LSL PROPERTY SERVICES: SIX IN TEN LANDLORDS PREDICT GROWTH IN TENANT DEMAND NEXT YEAR

  •  58% of landlords predict tenant demand will grow in the next twelve months
  • Four in ten landlords reported growth in tenant demand in last six months
  • Nearly a fifth expect to expand their portfolios in 2014
  • Three quarters of landlords believe now is a good time to buy or sell rental properties

Prospects are bright for the rental sector in 2014, with growing tenant demand boosting confidence among landlords, and rising prices making properties attractive investment opportunities, according to a landlord sentiment survey conducted by LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

In the past six months, 41% of the 2,195 landlords polled reported a rise in tenant demand, with just one in sixteen seeing a fall.  Such growth in demand has been the driving force behind the series of rent rises seen during 2013. The majority of landlords (58%) predict demand will increase further in 2014, with just 10% expecting demand to shrink.

Nearly a fifth (18%) of landlords therefore anticipates growing their portfolio of properties over the coming twelve months, while 16% already expanded in 2013.

David Newnes, director of LSL Property Services, comments: “The rise in house prices is evidence of the underlying buoyancy in the property market and the stabilising of rent rises is an indication of the current healthy state of the rental sector. Landlords are therefore in a prime position to benefit from the strong yields on properties and aspiring buy-to-let investors can be encouraged by the climbing tenant demand, as not only does it signify the excellent long-term investment opportunity, but also demonstrates the continued appetite for rental homes.”

 

“Demand for rented accommodation is strong, exemplified by the fact that the number of lettings, new viewings and applicants are all rising. There are strong foundations for prosperity in the rental sector, fuelled by increased economic optimism and future job creation. Against the backdrop of growing economic stability, more confidence is driving people forward in search of the attractive deals on offer across the buy-to-let mortgage market, which will allow them to benefit from the attractive returns.”

 

Over three quarters of landlords (77%) believe now is a good time to buy or sell rental properties. Of those who think now is a good time to buy, 71% cited attractive property prices and half highlighted the better capital returns on offer compared to other forms of investment, while 47% pointed to strong tenant demand as a key investment driver.

 

MORTGAGE FINANCE REMAINS A STUMBLING BLOCK

Despite the stark improvements in the mortgage market recently, just one in six landlords believes the availability of cheap finance is a key reason for why now is a good time to invest – although this is up from one landlord in eleven in December 2012.  In fact 35% of landlords say that it is more difficult to raise mortgage finance compared to a year ago, highlighting that for some mortgage challenges remain a deeply embedded issue.

David Newnes concludes: “While the level of buy-to-let lending has been rejuvenated and is now climbing out of the doldrums, this is still short of historic levels. Securing mortgage finance is therefore not just a concern exclusive to first-time buyers, but remains a real and serious challenge for many landlords. Lending to first-time buyers and those without large deposits has itself seen a pick up but still has a long way to go, and the proportion of UK households is only increasing. It is the rental sector that will be continually needed to pick up the slack.

 

“Filling the chasm between supply and demand is also reliant on the rising number of buy-to-let investors accessing the affordable mortgages required, thus allowing them to further widen the pool of rental accommodation on offer.”

LSL BUY-TO-LET INDEX: RENTS RISE TWICE AS FAST AS WAGES OVER PAST YEAR

  • Rents rise 1.6% in twelve months – compared to 0.8% annual growth in weekly earnings
  • Average rent in England and Wales now stands at £753 per month, despite seasonal dip
  • Landlords see record 8.9% total return over last twelve months, or £14,592
  • Tenant finances improve in time for Christmas, as proportion of late rent drops to 6.6%

Rents have risen at twice the annual rate of weekly earnings, 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 now stand at £753 per month as of November, up 1.6% compared to November 2012.

By comparison wages have risen by just 0.8% on an annual basis.  Average regular pay before tax stands at £1941 per month, according to the latest official figures.[1]

Rents across England and Wales remain significantly higher than a year ago, despite a recent seasonal drop of 0.7% (or approximately £5) in the month since October 2013.

November also witnessed annual growth in lettings activity. The number of new tenancies agreed across England and Wales increased by 1.5% compared to November 2012. This was despite a slowdown on a monthly basis, with 6.3% fewer new lettings than in October.

David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, comments:Economic reality now resembles the most optimistic dreams of last year.  But for so many households, the dream of homeownership is still relegated to the imagination.

