London rental market bounces back

Continuing last quarter’s surprising turnaround, the London rental market has bounced back to see rental values rise by more than 4% across most of central and east London with healthy gains seen across most of the rest of the capital.

Analysts at Benham & Reeves Residential Lettings which conducted the independent research, cite the crippling effect of the new stamp duty rates on the sales market for the strong rental market as tenants eschew homeownership in favour of long term tenancies.

Prime Central London (PCL) saw strong gains last quarter after several quarters of stagnation, and continued to see strong growth this quarter. Many of the tenants are overseas professionals who are opting to rent long term as the cost of renting often represents a saving compared to purchasing a home in high value areas thanks to the 12% top rate of stamp duty.

The rental market in east London is also very strong but for different reasons. The tenant demographic is typically younger and more likely to be British.  However, many of these tenants are deliberately choosing to rent rather than own a property as a lifestyle choice. Many of the Millennial Generation do not view homeownership as a goal and recognise that they can often afford to rent a much better property than they can afford to buy.  Millennials are also a more mobile workforce who change jobs more frequently than previous generations.

North London was one of the few areas to see rental values fall. A number of new developments in north London have seen the property supply increase.  Locations on the Northern Underground Line have also fallen as the Central Line interchange at Tottenham Court Road has been suspended for several months while the station is rebuilt for Crossrail.

Marc von Grundherr, lettings director at Benham & Reeves Residential Lettings, said: “From an investors’ perspective, it is very interesting to observe demographic changes.  One of the reasons the rental market tends to remain so strong in areas such as east London is because these areas attract Millennials who are content to rent long term. They’re simply not willing to scrimp and save for years to afford a deposit but prefer to ‘live for the moment’. This concept even extends to where they choose to rent: they’d much rather live somewhere central close to good bars and restaurants than commute in from more affordable areas.  For as long as East London remains hip and trendy, it will continue to attract good quality tenants.”

Source: Property Reporter

The rise and rise of urban renters

A new report from Knight Frank has shown the proportion of those in the private rented sector living in urban areas has risen from 80% to 86% over the last decade, mostly accounted for by regional cities outside London.

The growth of the private rented sector in the UK has been well documented, and there is evidence from the most recent English Housing Survey that activity in this market is increasingly clustering in cities around the country. As part of the tapestry of information around the burgeoning investment sector in PRS, Knight Frank has monitored a range of data, not least the views of private tenants in their tenant survey, one of the largest such surveys ever conducted.

As the institutional investment market matures, there has been a desire for more detailed yield data. As such, Knight Frank  has developed its PRS index, which reflected average yields, into a PRS Yield Guide, giving a fuller reflection of the best-in-class deals currently being done in the market.

The Yield Guide shows a slight tightening in yields for prime PRS deals in Q2 across the Greater London market, as well as in many of the other key cities except Bristol and Glasgow.

Meanwhile, the growth in the size of the UK rental sector looks likely to continue.

Demand for rental property is being underpinned by affordability constraints in many parts of the sales market as well as increased hurdles in the mortgage market. There is also an increasing desire for property with flexible tenure, especially among young professionals, who want to live close to where they work.

There has been increasing activity in the regional markets over the last 12 months, with institutional investors attracted by the yields achievable and the strong occupier demand in regional centres. Of particular interest to institutions have been private rented sector schemes in ‘top tier’ regional centres, such as Birmingham & Manchester, with a large amount of interest focussed on lot sizes ranging between £20-100 million.

The increasing entry of institutional investors into the market is a significant positive factor for the PRS, which should lead to an increase in the supply of good quality, well managed rental accommodation. The design of the units within these schemes is aimed at the private rented sector, with appropriate layouts, specification and provision of services being key to the success of these schemes.

Tenants are also living in the PRS for longer – with the English Housing Survey showing that the proportion of those living in rented accommodation reporting that they have lived in their current home for between 2 and 4 years rising to 24%, up from 20% ten years ago.

Rents are rising across the country, reflecting an increase in wages as well as inflation. They rose by 2.5% in the year to the end of June but there are still wide regional variations in rental growth.

Source: Property Reporter

North East house prices to double by 2030

The average cost of a North East home is expected to rise to £277,558 by 2030 – almost twice the price of today.

This compares to just £17,966 in 1985 – a jump of 94%.

Research for regional sales and lettings firm KIS shows the price of homes in the region rising by an average of £7660 a year over the next 15 years, with average year-on-year growth of 2.6%.

