Rent rises slow by half over course of 2013

• Rents rise 1.5% annually, down from 3.2% rise twelve months ago
• After a 1% monthly fall, average rent in England and Wales now stands at £745 per month
• Landlords make average annual return of over £14,000 as house price rises accelerate
• Tenant finances suffer over festive period, as proportion of all late rent rises to 9.7%

Annual rent rises have halved over the course of 2013, according to the latest Buy-to-Let Index from LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

Average rents across England and Wales have risen 1.5% in the past year, to stand at £745 per month in December.

However, this annual rise is half that of a year ago. By comparison, rents increased by 3.2% in the year to December 2012.

On a monthly basis, rents have seen a seasonal drop. The average rent across England and Wales fell by 1.0% (or approximately £8) between November and December.

Despite a winter slowdown, December witnessed annual growth in lettings activity. The number of new tenancies agreed across England and Wales increased by 7.7% compared to December 2012. However, on a monthly basis there were 12.7% fewer new lettings than in November.

David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, comments: “Very gradually, the clouds are clearing for tenants. Households have suffered from the most painful recession in living memory, but it’s clear we’re now coming out the other side.

“By investing heavily in the supply of more homes to rent landlords have played a pivotal role. Now it remains for the rest of the economy to lift real earnings, and by so doing, lift even more households out of trouble. But prospects look good. Early indications show wage expectations are starting to look up – and general inflation is under control again. If this can take hold, more prosperous tenants will make for a more prosperous private rented sector in 2014.”

Rents by region

Seven out of ten regions saw rents fall on a monthly basis between November and December, in line with a monthly fall across England and Wales as a whole.

The sharpest monthly drop was found in the South East, with rents down 2.0% since November. This was followed by a fall of 1.9% in both London and Wales.

However, the North East and West Midlands experienced rent rises on a monthly basis – up by 1.5% and 1.4% respectively. Rents in the South West also rose slightly on a monthly basis, up by 0.7% between November and December.

On an annual basis, London saw the steepest rent rises, up 4.0% from December 2012 (or £44 in absolute terms). This was followed by a 3.2% annual increase in the South West, and a 2.5% rise in the South East.

However, some regions experienced annual falls. Rents in the East of England fell the most, down by 4.4% (or £33) over the last year. This was followed by a 2.7% annual drop in the West Midlands, and with rents in Yorkshire and the Humber 2.1% lower than in December 2012. Meanwhile, with zero annual change, rents in Wales have returned to the same level as twelve months ago.

David Newnes comments: “The difficulties and frustrations of buying a home are far from uniform across Britain – or even from one town to the next. And the complexities of each local rental market reflect that. However, slower but sustainable annual rent rises are the order of the day in most areas. Local knowledge will be valuable, but improved affordability is good news for tenants and landlords alike.”

Yields and Returns

Gross yields on a typical rental property remained steady at 5.3% in December, consistent with the past three months. However, taking into account capital accumulation and void periods between tenants, total annual returns on an average rental property rose to 8.8% in December. This compares to 8.3% in November – with the increase due to accelerating house price rises. In absolute terms this represents an average return of £14,372, with rental income of £8,189 and capital gain of £6,183.

If rental property prices continue to rise at the same pace as over the last three months, the average buy-to-let investor in England and Wales could expect to make a total annual return of 6.6% over the next 12 months, equivalent to £11,234 per property.

David Newnes comments: “Steadier rent rises, and the usual seasonal dip over the winter shouldn’t put off anyone considering a buy-to-let investment. Returns have picked up considerably over the last six months, underpinned by solid rental yields and boosted by rejuvenated chances of capital appreciation. Rents will keep rising on an annual basis for the foreseeable future, while buy-to-let mortgages are still becoming more available and at more affordable rates. Supply of housing is still seriously restricted in the UK, so much-needed investment looks set to be handsomely rewarded as demand is driven further by an economic pick-up in 2014.”