“It’s not just wages.  Savings rates have been swamped by inflation for half a decade – so building up even a 5% deposit is a real struggle.  Help to Buy is having a perceptible impact, with thousands of first time buyers benefiting already.  Yet millions of new households have joined the queue at the bottom of the housing ladder – and private renting is the only tenure to have taken up much slack.”

Rents by region

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

The sharpest monthly drop was in the West Midlands, with rents down 2.6% since October. This was followed by a fall of 1.8% in the South East and a 1.3% monthly decrease in the East of England.

However, the South West experienced rent increases of 1.1% between October and November, while rents in Wales also rose slightly on a monthly basis, up by 0.2%.

On an annual basis, London saw the steepest rent rises – 4.4% higher than in November 2012. This was followed by a 3.4% annual increase in the South West, while rents in the South East are 3.2% higher than twelve months ago.

Meanwhile, rents in the East of England have fallen by 5.5% (or £42) over the last year. This was followed by a 2.8% annual drop in the West Midlands, while rents in both the North East and Yorkshire and the Humber are 2.0% lower than November 2012.

David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, comments: “Economic recovery is spreading throughout the UK.  And the property market is the leading edge of that wave.  As the home purchase situation heats up, the effect on the rental market is even less uniform – with rises accelerating in some areas and slowing in others.  Across the UK, every town and city is its own market, and requires local knowledge.”

Yields and Returns

Gross yields on a typical rental property remained steady at 5.3% in November, 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 8.9% in November. This is up from 8.1% in October – with the increase due to accelerating house price rises. In absolute terms this represents an average return of £14,592, with rental income of £8,243 and capital gain of £6,349.

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 10.5% over the next 12 months, equivalent to £17,294 per property.[2]

David Newnes comments: “Over twelve months the availability and affordability of buy to let finance has achieved a quiet revolution – with a very real effect on the private rented sector.  Demand for homes to rent is still soaring, yet heavy investment by landlords in 2013 has brought rent rises in most areas below inflation.  In 2014, one thing will remain certain – demand from new tenants will continue to grow.  Supply of new homes to rent will be critical in maintaining relatively affordable annual rent rises, compared to rampant house prices.”

Tenant Finances

Tenant finances improved in November, with the total amount of late rent across England and Wales reaching a new record low of £228 million.  Since November 2012 the total amount of late rent has fallen by £20 million. As a proportion, such tenant arrears now represent 6.6% of all rent, down from 7.1% in October, and significantly lower than 7.4% of all rent in arrears in November 2012.

David Newnes concludes: “Homes of all tenures have become more expensive for most people.  That’s partly because the UK is poorer than it was five years ago, with wages only gradually struggling to recover.  But more fundamentally, housing is also becoming more expensive because there aren’t enough homes to keep up with an expanding population.

“Building more homes at a serious pace is the only way to avoid the risk of stagnation in the housing market – the property industry cannot grow by competing ever more fiercely over fixed resources.  But to make new homes affordable they will also need to be purpose built for all tenures.  Private renting has been growing for decades, and new supply will need to cater for the sector for decades to come.”


[1] Office for National Statistics data, updated 18/12/13: http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/december-2013/index.html

 

[2] Assuming house prices change at the average rate of the last three months and they achieve the average yield of 5.3%.

 

Paper Summary: 18th December 2013

Property
A new record 400,000 property owners are now property millionaires, that’s translates as twice as many as five years ago according to Zoopla. The number of homes worth £1 million or more has increased by a third over the past twelve months, thanks to soaring house prices in London and South East. The lack of supply of new homes in the capital was to a great extent responsible for driving forward a further 57,120 over the £1 million mark which equates to 156 new property millionaires a day in the capital throughout 2013, as shown by Zoopla. Prices are still rising according to the latest ONS figures, by 5.5% in the past 12 months, and the rise is even higher in London, jumping by 12%. Marsh & Parsons highlighted that prices are at more than double the rate of other areas , while Prime London continues to be a honeypot for UK and overseas buyers, as demand remains intense. As a result, LSL highlights that first time buyers are still having to leap higher than ever before to join the property ladder.

Personal Finance
Over half of UK shoppers are heading to discount shops, visiting an Aldi or Lidl figures revealed, for the first time ever. More than 13 million used the budget stores in the past three month, up from 46.1% a year ago. As a result all of the big four grocers have lost market share, as the so-called budget shops now make up a combined seven per cent of the total market. Credit crunch bargains are proving attractive across the country, as value continues to be a great incentive. Although Lidl and Aldi may not be as prevalent in London, more common in regions where shoppers can drive to do a food shop, this is likely to change, as more shops are expected to open next year. The type of customers are also said to be changing – those known as ABC1s (the traditional middle classes) make up just 25% of shoppers in 2011. Last year that rose to 41%, proving that Aldi is no longer the store of the cash strapped student.