The research predicts that in five years the cost of an average North East home will be £187,344, 14% higher than today, and that in 10 years it will have risen by 30% to £229,655.

In the same period, researchers predict national prices will rise at a faster rate of 19% to £341,455 (2020) and 35% to £429,259 (2025).

The research also shows how national prices have accelerated away from the North East over the past 10 years, a trend set to continue. In 2005 the price of a North East home was typically 30% cheaper than the national average. Ten years earlier, it was 29% cheaper. The current rate is 42%, and the gap is predicted to rise to 49% over the next 15 years.

Oxford Economics this year predicted that the average cost of a home in London is on course to exceed £1,000,000 by 2030, with house building struggling to keep pace with a rapidly rising population.

Ajay Jagota, founder and Managing Director of KIS, commented:

“If anything, these figures could be a little on the conservative side. Oxford Economics are predicting annual house price growth of roughly 2.6% a year over the next 15 years – but our research showed prices rising by 11% alone last year.

“If they’re accurate though, this could be very good news for the North East. Wages are currently rising at 2.7% a year, so if house prices are rising at a slightly lower rate, that would see North East homes becoming progressively more affordable over the next 15 years.

“What’s really striking is how national prices are accelerating away from us. In 1995, the typical North East home cost £19,000 less than the UK average. Today it costs £115,000 less. By 2030, the gulf will have widened to £260,000.

“By 2030, the average London home will not only set you back over £1,000,000, it’ll cost you over £700,000 more than the average North East one.

“If London wages can’t keep up with that surge, it is more than possible the North East could benefit from a ‘reverse brain drain’, where more and more people and businesses are unable to afford to base themselves in the capital and begin to look towards our region.

“This strengthens the case for increased devolution for the region, especially if it includes greater powers to develop our regional economy and infrastructure and to develop new housing to meet the growing need.”

Source: Property Reporter

Third of new lets are agreed before existing tenant moves out

Increasing numbers of landlords and investors are able to re-let their property before the existing tenant moves out, according to Countrywide. 

The UK’s largest estate agency group reports that so far in 2015, 33% of all new lets were agreed while the property is still occupied, up from 27% last year.

The average let agreed while tenants are in place is equal to 105% of the asking rent, or an average of £35 a month more than the asking rent.

In London, 51% of new lets are agreed while there is still a sitting tenant in the property, up from 41% in 2014.

Where a deal is agreed before the existing tenant leaves the property, there is an average of just six days between the existing tenant moving out and a new one moving in.

Where a property hasn’t been let prior to a tenant leaving the property, the first week of marketing is when landlords are most likely to achieve the highest rent, says Countrywide.

During the first seven days, the average let is agreed at full asking price; a figure which unsurprisingly falls the longer a rental property is on the market.

The first weekend after coming onto the market is when the majority of the most motivated would-be tenants view the property.

Countrywide says that in 98% of the cases where a landlord accepts an offer below the asking rent are after the property has been on the market for more than a week.

In slower rental markets, generally outside of cities, the average landlord has to wait an extra 15 days to find a tenant willing to pay the full asking price compared to those letting a property in the city centre.

“In larger rental markets, more new lets are being agreed well in advance of the current tenant leaving. As a result we’ve seen void periods fall, with a growing number of landlords having a new tenant lined up over a month before their existing tenant leaves. While leaving some time for maintenance between tenancies is advisable, increasingly there’s just a matter of hours between a tenant moving out and one moving in,” says David Fell, a research analyst at Countrywide.

“The buzz around a new property coming onto the market is usually the landlord’s best chance of securing the tenant willing to pay the most rent. In more competitive markets, the first tenant to view a home is often willing to pay a small premium to ensure the landlord takes the property off the market and that no further viewings take place. Proactive tenants who are looking to move quickly are frequently willing the pay the most,” he adds.

Source: Property Investor Today

Investors urged to snap up property

Telegraph logoA report in today’s Telegraph newspaper suggests now is the time to invest in property.

The report states that according to a growing number of professional investors, among them Henderson’s multi-asset manager James de Bunsen, who is a believer in bricks and mortar for the first time, now is the time to invest in bricks and mortar.

“It’s a valuation story – if you look at the cost compared to the income you can get, property looks compelling,” he said. “Property funds are yielding 4.5pc, compared to gilts at around 2pc and corporate bonds at not much higher.”

