FOUR IN TEN LANDLORDS EXPECT TO RAISE RENTS OVER NEXT 12 MONTHS

LSL logos colour redefine

  • 42% of landlords expect to increase rents in the next twelve months
  •              One third expect to increase rents by over 1% in 2014
  •              Average estimate of 3.7%, down by 0.9% compared to December 2012

Four in ten landlords anticipate they will raise rents in the next year, 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.

Overall one third of landlords expect they will raise rents above 1% in the next twelve months, with an average estimate of 3.7%, down by 0.9% compared to December 2012. Currently, average rents are rising at an annual rate of 1.5%, according to LSL’s latest Buy-to-Let Index.

Out of those that expect to increase rents, 56% indicated they will do so to cover the cost of inflation. While conversely over half (57%) expect to leave rents unchanged in 2014.

David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains, comments: “Even with an increase in rental properties available, demand in the private rental sector continues to outstrip supply in many areas, especially in London. In the months ahead, this will enable landlords to push up their rental prices when letting their properties, putting a stop to inflation from eating into their rental income. This is underlined by the fact that covering the cost of inflation is the main reason cited by landlords expecting to increase rents.

“With demand rising, greater emphasis must be on the supply of homes. While the government plans outlined are a welcome move, this is only the start of the long-term solution.”

With current yields at 5.3%, property investment is proving to be a worthwhile alternative to historically low annuity yields and a volatile stock market. Taking into account both capital accumulation and void periods between tenants, total annual returns on an average rental property increased to 8.8% in December, compared to 8.3% in November, reflecting the growth in house prices.

David Newnes, director of LSL Property Services, owners of Reeds Rains and Your Move, comments: “Rising rents are delivering strong yields to investors, making a powerful case for the rental market for those in search of a beneficial, long-term investment.

“However buy-to-let investment is not a license to print money, and it requires the same level of research and planning as any other business investment. The success of the investment depends on the property remaining occupied to deliver ongoing rental income. Before taking the plunge it is important to be aware of factors such as the location of the property, which can determine the level of tenant demand. For instance, those nearest to transport hubs will usually be of the highest demand, especially in larger cities like London.”

FALLING VOID PERIODS

December experienced annual growth in lettings activity, with new tenancies agreed across England and Wales up by 7.7% compared to December 2012. As a result, void periods in private residential property in the UK have fallen, helped by this solid tenant demand. As the UK lettings market powers ahead in 2014, landlords shall continue to benefit from falling void periods, while tenants will face intense competition for the best properties.

David Newnes, concludes: “While void periods are falling, the private rented sector gives tenants flexibility, so as tenants’ circumstances change; there are still occasions when a property might be empty.  Of course, it is in every landlord’s business interest to maintain good, long lasting tenancies and avoid voids. At a time when demand far outstrips supply, it is imperative that empty properties are filled quickly, following any necessary maintenance and improvements. Landlords can minimise void periods by talking openly with their tenants about their future plans – in order to prepare for when the property might be empty. Overall there’s an air of optimism surrounding the rental market now that inflation is firmly back on track as wage expectations start to improve. A rise in affluent tenants will help further boost the success of the private rental sector this year.”lsl-property-services-logo

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Scottish house prices up by £2,146 in November – highest monthly rise since June 2007

LSL / ACADATA SCOTLAND HPI

  • Over three quarters of Scottish regions see price rises in November
  • Average prices in Aberdeen set another record high

 

House Price

Index

Monthly Change %

Annual Change %

£146,238

198.3

1.5

2.6

Donald MacLellan, Chairman of Walker Fraser Steele Chartered Surveyors, part of LSL Property Services, comments: “The property market in Scotland is powering on ahead like a freight train. Price rises of £2,146 in November reflect the largest increase in a single month, since June 2007 when prices were up by 1.7%. This is down to the vast influx of first-time buyers, who have stirred up activity from the lower realms of the housing market – accelerating the rate of recovery. Such momentum means there’s cause for renewed optimism in 2014, as the Scottish property market shows it’s making solid progress on all fronts. Prices have picked up at a healthy pace across the country and sales are rising swiftly, as mortgage conditions continue to improve. 

“Strong demand has been pivotal in improving the outlook for the Scottish housing market as confidence has been growing exponentially in the past six months. With lending levels following suit, there are sure signs the Scottish property market is on the fast track to full health. More than three quarters of the country saw price rises in November, showing the recovery has now become nationwide.

“In particular the journey for first time buyers is drastically better than a year ago, reinforced by Government schemes such as Help to Buy. While an enticing circle of mortgage products, low interest rates and higher LTV mortgages have propelled the market to another level, with sale volumes from June to November 2013 up by 22%. The rise in first time buyers has been key as activity from this end of the market has reverberated higher up.