Economy
Britons believe that securing growth as their top economic priority is more significant than higher wages according to a survey for the Independent. The ComRes survey findings suggest that the Conservatives message on the economy may resonate more than Labour’s campaign on reducing the cost of living. Their competing messages will lead to a fierce battle in the run up to the 2015 election. It’s interesting to note that in a list of important priorities over the next five years from a range of options, at the top was ensuring the economy continues to grow, followed by ensuring wages increase faster than prices, thirdly keeping inflation down and finally reducing the deficit. Now that the economy is growing the Tories will take comfort in the fact that that the findings show people view growth as the top factor.

Recruitment
More than half of the UK is said to be ripe for fracking according to a new Government report by engineering giant Amec, that shows a shale gas boom could create up to 32,000 new jobs. These plans have been met with mixed responses with some arguing it will cast a dark shadow over many communities in Britain who could now face the threat of fracking in their backyard. A new licensing round to enable firms to search for shale gas will begin in the summer. There could be between 14 and 51 vehicle movements to a fracking site each day over a 32 to 145-week period which could have a serious impact on traffic congestion, noise or air quality, depending on existing roads, traffic and air quality.

LSL / Acadata Wales HPI News Release

Welsh house prices rise by £1,125 in October

  • Average house prices up £3,137 since start of 2013
  • Sales at highest level since December 2007
  • New record average price in Cardiff, up 7.4% annually

House Price

Index

Monthly Change %

Annual Change %

£154,696

240.0

0.7

1.4

Richard Sexton, director of e.surv chartered surveyors, part of LSL Property Services, comments: “The housing market in Wales has turned over a new leaf and is clearly entering a new phase, with pent up demand and strong competition driving house price growth and rising sales. The market is powering ahead, with prices increasing by £1,125 compared to September, representing the third monthly price rise, while prices are up by £3,137 since January 2013. New buyer enquiries, sales and price expectations are all above the three-month average illustrating the strong headway being made.

 “Sales in particular are now standing at the highest level since December 2007, and momentum is building further – thanks to the boost in consumer confidence and the improving economic picture. Now that mortgage rates have dropped to record lows, aspiring homeowners are starting to have more chance to put together the money required for a deposit. As a result there are bursts of first time buyers pouring into the market with much more zeal, with Wales has seen a higher loan-to-value ratio than elsewhere in the UK. While there’s an improvement in the home movers sector of the market too.

“First-time buyer homes are proving particularly popular in Cardiff. Prices in the capital are up 7.4% on the year, setting a new record price, while many other parts of Wales remain more subdued. Without doubt, Cardiff is a different kettle of fish from London and South Wales is no South East of England, but as a whole the housing market in Wales is making strong strides forward nonetheless. Regionally however, some areas do differ more than others in terms of performance due to their local economies. Wage growth is still slow, and across Wales this will prevent prices from rising too quickly.

“What’s key is that we see steady, house price growth to ensure sustainable growth. When it launches on 2nd January, the Help to Buy Wales shared equity scheme will provide a new opportunity for first- time buyers and existing home owners on new-build properties. But as the scheme is geared up at new-build properties, which represent only a smaller proportion of total housing sales, we expect the scheme will not – by and large – drastically affect overall prices.

“However house-building in Wales is still below pre-recession levels and this supply remains an area that needs to be addressed in order to continue the positive growth. While, the UK Government’s decision to withdraw the Funding for Lending scheme indicates that the more recently announced Help to Buy schemes are offering significant support to the sector, more can be done. In the coming year much will be determined by the development of the jobs market in Wales.”

Property Valuations up by a Third

Valuations activity has grown by one third over the last year, according to chartered surveyors Connells Survey & Valuation.

The total number of valuations conducted in November saw annual growth of 33%, despite a 5% monthly seasonal slowdown when compared to October.

John Bagshaw, Corporate Services Director of Connells Survey & Valuation, comments: “Despite a slight monthly dip, progress since the start of the year has truly transformed the housing market, and cautious optimism for 2014 seems more appropriate than most would have hoped for even a few months ago.

“Activity is pumping through the arteries of the property market once again. Both phases of Help to Buy are now having some impact, and economic life is seeping back – even to the outer corners of the UK.”