Mr de Bunsen said property also added diversification, and while he would never hold more than 4pc of a portfolio in property, having an alternative source of steady income was invaluable.

Trevor Greetham, portfolio manager of Fidelity’s multi-asset funds, is also keen.

“Property’s income is attractive, borrowing costs are falling and exposure is primarily to economies in the US and Asia, where credit is flowing freely,” he said.

Property investments also offer some protection from inflation. As anyone who has been a tenant knows, rent does not stay the same year after year – it tends to rise in line with other price increases. It is the same for commercial property.

Many investors are concerned that the Government’s attempt to kick-start growth through quantitative easing will create greater future inflation. The trick is to find assets that grow in value enough to offset this or pay income that exceeds inflation.

According to George Shaw, manager of the Ignis Property fund, commercial property is attractive because of the high and stable income it pays. Between 2001 and 2012, for example, income accounted for 6.2pc of the 6.4pc annual return.

Mr Shaw forecast a total return of around 6pc for 2013 and 7.2pc a year for the next three years – with commercial property demonstrating less volatility than shares, cash and bonds.

The report continues: The London market keeps rising with the arrival of more foreign buyers, but better income yields can be found elsewhere. A combination of low property prices and a strong local rental market – often driven by student demand – means that Southampton, Blackpool, Slough, Coventry and Portsmouth provide some of the best rental yields in the country.

See the full Telegraph report here.

Strong yields tempting investors

One in ten properties in the UK is delivering gross rental yields of 10% or more, while average yields across the country are 6.2%.

The figures are from Countrywide, the UK’s largest property and mortgages chain, which says that of all properties purchased and rented out through Countrywide last year, approximately half achieved gross rental yields of more than 7%.

Countrywide also reports that for a second consecutive year, the number of new tenants registering for private rented accommodation increased by 25%, with more than 340,000 new tenants signing up in 2012, up from more than 275,000 in 2011.

Buy-to-let mortgage lending in the first nine months of 2012 amounted to £11.8bn, up 19% when compared to the same period in 2011.

Nick Dunning, group commercial director at Countrywide, said: “The availability of more competitive buy-to-let mortgage products, along with fantastic yields, is creating a good opportunity for investor landlords to expand their portfolios to match the high demand for rental accommodation, as renting for longer is becoming the new norm.”

Regionally, the South of England recorded the highest volume of new tenants registering with Countrywide in 2012 – the 116,000 applicants represented a 27% rise from the previous year. However, the growth of new tenant applicants was highest in the North of England, where Countrywide recorded a 49% increase to almost 63,000.

Countrywide figures also show that the average rent in England, Scotland and Wales in 2012 was £827 per month, and in London more than £1,600 per month.

Source: LandlordToday

Calls for ‘massive increase’ in homes for rent

There needs to be a tenfold increase in the number of homes that are built for private rent, and new home builders need to be relieved of their obligations to include ‘affordable homes’ on their schemes.

The calls have come from Sir John Banham, chairman of the Future Homes Commission, speaking at a Housing Market Intelligence conference.

He said that in a generation’s time, Britain needs to be building three times as many new homes as today, including a ‘massive increase’ in build-to-let schemes and in the shared ownership sector.

He called for private rental homes to be built in ‘sustainable communities’ on brownfield sites close to towns, and on schemes with mixed tenure.

He also said that social housing and market housing need to be de-coupled because Section 106 is ‘not working’. Under Section 106 agreements, developers are legally obliged to provide typically 40% of affordable homes for social housing.

Sir John said it is essential to find new sources of mortgage lending, because financial regulators are set to make ‘a real mess’ of the lending sector.

Source: LandlordToday

60% of landlords planning to expand portfolio in next 6 months

60% of landlords are planning to increase their property portfolios over the next six months, according to specialist mortgage broker Mortgages for Business. 

84% of investors looking to expand said they are planning to purchase more houses and flats (vanilla buy to let) by the end of the year, thereby increasing the supply of rental properties to help cater for demand which continues to outstrip supply.

Encouragingly, only 3% of investors are planning to reduce their portfolios over the next six months, down from 6% last quarter.

David Whittaker, managing director at Mortgages for Business, explained: “Landlord appetite for buying residential property is high. This will support the private rented sector and ease the strain on would be renters chasing too few properties.”

The research, which polled the views of 159 investors, showed complex buy to let property is becoming increasingly popular probably due to the more attractive yields compared to vanilla buy to let properties. 25% of respondents said that they were considering purchasing either HMOs, multi-units or semi-commercial property (or a combination of the three).

