Hunters Property News

How to ride the buy-to-let property boom

2010-10-03T14:27:00.001-07:00

Falling house prices and rising rental yields are once again creating big opportunities for investors. There is hot competition for homes that are available, pushing rents still higher (Michael Crabtree) Soaring rents on residential properties are opening up lucrative opportunities for buy-to-let investors. Record demand has pushed rents to their highest level for two years, according to a survey by LSL Property Services, which owns Your Move, the biggest letting agent. The growth of the buy-to-let market is being fuelled by would-be buyers who have been forced to rent for longer because they cannot get on the property ladder. However the booming lettings market is also encouraging the return of “accidental landlords”, who are unable to find a buyer for their own properties but still need to move. According to a poll of estate agents by The Sunday Times, one in ten frustrated sellers are now letting out their properties. In some areas, the ratio is one in five. There is hot competition for the homes that are becoming available, pushing rents still higher. In London, an average of six potential tenants are competing for every property, according to Marsh & Parsons, an agent. In some prime areas, there are 12 renters fighting for each property, it said. Ludlow Thompson, another London letting agent, said it was taking sealed bids for the few properties on its books amid “an unprecedented boom” in demand — up 11% on this time last year. It said the gap between supply and demand was raising rents by 20% year-on-year in some areas. Stephen Ludlow, of the agent, said: “In the past 20 years I have never seen rental properties moving as quickly as they have been recently.” It is not only London that is seeing a spike in letting demand. Tenants outnumber available property by seven to one in southeast England and five to one across Britain as a whole, said Countrywide, the national estate agency chain. It took on 20,000 tenants in August, 55% more than at the same time last year. Restrictions on mortgage lending have forced many would-be first-time buyers to remain in the rental sector. A reduction in new-build developments and a shortage of social housing have also increased demand in the rental market. Buy-to-let was given a boost last week with the return to the market of Paragon, one of the biggest players in landlord mortgages before the credit crunch. The Nationwide house price index, released on Thursday, showed that prices rose marginally by 0.1% in September, with the average property now worth £166,757. However, the annual rate of house price inflation fell from 3.9% in August to 3.1%. A comparison of the previous three months, regarded as a better indication of the market’s movement, shows that prices declined 0.9%. We provide advice for investors in the buy-to-let market, as well as those hoping to ride the buy-to-let wave. Buy-to-let investors Opportunities are available for investors in many regions. The highest rental yields last month were in Wales, at 6.4%, according to the latest survey by LSL Property Services. The East and West Midlands offered the next best returns, with 5.6% and 5.2% respectively. The survey found that rents were rising fastest in southeast England (2.8%) and then London (2%). Rents fell by 1.5% in the West Midlands and 1% in Wales. James Scott-Lee of Chancellors, the estate agent, said: “There is a shortage of supply across the country, particularly in student towns, and there is clearly demand for new investors who are earning next to nothing from deposit accounts.” One- and two-bedroom flats are also desperately needed. David Whittaker of Mortgages for Business, the broker, said: “There is huge demand in the private rental sector from first-time buyers unable to get on the ladder. This government is also unable to afford new social housing. It is effectively depending on the private rental sector to provide it in the coming years. Landlords now have more confidence in the market.” Countrywide said more two- and three-bedroom houses are also needed. The recent residential lettings survey by the Royal Institution of Chartered Surveyors found that demand for houses was rising even faster than for flats. Bruce Evans, of Countrywide, said: “Rental stock suitable for families is in particularly short supply. The proportion of families we have on our books has increased from 29% at the beginning of the year to 42% now. There is a large demand for houses with outside space.” Evans said the big cities and southeast England had the biggest shortages and so the best potential returns for investors. The buy-to-let market shrank to almost nothing in the wake of the credit crunch. In the second quarter of this year, lenders approved 24,900 buy-to-let loans worth £2.4 billion, compared with 88,000 in the same quarter in 2007, according to the Council of Mortgage Lenders (CML). However, there are clear signs of recovery. The number of buy-to-let mortgage products available has increased from just 50 in April last year to about 280 — although still far from the peak of 2007, when more than 3,600 deals were available. Paragon returned to the market last week with fixed-rate and tracker deals, including a two-year fix at 5.5% a year. There is a 2.25% fee and it is available to borrowers with a 25% deposit. The lender has no limit on the number of properties a landlord may hold and will accept applications from limited companies and for multi-unit blocks and houses in multiple occupation, such as student lets, provided that the borrower is an experienced landlord. However, it requires rental cover of 130% — higher than its competitors — and will base the calculation on an interest rate of 7%. The return of Paragon comes just a fortnight after Lloyds Banking Group revealed bad news for landlords, tightening its lending criteria and effectively shutting the door on professional investors. Lloyds, which provided 60% of the buy-to-let loans made last year through its Birmingham Midshires brand, cut the number of properties on which borrowers could secure loans from nine to three and lowered the total amount of buy-to-let lending to individuals from £3m to £2m. Last week, the Mortgage Works, owned by Nationwide building society, responded to the resurgence of Paragon by cutting some of its rates and introducing new deals. It is one of the few lenders offering landlord loans for those with a 20% deposit, including a new two-year fixed rate of 5.19% with a 3.5% fee. While there are plenty of opportunities for landlords with equity to expand their portfolios, falling prices could hamper the ability of some to remortgage, particularly when interest rates begin to rise as expected next year. Paragon has admitted that its existing borrowers have an average loan-to-value (LTV) ratio of 83%. It is currently only offering deals up to 75% LTV, which prevents the majority of its existing borrowers from taking advantage of its new deals. These landlords are paying a low standard variable rate of 2.5%, but if the Bank of England base rate starts to rise, some may find it tricky to move to the security of a fix. Landlords are required to pay capital gains tax on the sale of properties which are not their primary residence. The taxman takes 28% of any increase in value in the property, but landlords can dramatically reduce the CGT bill if they live in the property as their main home for a short period of time because special rules apply to properties that have been a primary residence in the past. Under the rules, the period of time that a second property was the main residence is exempt from CGT, plus the last 36 months of ownership.