“However, beneath the surface it’s also clear the number of homes on sale falls far short of the level needed to meet demand, which is resulting in climbing house prices. The blatant imbalance between the lack of housing supply and the pent up demand needs to be tackled to allow the market to continue to recover at a sustainable rate.

“Many buyers are understandably unclear over which direction the economy will take over the coming twelve months, with some opting to sit tight in the meantime. The withdrawal of the Funding for Lending scheme is in part responsible for this air of uncertainty. While another obstacle may be the referendum this year on Scottish independence, which could cause a slowdown as potential buyers delay their home purchase in order to await the outcome.”

News Headlines – Sunday 22nd December

Property

The Royal Institution of Chartered Surveyors predicts average house prices will rise in Britain by 8% next year and last Thursday the Council for Mortgage Lending revealed that the amount of money lent to borrowers in November rose to £17bn, up by more than 30% on the same period last year. Andrew Bailey, deputy governor of the Bank of England warned homebuyers there will be a clampdown on house purchases if there is any evidence that rising prices are spiralling out of control. Mortgage lending is overseen by the Prudential Regulatory Authority (PRA) which has the power to make banks hold back more money on balance sheets for every mortgage offered and can reduce loan-to-value ratios, making products such as 95% mortgages more expensive for homebuyers. Mr Bailey said controls could include strengthening the tests buyers have to go through before acquiring a mortgage and increasing the amount of capital banks have to hold against household lending.

Economy

Advanced economies will get their ‘mojo’ back in 2014 as the UK wins back medal as the fastest growing major European economy next year according to recent headlines. PwC said Britains; brighter growth prospects could also move it in line to be the fastest growing economy in the G7. The UK economy is expected to grow by 3% next year which would move it closer in line with America for the title of the strongest growing advanced economy in the world. There’s an air of optimism, as improving consumer confidence is expected to result in higher business investment. Despite the long journey towards recovery, for the first time people feel things are really starting to pick up.

Personal Finance

Shoppers are expected to splash out more than £5 billion in just four days in a boost for flagging retailers. Last weekend was said to be the busiest of the year for the high street with 31 million visits over two days. Barclays predicts that £5.2 billion will be spent on credit cards between yesterday and Christmas Eve and more than £1.1 billion will be spent on Tuesday alone as a vast proportion of people have left their Christmas shopping late due to the fact Christmas falls midweek.

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.”

News Headlines – Saturday 14th December

Economics

The construction industry recorded its highest growth in two years in October, led by a revival in house building. Output increased 2.2% in October, according to the ONS, driven by a 5.5% increase in house-building and a 5.8% increase in infrastructure construction. The government stats came as the Mortgage Advice Bureau found 40% of adults were planning to move house, re-mortgage or buy their first home in 2016, before the end of the Government’s Help to Buy Scheme. More than a quarter of mortgage seekers only afford a 5% deposit, according to MAB, evidence of the demand for the scheme.

Recruitment/Education

Michael Gove, the Education Secretary, has rejected two applications from grammar schools, to open a satellite school in Kent – claiming it is an illegal attempt to open a new grammar school. Under current legislation, selective schools are allowed to expand, but the opening of new grammar schools is forbidden.

Gove also sanctioned the closure of one of the first free schools , after Ofsted inspectors reported that it wasn’t making enough progress, after warnings that pupils at the school were failing to receive a thorough enough education. This is the first free school to be closed down – and was used by critics to argue the coalition’s educations reforms were not working. Tristram Hunt, the Shadow Education Secretary said the government’s free schools policy had led to “a huge waste of public money and poor standards.”

Property

The average price of a ‘prime’ home in London is set to rise above £6m in the next 30 years, according to family wealth manager Fleming Family & Partners (FF&P). Prime areas including Belgravia, South Kensington and Knightsbridge are expected to rise in price from up to £1.5m today to up to £6.4m in 30 years’ time, an estimate based on a ‘modest’ annual rate rise of 5%. The report found property to be the best performing asset class for the ultra-rich individual over the next 30 years.

Personal Finance

In the FT, Josephine Cumbo writes how the government is under pressure to intervene in the £12bn-a-year annuity market, after an influential consumer group warned that millions of people stood to lose out in retirement. This call was inspired by a study published by the Financial Services Consumer Panel (FSCP), which concluded that consumers were exposed to a “complex, confusing marketplace”.