Tenant Finances

Tenant finances suffered a setback in December, with the total amount of late rent across England and Wales reaching £330 million, up £102 million since November 2013. As a proportion, such tenant arrears now represent 9.7% of all rent, up from 6.6% in November, but still lower on a yearly basis than the 10.1% seen in December 2012.

David Newnes concludes: “While general inflation is back under control, and rents are rising even more slowly than this, household budgets have still been stretched and squeezed from every direction.

“The culprit is wages, which haven’t kept pace with the rising cost of living for years, and the underlying cause is the biggest economic storm for nearly a century. Landlords have invested heavily in new homes to rent, which has helped keep rent rises below inflation. But this can’t be relied on forever. A lack of house building could be the next serious crunch on the horizon, and this fundamental restriction on places to live needs even more attention.”

 

Late Rent Lowest Since 2008

• Levels of late rent healthiest since 2008 – tenant arrears drop by £50 million in October
• Comes despite new high for rents across England and Wales – at £758 per month
• Rents rise 0.2% in month since September, up 1.9% from a year ago
• Demand for tenancies remains strong, up 7.4% since October 2012

Tenant arrears are at their lowest since 2008, despite a new record for rents across England and Wales, according to the latest Buy-to-Let Index from LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

Average rents across England and Wales rose to £758 per month in October, after a monthly increase of 0.2% (or approximately £1) since September.

Annually, this leaves rents 1.9% higher than October 2012 – and at a new all-time high.

October also saw lettings activity accelerate on an annual basis. The number of new tenancies agreed across England and Wales increased by 7.4% compared to October 2012. This was despite a minor slowdown on a monthly basis, with 1.6% fewer new lettings than in September.

While as a whole rents across England and Wales rose on a monthly basis, seven out of ten regions saw rents fall between September and October.

The fastest monthly fall was in the West Midlands, with rents down 3.6% since September. This was followed by a fall of 2.4% in the East Midlands and a monthly drop in Yorkshire and the Humber of 1.7%.

However, the South East experienced rent rises of 2.4% between September and October, while rents in the South West rose 1.5%, and London saw rents rise on a monthly basis by 1.3%.

On an annual basis, London saw by far the sharpest rent rises – 4.9% higher than in October 2012. While this was followed by a 3.1% annual increase in the South East, Wales matched this figure, with Welsh rents also 3.1% higher than a year ago.

Meanwhile, rents in the East Midlands have fallen over the last year by 3.9% (or £30). This was followed by a 1.5% annual drop in the North East, while rents in the West Midlands are now 1.2% lower than in October 2012.

David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, comments: “At a time when a seasonal slowdown would usually be expected rents are up again. The lettings market appears to be experiencing an extended Indian summer. Normally we can expect the rush of early autumn to fade into a late autumn hibernation. Even as the nights draw in, demand for homes to rent seems unabated, and still well ahead of a year ago. While buying a home is certainly getting easier, it’s the private rental market which is taking the strain for the majority of new households. With below inflation rises it is renting which is still relatively affordable in the face of struggling wage growth and rock bottom savings rates.”

Gross yields on a typical rental property remained steady at 5.3% in October, the same as in September. However, taking into account capital accumulation and void periods between tenants, total annual returns on an average rental property rose to 9.7% in October. This compares to 8.4% in September – with the increase due to accelerating house price rises. In absolute terms this represents an average return of £15,837, with rental income of £8,277 and capital gain of £7,560.

If rental property prices continue to rise at the same pace as over the last three months, the average buy-to-let investor in England and Wales could expect to make a total annual return of 14.5% over the next 12 months, equivalent to £24,921 per property.

David Newnes comments: “Rents are still rising, but the pace of change is stabilising – a sure sign of health for the lettings market. Even before the latest wave of price rises, plain rental yields are stable and set to grow. Moreover, with tenant finances improving, those yields on paper will be more easily realised. Yet on top of rental income, surging capital accumulation is delivering another source of confidence. As prices rise, not only does the importance of a relatively affordable rental market increase, but the incentives for landlords to expand their portfolios are growing too.”