Economic Outlook: Housing destined to be stuck in the mud

2010-09-26T06:26:00.001-07:00

Economic Outlook: Housing destined to be stuck in the mud Even though property prices are recovering, volumes are much more important — and they remain very low, to the detriment of the economy The Sunday Times Published: 2010-09-26 00:01:00.0 Recommend (2) While most parts of the economy have emerged from the crisis and recession, some remain down in the depths. Housing, for which the freezing of mortgage funding markets three years ago was a dagger to the heart, is the most striking example. Most conversations about housing are dominated by prices. On this, the broad picture on the Nationwide building society measure was that prices began to fall in the autumn of 2007 when the mortgage famine hit, dropped by nearly 20% over the next 18 months but began to rise again in the early spring of 2009. By this summer, prices were nearly 12% above their lows. They have since slipped and stand about 11% below their pre-crisis peak nationally. In some areas, notably parts of London and the southeast, prices have risen above pre-crisis levels. That does not sound like much of a housing recession but prices, of which more in a moment, do not tell anything like the full story. For the housing sector, volumes are much more important. When it comes to mortgages, the housing market has always been unfair, but it is becoming more so The British Bankers’ Association said last week that mortgage approvals for house purchases last month were just 31,767. This was the weakest monthly figure since April 2009 but, perhaps more significantly, only half the typical level prevailing before the summer of 2007. August’s approvals were only 40% of their recent peak, in November 2006. Other measures of volumes tell a similar story. Acadametrics, which produces a house price index for LSL Property Services, says transactions (with and without mortgages) totalled 60,600 last month, half the 120,000-plus monthly figure typical in 2006 and 2007. Transactions were 59% of their long-run August average. A similar picture is provided by HM Revenue & Customs, which records all property sales above £40,000. Compared with nearly 1.7m transactions in 2006, it will be a struggle to get much above 2009’s depressed level of 848,000 this year. This weakness is partly explained by a reluctance to buy. The rise in unemployment in the recession was much less than feared but it happened, and fears about the impact of the government’s spending cuts are holding back some people. By far the biggest effect, however, is on the supply side, and in particular mortgage supply. This drove the housing market into recession and is preventing its recovery. Michael Coogan, director-general of the Council of Mortgage Lenders, recounted last week that when the CML came to put together its annual list of top 30 mortgage lenders, it struggled. Just three, Lloyds, Santander and Nationwide, accounted for more than half the market last year. Add Royal Bank of Scotland, Barclays and HSBC and you have more than 90% of the mortgage market. Some household names, such as Standard Life and ING Direct, lent amounts last year that were barely statistically significant. Coogan’s worry is that any benefit to lenders from the thawing of mortgage funding markets and improved savings flows into banks and building societies will be more than offset by tougher rules from the Financial Services Authority on regulating the mortgage market. The CML fears net mortgage lending this year, a mere £10 billion, against £100 billion in 2007, could turn negative in 2011. Does it matter? Yes. When it comes to mortgages, this situation is discriminating hugely in favour of first-time buyers who have parental funds to draw on. Existing homeowners in safe jobs and with plenty of equity win out versus the self-employed. The housing market has always been unfair, but it is becoming more so. More generally, a low-volume, near-moribund housing market is bad for the economy. It does not just affect