Marsh & Parsons

2014 FORECAST: LONDON TO SEE HOUSE PRICES RISE BY 5-7%

  • London prices expected to stabilize in 2014 with annual growth of  5-7%
  • Prime London will continue to be a magnet for overseas buyers
  • Business confidence to boost the corporate lettings sectorImage

House Prices

London property prices will continue to dwarf those in the rest of the UK in 2014, but the rate of growth is expected to stabilize, according to estate agent Marsh & Parsons.

They forecast that Prime London house prices will rise by 5-7% in 2014, compared to 10.3% in the last twelve months[1], with the majority of growth expected to take place in the first half of the year.

Peter Rollings, CEO of Marsh & Parsons, comments: “London’s housing market saw a substantial uplift in 2013, and we expect a similarly strong start in 2014 to drive an annual rise in prices – but these won’t be as spectacular as last year. With ongoing support from Government initiatives, the rate of growth will remain sustainable.

“Following improvements in unemployment levels, we’re likely to see modest increases in interest rates next year. But with a general election coming up in 2015, any changes are unlikely to create shockwaves through the housing market.”

Supply and Demand

A lack of supply being met with high demand will continue to drive price increases in the Prime London property market. At the end of 2013, there were 18 registered buyers per available property, compared to 13.5 at the end of 2012[2], and this will ratio will remain high in 2014.

Peter Rollings continues: “Many sellers will remain cautious of putting their property on the market as they are not confident that they will be able to find somewhere to move to, therefore supply is unlikely to improve considerably next year.  As a result, property will continue to sell for close to or at the asking price and we may see our average success rate of 98% of the sale price currently being achieved in Prime London increase even further.[3]

 

Overseas Buyers

Changes in policy announced in George Osborne’s Autumn Statement mean that foreign property owners who sell second homes in the UK will have to pay Capital Gains Tax from April 2015.  But with overseas buyers and foreign nationalities making up just 28% of all Prime London purchases in Q3 2013[4], this change in policy is unlikely to have any dramatic effect on prices in 2014.

Peter Rollings continues: “With the change only being introduced in April 2015, we may find a short-term rush for tax-free sales before the policy comes into effect, helping to boost supply and fluidity at the highest level. However, even with yet more tinkering from the Chancellor, London remains a more attractive and easier place to buy property than many other cities around the world, and providing that the politicians don’t ‘kill the golden goose’, demand for the best properties will remain fierce.”

 

The Rental Market

Based on current trends, Marsh & Parsons expects rents in Prime London to hold steady in 2014, with rises of 2-4% in 2014, as opposed to the generally static rent levels recorded in 2013.

Peter Rollings continues: “The improved economic mood has eased anxiety among city firms and as a result, the corporate lettings sector will flourish next year. Based on current trends, we expect the greatest rental increases to be found in two-bedroom properties in central areas such as Kensington & Chelsea, which are popular locations for visitors from abroad. As competition heats up, void periods will continue to fall, and 2014 tenants will face intense competition for the best properties.”


[1] Annual price in Q3 2013 in Prime London, according to Marsh & Parsons’ latest London Property Monitor

[2] Data from Marsh & Parsons’ London Property Monitor

[3] Marsh & Parsons’ sales data

[4] Marsh & Parsons London Property Monitor, Q3 2013

UK Paper Summary: 25th November 2013

Economics
The front page of the Daily Mail says Britain’s two state-backed banks have been accused of running thousands of small firms by using “disgraceful” business practices.  RBS and Lloyds “harmed their customers through their decisions and caused their financial downfall” according to a bombshell report released today by Laurence Tomlinson.  The report claims RBS acted like a “hit squad” by deliberately causing healthy businesses to go bust for its own gain.

 

Personal Finance
Immigrants and the seriously ill are in line for “a fresh Tory welfare raid” according to Tom McTague, in the Daily Mirror.  More than 500,000 sufferers of long-term conditions such as cancer face losing benefits currently paid to them as they train for a return to work.

 

Property
In the Daily Express, Sarah O’Grady reports that house prices jumped by £7430 last month – and are up £1,300 a week according to estate agency Sequence.  Richard Sexton, director of e.surv chartered surveyors said, “Help to Buy has opened a flood of new buyers, causing prices to surge upwards.”  The second phase of the Government’s Help to Buy scheme was launched in October and offers lenders a taxpayer-backed guarantee on 95 per cent mortgages on homes costing up to £600,000. In the first month, 2,000 sales were arranged.

 

Employment & Recruitment
The FT’s editorial looks at university degrees pointing out that, since the 1963 Robbins report, widening access to university has been a central aim of UK education policy.  Roughly half of young people now study for a degree, against 4 per cent when the report was written.  

university_2525188b

But the FT’s stance is that rising participation is welcome only if the benefits justify the cost: “young people’s horizons will not be widened by pushing university for its own sake.”