Tenant finances saw a rapid improvement in October, with the total amount of late rent across England and Wales falling by £49 million since September – to £245 million. As a proportion, this represents 7.1% of all rent, down from 8.5% in September. On an annual basis tenant arrears have also improved, with the total amount of late rent down by £28 million since October 2012, and also down as a proportion on an annual basis, from 8.1% of all rent in arrears in October 2012.

October’s measure of tenant arrears – at 7.1% of all rent – represents the healthiest month for tenant finances since LSL began recording this data in November 2008. During that month five years ago, 13.1% of all rent in the UK was in arrears.

David Newnes concludes: “Until we can boost homebuilding to the tune of an extra 200,000 a year, rents will keep rising on an annual basis. Yet annual rises are still below inflation. Without a doubt households don’t have cash to burn at the moment. So the fact tenants have paid down late rent to such an extent is testament to the professionalism of landlords, the availability of advice for tenants, and the stability of the entire industry.

“The first rung of the housing ladder is still a big step up. Despite a healthier circulation of mortgages, even a 5% deposit is fast becoming a challenge for many would-be first-time buyers. For the foreseeable future a healthy private rented sector will be as critical for the UK economy as it is for those besieged every month with other household bills.”

Remortgaging at Six Year High

Remortgaging activity in 2013 is the highest it has been for six years, according to chartered surveyors Connells Survey & Valuation.

In just the ten months to October, the number of remortgaging valuations arranged stands 9% ahead of the previous annual record, set in 2007.

In October itself, remortgaging also saw the fastest annual growth of all sections of the valuations market. October saw the number of remortgaging valuations up 55% since October 2012. This was despite a 26% monthly fall from September’s seasonal peak.

John Bagshaw, Corporate Services Director of Connells Survey & Valuation, comments: “Despite signs of economic growth, many in the UK are still coping with a fall in real wages. As a result, household finances are still feeling a serious strain, despite the renewed sense of economic optimism.

“So given the current record low interest rate, remortgaging can provide a real opportunity to boost the monthly sums. Even since a year ago, remortgaging interest rates have fallen, and the choice of deals on the market has dramatically improved.

“While economic growth will eventually feed into wages, there may be a long wait until this happens. So – for the time-being at least – lower mortgage payments will continue to provide a vital buffer for many households.”

A similar trend was reflected in buy-to-let activity, with 42% more valuations for potential landlords than a year ago. Again this was despite a seasonal fall of 25%.

Meanwhile, the valuations industry as a whole witnessed 39% annual growth in October, on the back of a strong performance in every sub-sector, and despite a 22% monthly fall.

John Bagshaw comments: “Buy-to-let activity has continued to gain ground over the last year. Alongside remortgaging, this has provided a welcome chance for lenders to balance their lending portfolios with more loans at lower loan-to-value ratios – and an extra boost for the valuations industry. Moreover, buy-to-let activity is still being driven by solid demand from landlords. With many people still priced out of buying property, we expect this area of activity to keep growing for the foreseeable future.”

First time buyers have also seen a sharp improvement since last October – requiring 37% more valuations than a year ago. Compared to this autumn’s seasonal peak, new buyer activity also fell by less than the entire market, down by 20% from September.

By contrast to remortgaging activity, valuations for homeowners looking to move saw the slowest annual growth – up 29% compared to October 2012. However, this section of the market experienced the smallest seasonal slowdown compared to September 2013 – falling just 18% on a monthly basis.

John Bagshaw concludes: “We’re seeing clear movement further up the property chain, and progress is accelerating. Ideal conditions for landlords and remortgagors, combined with a razor sharp focus from the government on first time buyers, means these areas have been leading the charge. However, that momentum is also proving fruitful for second steppers and beyond. As the general recovery continues, the ripples from the cutting edge should spread across the entire industry.”