estate agents and housebuilders. Even when the housing market turnover was much higher, Britain did not have enough geographical mobility of labour — people’s willingness and ability to move between regions in search of work. In an era where the housing stock will turn over just once every 25 years, mobility will sink further. Would not a good, market-clearing slump in prices provide the basis for a sustained recovery in housing activity? George Buckley of Deutsche Bank, in a detailed paper, UK Housing: A Long Run View, runs through just about every measure of house price under- or over-valuation. He concludes that while some measures point to a clear overvaluation, many others do not. House prices are broadly in line with their long-run real trend, and are close to fair value against other assets such as shares and gold. If we assume that there is a gradual upward trend in the ratio of house prices to incomes, again the picture is one where there is no significant under- or overvaluation. Most people in this debate get no further than the crude ratio of house prices to earnings which, as I have pointed out on many occasions, tells us very little. In any case, a fall in prices now would make the housing market’s problem — a lack of mortgage finance — even worse. The lenders would get more nervous about lending, and the regulators and ratings agencies would breathe down their necks even harder. First-time buyers prayed for a fall in prices in 2007, only to see that the result was that they could no longer obtain the mortgages to take advantage of them. So the prospect is of a housing market that remains in the doldrums, perhaps for years, never approaching the volumes that were the norm in the long run-up to the financial crisis. An over-exuberant housing market had damaging consequences for the economy then. A stagnant market will be equally damaging now. Avoid addiction to quantitative easing Last week I argued that the Bank of England should think about its exit strategy from a 0.5% Bank rate and £200 billion of quantitative easing — “creating” money through buying assets. For some members of the monetary policy committee, however, the intention appears to be to head the other way, to do more quantitative easing, or a variant of it. The minutes last week of its September meeting were widely interpreted as softening up the markets for further easing as, more explicitly, was Tuesday’s statement from the Federal Reserve in America. I think the Bank should be very careful about this. Spencer Dale, its chief economist, who was more cautious than colleagues about the full £200 billion of easing, stressed in a strong speech that the Bank had not given up on inflation. As well as familiar arguments for why inflation has been above target in recent years, he offered a couple of fresh ones. Cash was king in the credit crunch, so firms raised prices to keep cash flowing in. And, though this one is stretching it a bit, the fact that people and businesses believed in the 2% inflation target may have stopped prices falling in the recession as they might have done. As it happens, I agree with Dale that most of the factors that pushed up inflation are temporary. I do not think the Bank is deliberately trying to inflate the economy out of trouble. That, however, is how it would look if there was another round of quantitative easing in the near future. Outside the Bank bubble, there is a lot of unease about this policy. Easing is different to rate cuts. While rate changes can be quickly reversed, any assets purchased — the total is already nearly 15% of Britain’s gross domestic product — may be on the Bank’s balance sheet for years. The danger is the economy becomes addicted to the Bank’s money-creating exercises. It may be that downward pressures on the economy from a damaged banking system and public spending cuts are so intense that the Bank has to act. That, however, is not what its own economic forecasts say. And, until we reach that point, it should abandon thoughts about further quantitative easing.