More than three quarters of landlords feel that lenders need to do more to support them and whilst it will come as no surprise that their main gripes were with rates, fees and LTVs, more interestingly landlords are looking for buy to let mortgages that cater for more specialist scenarios including more products for limited company applicants, products for holiday lets and more lending to ex-pats. Landlords were also interested in seeing more case-by-case underwriting rather than computer based lending decisions.

Just over half (54%) of investors who are planning to expand revealed they will need to refinance their existing properties. Of these, 20% are likely to struggle to secure finance because of a lack of equity, reflecting the dearth of high LTV mortgages in the market. As of June this year, there were only four 85% LTV mortgages available (from Kent Reliance).

8% of investors revealed they have been asked by lenders to refinance elsewhere, largely as a result of RBS which is looking to reduce its exposure to property and Bradford & Bingley which is looking to exit the market entirely.

David Whittaker commented: “Landlords are bullishly confident about the prospects of the buy to let market over the next six months. There are a huge number of would-be owners being displaced into the rental market every year, which has kept tenant demand sky high and pushed yields on private rental property over the 6% threshold.”


Tenant demand pushes rental prices up

Rents rose further in the three months to April, as fresh tenant demand continued to exceed new instructions, says the latest RICS Residential Lettings Survey.

13 percent more chartered surveyors reported rents rose rather than fell in the three months to April.

This growth was largely driven by increasing demand as a net balance of 15 percent more respondents reported rises in prospective tenants, with houses in greater demand than flats.

Rental values in the UK have now grown consistently since 2009 as the problem of unaffordable mortgage finance and large deposits required by lenders remain a barrier to home ownership, with many potential buyers forced to turn to the rental market.

Significantly, supply of property to the market continues to grow, albeit at a slower pace, with seven percent more surveyors reporting increases rather than decreases in landlords looking to let their properties.

Unsurprisingly, with rental values steadily increasing, landlords gross yields also continued to grow during the early part of the year, although the pace of growth has begun to slow. This was the case in every part of the UK with the exception of London where tenant demand also saw a slight downturn.

Looking ahead, surveyors remain positive that the market will remain buoyant over the next three months, with 13 per cent more predicting rents will rise rather than fall. Across the UK , all areas expect rents to continue to increase with the exception of Scotland where expectations entered negative territory for the first time since October 2009.

Peter Bolton King, RICS Global Residential Director said: “The rental market is still fairly buoyant and this looks likely to continue, given the challenges facing the sales market. Indeed, mortgage finance may become even harder to access particularly for first-time buyers if the euro crisis continues to deepen.

“This points to tenant demand continuing to outpace supply. As a result, rents will remain on an upward trajectory, adding to the pressure on many households whose incomes are already being squeezed.”

Source: Propertytalklive

London rents 78% higher than rest of UK

The cost of renting in London has continued to shoot up, particularly near the Olympic Village, while rents outside London have barely changed, dipping by 0.2% to an average of £660 per month – the same as last year.

At £1,178, the average rent in the capital is now 78% more expensive than the rest of the UK.

The latest HomeLet rental index also says that there has been an 11% increase in the number of people sharing a rental property in London, which it says suggests that tenants are really struggling with increased living costs.

The index shows that the average cost of renting a home near the Olympic village was up by almost 9% on the same period a year ago to stand  £1,178 per month during the first quarter of 2012.

The average annual increase for the whole of Greater London was just over 5% in the same period.

While rents in the capital have grown over the last 12 months, tenants’ income in the same period has only risen by 3% to £37,010.

After income tax and National Insurance, this increase means tenants in Greater London have approximately £410 less disposable income every year.

Ian Fraser, managing director of HomeLet, said: “The increase in rents, coupled with high levels of inflation, is really causing a strain on the affordability of rented homes in Greater London. The reality for many people is that renting a property on their own is simply not an affordable option.

“We can also see the impact of regeneration of East London in preparation for the Olympic Games. This area of London has seen an above average increase of almost 9% in rental values in just one year.

“Whilst our data shows tenancies arranged through letting agents, it is likely that unreported shorter-term privately agreed tenancies over the summer will inflate rents to record levels in East London.

“The Olympics could create 11,000 new homes, which may help to ease demand for rented properties in the area. However, with house prices remaining unaffordable for many people, even this injection of housing stock may not have a lasting impact on rental prices in the capital, which will continue to rise for the foreseeable future.”