Thursday 10th October

UK Economic News

The wobbly recovery takes a double hit from flat figures as disappointing trade and manufacturing figures are revealed. British factory output has its biggest monthly fall for a year in August sending industrial production down 1.1 per cent say ONS stats. Although the figures raise doubts on the strength of the recovery, the Bank of England quarterly credit conditions poll indicates that banks increased their lending to businesses in the three months to September.

Property News

Manchester has been rated the most “vibrant” city centre outstripping London according to research from Experian, showing a surge of young professionals and students moving to the former industrial cities of the north and Midlands. Districts of London, including Kensington, Chelsea and Richmond still account for six of the top 10 but there are signs than cheaper regional cities are gaining ground.

Help to Buy still creating headlines with Paul Smith from Haart the UK’s largest independent estate saying that the interest is so great that he predicts lenders will need to put a cap on the amount they lend under the scheme.

RBS’s ‘bad bank’ is to offload 1,300 homes ranging in price from £4m to £40,000 in an attempt to sell off its £3.2bn distressed property portfolio. Held in a subsidiary called West Register  around 80 per cent of the properties are worth less than the UK average home price of £242,415 according to analysis from Zoopla. The portfolio includes vast quantities of land and commercial property assets including top London office blocks, 100 hotels and pubs, a Norfolk pig farm and care homes.

 

Bridging loans set to outperform £2 billion prediction

• Bridging industry on track to provide £2.1 billion in gross lending over course of 2013
• In second quarter, gross lending already hits annualised rate of £1.97 billion
• Industry lending volumes up 30% in twelve months

The UK bridging industry is on track to provide borrowers with over £2 billion in short-term secured finance by the end of 2013, according to the latest West One Bridging Index.

In the second quarter, industry gross bridging lending was £492 million, or an annualised rate of £1.97 billion. In the twelve months to June, gross bridging lending was £1.76 billion.

Annual lending has grown by 9% since the first quarter, and has grown 39% since the second quarter of 2012.

At the average rate of the last 12 months, industry gross lending will total £2.1 billion in 2013.

Duncan Kreeger, director at West One Loans commented: “Our £2 billion prediction for this year was labeled out of date when mortgage lending recovered slightly.  Now it looks like an underestimate.  That’s because of the different culture in the bridging industry – we’re not afraid of the projects that deserve real investment.

“Rather than maintaining a dusty balance sheet of long-term mortgages, the bridging industry is financing real, practical and dynamic projects.  Where mainstream lenders are still too afraid to tread, and find themselves held back by capital adequacy rules, this industry is giving developers, landlords and small businesses the loans they need.

“In 2012, bridging provided over £1.5 billion of these loans to people who needed them.  It’s encouraging that the industry is on track for an even more important milestone this year. While banks are cutting costs to raise returns for their shareholders, we’re investing for growth – and lapping up market share in the process.”

The amount lent has grown on the back of both higher volumes and larger loans.  Loan volumes grew by 10.8% between the first and second quarters. On an annual basis, this puts the number of loans advanced by the industry 30.4% higher than the number of loans in Q2 2012.

Meanwhile, the size of the average bridging loan was £405,000 in Q2, compared to £397,000 three months earlier. This represents quarterly growth of 2%, leaving loans in Q2 10.1% larger than in the same three months of 2012.

Duncan Kreeger comments: “The worst of the financial crisis could be over, but the long-term implications are only just becoming clear.  SMEs are still largely ignored by high street lenders, despite having solid collateral and reliable business plans.

“Part of filling that gap is providing more loans – and part is lending larger, ambitious amounts when required.  We’re doing both those things for SMEs.

“Meanwhile, property prices are on the rise which is great news for borrowers looking for greater returns on their equity. But property development is still at stall speed compared to normal levels, and only the plainest vanilla property developments can get finance from the high street.  We’re stepping in where a project looks sensible, lending against the real value of a development and considering risk in individual terms rather than applying a one-size-fits-all policy like the big banks.

