to prevent that?
“It is estimated that 11% of homes in the private rental sector are rated F and G in terms of energy efficiency and new legislation coming into effect in 2018 will make it an offence to let these properties. Landlords buying older properties will save themselves considerable sums by paying close attention to the Energy Performance Certificate and selecting a property which already has a good standard of insulation in the walls and loft as well as double glazing.
“Landlords who already own properties which need updating should consider using the Green Deal, which enables them to fund improvements to energy efficiency through future bill savings, thereby incurring no additional costs to themselves or the tenants.
“New build properties are the safest bet when it comes to keeping costs low. Insulation in new homes has to meet a minimum required standard and they are fitted with new boilers and appliances which are under warranty, meaning fewer unexpected bills for landlords.”
“Investors need to be very wary of who they are dealing with in the student pod sector. There have been instances of sales agents masquerading as developers, buildings not being delivered and failure to secure tenants and deliver rent to investors, due to professional management companies not being in place.
“Pods are generally sold prior to refurbishment or off plan and usually require full payment up front. Contract clauses also often allow the developer to change the address of the property that investors are buying, meaning a property in Manchester might become a less desirable one in Hull. Failure to let the pod leaves the investor exposed to long void periods and a poor return on investment.
“Similarly student pod investors only purchase a bedroom within a property and have no ownership rights over the living space, kitchen or bathroom, so are entirely at the mercy of the management company which is often owned by the developer. This ‘ransom strip’ can lead to hefty charges to investors from the developer, impacting on yield. Another common misrepresentation by sales agents dealing in student pods is comparing the income per week for a student pod (one of say 5 bedrooms in an apartment) to a prime studio or one bedroom apartment. The two have very different rental levels and whereas pods are usually only let for 42-44 weeks of the year, regular buy to let properties are let on average for 51 weeks. This can reduce quoted 10% net yields for student pods to as little as 5% and only then if efficiently let with 100% occupancy.
“It is surprising how many buyers of student pods fail to appoint an independent solicitor, as they are cash purchasers and do not require a mortgage. A good solicitor is absolutely essential to protect the investor by raising queries on the contract, as well as verifying the developer’s history and credentials.
“The UK student accommodation sector is generally a very sound investment option which we have promoted for 10 years, as it can offer excellent returns. However, our advice would be to stick to student halls of residence where the investor buys an entire apartment with a number of bedrooms alongside a communal kitchen and living area. Be careful to choose a proven and reputable developer and a highly experienced lettings agent, who has a proven track record in the student sector. Alternatively, buy a student room with shared ownership of the kitchen and bathroom.”