The fastest annual growth was in remortgaging activity, up by 65% since November 2012. Remortgaging has also increased on a monthly basis, up by 1% since October, in defiance of the seasonal trend.

John Bagshaw continues: “Lower mortgage payments are helping millions with their monthly finances. Remortgaging has boomed for the last year – partly as better deals with lower rates have entered the market, and partly as many households look for ways to cut monthly costs and make ends meet.

“As we approach the New Year, the question on everybody’s lips is how long mortgage rates can stay so low. But all indications from lenders are that it will be some time before monthly payments start to rise. In the meantime, remortgaging is helping many households achieve the relative security of fixed-rate packages.”

First time buyer activity was the section with the second fastest annual growth. Valuations on behalf of first time buyers outnumbered November 2012 by 40%, despite a 7% slowdown compared to October. Meanwhile, valuations for existing homeowners looking to move have seen annual growth of 16% after a monthly drop of 8% from October.

John Bagshaw comments: “The property ladder is no longer broken. It’s still a difficult climb – but finding a first home and moving up the ladder is finally getting easier. There are still stumbling blocks, such as the lag between activity in estate agents’ offices and activity on building sites. But the market for new buyers and second-steppers alike is now alive and kicking.”

Buy-to-let activity saw the sharpest seasonal slowdown, with 11% fewer valuations than in October. However, buy-to-let valuations are still up 10% on last year and 94% ahead of levels seen in 2007.

John Bagshaw concludes: “Buy-to-let stands out from the crowd only because of the rip-roaring success of other sectors. Yet – while remortgaging has benefitted from Funding for Lending, and a raft of special measures for homebuyers are taking the property market by storm – buy-to-let has shown substantial growth primarily on its own steam.

“While buying a home is more achievable than it has been for years, many still face significant challenges. In the last year, landlords have capitalised on current market conditions by providing homes for those who are still struggling to get onto the property ladder.”

News Headlines – Thursday 12th December 2013

Business/Economic
Lloyds Banking Group and RBS have been fined a total of £90m –the former for serious failings in its sales practices, and the latter to settle accusations that it breached US sanctions. The FCA was particularly critical of the structure of targets and bonus arrangements that involved sales people being potentially demoted with a cut in salary of up to 50% if they failed to hit targets.

Property
The number of first time buyers has surged by three quarters over the past year as a surge of activity in the housing market pushes prices even higher. Haart revealed that the number of the first time buyer registrations had risen 78.4% in November 2013 compared to the same month last year. Both Haart and Zoopla say that average house prices in the UK have risen over £10,000 during the year, soaring way head of growth in typical wages.

The energy minister has indicated that the Government could defy an official recommendation that it must meet its green energy targets for the 2020s. Michael Fallon described the report as merely ‘advice.’

Personal Finance
Families are having to spend almost £500 more a year on housing and energy bills than a decade ago, forcing cutbacks in other areas to make ends meet. The ONS found that last year families spent an average £68 a week on rent, energy bills, and other housing costs such and maintenance and repairs, up from £59.20 in 2002.

Recruitment
The treasury has confirmed maternity pay will be protected after it was revealed by David Cameron that it would be lumped in with the welfare spending due to be capped in next Spring’s Budget. Francis Elliott, Times, p10; Shadow childcare minister Lucy Powell is expected to say that employers wrongly see mothers as ‘scatty and clock watching,’ as they fail to understand that they have already done a day’s work before they leave home. Powell is to call for a revolution to overcome prejudices faced by working parents.

News headlines Wednesday 4th December 2013

Economic/Business

Six city insurers (L&G, Prudential, Aviva, Standard Life, Friends Life and Scottish Widows) have announced a major investment into UK infrastructure projects, committing £25bn over the next five years. This will put the bellows under the government’s national infrastructure plan containing £375 billion worth of schemes financed by government and private investment. The UK will also sell its share in Eurostar.

Personal Finance

Britons are in top three countries for leaving big inheritances to their children more than any others in the western world according to research from HSBC. Two thirds expect to leave something to their families with an average value of £185,000 well above next ranked country France. Only Australian and Singaporean parents expect to leave more.

Property

The Office of Fair Trading is to investigate the residential property services market after a sharp rise in complaints of overcharging. Five million people live in leasehold properties. The Residential Managing Agents blamed the problems on the fact that the industry was unregulated.

Recruitment/Employment

A jobs bonanza is expected in the run up to Christmas as retailer jobs have risen by nearly 50% last month compared to November 2012, construction and property jobs are also up 69% for the same period