“Making the right decision pays off for our investors, and means entrepreneurs and developers can avoid the stampede of herd mentality from the big lenders.  That breathing space is helping to prevent five years of credit crunch turning into a full lost decade.”

Loan-to-value ratios have continued to grow. The average loan ratio in the second quarter was 46.4%, up slightly from 46.2% in Q1. However, this still leaves average LTVs just below the 46.5% seen in Q2 last year.

Duncan Kreeger continues: “Security allows the reach and ambition that the bridging industry exists to provide.  But more reach and more ambition is always welcome when the circumstances are suitable.

“Higher LTVs are a vote of confidence in our borrowers – their finances and their businesses.  And the latest pick up in loan ratios matches the long-term trend to more of that optimism.” 

Interest rates in the second quarter were slightly more competitive. The average interest rate over the three month period was 1.18%, compared to 1.24% in the first three months of the year.

On an annual basis, rates are also marginally lower. In the year to June the average interest rate on a bridging loan was 1.27%, slightly lower than an average of 1.33% in the preceding twelve months.

Mark Abrahams, director at West One Loans, explains: “Greater competition is expanding the reach and effectiveness of the bridging industry.  That’s good news for borrowers who need finance quickly at the best rate.  But it’s also good news for lenders who want to reinvest quickly, with a wider choice of potential deals.”

Returns for investors in the bridging industry remain around six times those available from traditional ten year government bonds.

This is typical of the comparison with other asset classes, for example, alternative equity investments.

Recent research by West One Loans showed bridging loan investments beating yields in the FTSE Alternative Investment Market by a factor of ten.

Mark Abrahams comments: “It seems bonds of all types are now more volatile than previously imagined.  By any measure, the bond markets are far from the safe bet they used to be.  And meanwhile, equities seem to go into reverse when good economic news comes out – hardly a good investment during a recovery.

“Worldwide, the economy is finally weaning itself off emergency government support and starting to stand on two feet.  As that process accelerates, more investors will be looking to get involved in real economic activity at the coal face of the recovery, rather than squirrelling their investments away in ex-safe havens like bonds.

“The sort of SMEs we lend to will be the medium-sized to large scale companies of the next decade, while property developers are providing the premises and homes to make that recovery a reality.  So it’s not surprising the bridging industry is the front-line of the recovery – with peer-to-peer lenders leading the charge.”

News Headlines: Sunday 11th August

Economic

Britain’s economy is outpacing all its main competitors including America, according to combined data from Markit and JP Morgan. Britain’s economy is growing at an annualised rate of 2.4%, compared to 1.7% annual growth in the USA and an on-going recession in the Eurozone. Many economists are now upgrading their forecasts for this year and next. “This recovery is broad, and the broader it is, the more sustainable it is”, says Rob Dobson, senior economist at Markit. (Sunday Times p.2)

Personal Finance / Property

With official interest rates at record lows, and now set to remain so until an improving economy brings the unemployment below 7%, savers are bracing themselves for what could be a three more years of a 0.5% base rate. If interest rates did rise in 2016, in total that would mean a seven year wait for higher returns. Sunday Times Money has a full feature on what impact below-inflation returns could mean for savers, focusing on the move into property investments, and the rise of Buy-to-Let borrowing to leverage these deals. Buy-to-Let house purchases are expected to hit 85,000 this year and 100,000 in 2014, fuelled by strong rental yields, currently averaging 5.3% according to the LSL Buy-to-Let Index.

David Whittaker of Mortgages for Business said, “In the last couple of days we have seen a surge in calls for savers looking for advice on getting into the buy-to-let market. Clients want a better return ion savings than they would get by sticking their savings in the bank.” (Sunday Times Money p.1)

Recruitment

Unemployment could fall to a new low in this week’s jobless figures. According to IHS Global Insight the official figures on Wednesday will show a fall in unemployment of 38,000 to a 25 month low of 2.48 million. They also expect a rise in employment levels – predicting 52,000 more people in work to take the total number of people employed in the UK to 29.8 million. (Sunday Express Financial p.1) Tara Ricks, managing director of Randstad Financial and Professional, says “the jobs market is humming” and that this will help “stoke the fires of the economy”. In his column, the Express’s Geoff Ho is more cautiously optimistic saying we should still “keep the champagne on ice” for the time being, highlighting youth unemployment, which is still stubbornly high.

New Headlines – Friday 9th August

Property

Lending to landlords had surged to a near five year high with £5bn of buy to let mortgages advanced in the second quarter of the year. This represents a rise of 21% compared with the previous year and The announcement that the low base rate is likely to continue until 2016 is forcing savers to look for more profitable investments, in particular property rentals. The news comes as LSL figures published today show house prices have risen by 2.6% over the past year. However, it is not all bad news for first time buyers as e.surv figures show a 56% rise in high LTV lending over the past year.

Personal Finance

The baby boomer generation is reaching pension age at record rates according to the ONS. It represents a major cash outflow for the government with pension payments rising by nearly £18bn since the first baby boomer women drew their pensions at the age of 60 in 2005. Over 65s are one of the richest demographic groups and over 50s accounted for nearly half of all household spending in 2012.

Recruitment

More women should be appointed to work at the Bank of England according to Mark Carney. The Governor of the Bank has told George Osborne the lack of women in senior roles is “anomalous.” There are currently just two women in the top ranks of the bank, and the MPC has had no women serving on it for three years. It comes after Carney agreed to put Jane Austen on the new £10 note at the start of July.

Corporate

Tesco’s retreat from overseas expansion continues as it merged its Chinese operation with the state owned rival. It’s 131 store network in China is to be amalgamated with Vanguard, following the closing of its Japanese and American businesses. Last year, growth in China fell 1 per cent compared with the previous year – noted as an ominous sign in such an investment hungry country by Marcus Leroux in the Times. Chief Executive Phillip Clarke is expected to focus more on the UK business, revamping stores in its home market following the move.

Stuart Law, CEO of Assetz, comments on today’s CML report on the buy-to-let sector:

“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.”

Stuart Law, CEO of Assetz, comments on the changing profile of buy-to-let landlords:

“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.”

New 5 year fixed rates from 4.88pc at Keystone Buy to Let Mortgages

 

Keystone Buy to Let Mortgages has comprehensively improved its offering with new products, rate and fee reductions, and criteria and service enhancements.

 

Responding to a call from investors with larger deposits, Keystone has introduced a series of five year fixed rate mortgages at 70% loan to value starting at a competitive 4.88%.

 

Existing five year fixed rates at 75% LTV have been reduced by 0.40%. Similarly, three year fixed rates at 75% LTV have been reduced by 0.15%.

 

Commenting on the new products and rate reductions, managing director, David Whittaker said:

 

“We’ve worked hard with Aldermore Bank (which provides the funding line) to come up with a stand-out series of five year fixed rate products priced below 5%. It makes them really competitive particularly for landlords that sit outside mainstream buy to let lending criteria.

 

“The price reductions on the existing fixed rate products demonstrate how the gap between three and five year cost of funds has narrowed. The new five year rate is particularly good for investors who like the security of locking in for a longer period of time.”

 

Keystone has also reduced its lender fee by up to 0.50% on the products designed for multi-unit and HMO properties, and applications by limited companies. All fees in the Keystone range can be added to the loan amount on top of the LTV allowing investors to maximise borrowing.

 

From a service perspective, Keystone has increased the number of solicitors on its panel with the appointment of Russell & Russell and changed its title indemnity insurance to speed up the completion time for remortgages.

 

Rob Lankey, managing director of Commercial Mortgages at Aldermore said:

 

“We are delighted to welcome Russell & Russell to the solicitor’s panel; it will certainly help with the rise in applications. Similarly the new title indemnity insurance will help Keystone provide a quicker, more efficient service to brokers by reducing the time required for searches and paperwork on remortgages.”