House market double dip warning

2010-09-26T00:29:00.001-07:00

House market double dip warning Forecasters turn bearish over fears that job losses and coalition threat of new property taxes will undermine economic recovery Robert Watts Published: 26 September 2010 Comment (1) Recommend (0) Banks maintain that house prices are 'precariously high' and are set to drop (PA) Britain’s housing market is set for a double-dip slump, with prices expected to fall 7% by the end of next year, according to leading City forecasters. Despite growing evidence of an economic recovery, banks maintain that house prices are “precariously high” and are set to drop as mortgage rates rise and government cuts bite. The property market is also expected to weaken as income growth fails to keep pace with inflation and banks continue to rebuild their balance sheets. Morgan Stanley, the American investment bank, believes that house prices will fall by 7% by the end of 2011, but has said a slide of as much as 18% is possible. Melanie Baker, a UK economist at the bank, warned of a “near-term correction in house prices and significant volatility ahead for commercial and residential property”. “Affordability looks stretched and house prices look over-valued,” Baker said. “UK disposable income is likely to contract this year and rise relatively weakly next year. “We don’t think that a weak recovery in supply is enough to prevent a double dip in house prices.” Property prices grew strongly earlier this year, after plunging by 23% between August 2007 and April 2009, according to Halifax, Britain’s largest mortgage lender. However, Nationwide, another big lender, has already said that property prices have been falling for the past two months. Deutsche Bank believes that home values will fall by 5% next year. George Buckley, an economist at the bank, said house prices here fell much less than in America and remain “precariously high”. “The UK market looks affordable at present, but that’s only because mortgage rates are relatively low,” said Buckley. “When the Bank of England begins to raise interest rates, which might be as soon as next year, house prices could fall more sharply.” Economists also fear that job losses and budget cuts to be outlined in next month’s comprehensive spending review will further undermine property prices. A series of other policies planned by the coalition government, such as higher stamp duty on properties worth more than £1m and lower housing benefit, are also likely to depress the market. IHS Global Insight, another economic forecaster, predicts that house prices will fall by 6.3% next year. Capital Economics, the habitually bearish consultancy, expects prices to fall by 10% in 2011.

The Warrior Spirit

2010-09-25T03:59:00.001-07:00

THE WARRIOR SPIRIT

Today you must do more than is required of you.
Never think that you have done enough or that your job is finished.
There’s always something can be done – something that can help to ensure victory.
You can’t let others be responsible for getting you started.
You must be a self-starter.
You must possess that spark of individual initiative that sets the leader apart from the led.
Self-motivation is the key to being one step ahead of everyone else and standing head and shoulders above the crowd.
Once you get going don’t stop.
Always be on the look out to do something better.
Never stop trying.
Fill yourself with the warrior spirit and send that warrior spirit and send that warrior into action.

General George S. Patton

Germany showing big growth in GDP

2010-08-08T00:12:00.000-07:00

Germany, Europe’s biggest economy, will show bumper second-quarter growth when figures are published this week. After the release of strong figures for industrial production, Germany may have grown by as much as 2% (equivalent to an annualised rate of more than 8%) in the second quarter.

House prices expected to rise for next five years

2010-08-04T23:15:00.001-07:00

Low interest rates and more new homes will prove double-dip fears unfounded, claim economic forecasters Robin Henry Published: 1 August 2010 Recommend (2) New housebuilding plus low interest rates should combat tax rises and cuts (Lewis Whyld) Economic experts have dismissed fears of a double dip in the housing market, claiming house prices will continue to rise for the next five years. Recent declines in the sector and concerns over the wider impact of the government’s austerity measures have fuelled speculation the market was heading into a steep decline. However the Centre for Economics and Business Research (CEBR) claim forecasters “got it wrong” and have predicted prices will increase every year until at least the end of 2014. They say house prices will rise by about 4% through 2010, before going up 5% in 2012, 5.4% in 2013 and 3.9% in 2014. The CEBR report released on Sunday contradicts figures from the National Institute of Economic and Social Research, which predicted the market would fall by 8% in real terms over the next five years. The institute’s gloomy assessment was bolstered by Nationwide’s latest index, which showed a 0.5% price drop in July, and growing uncertainty among prospective househunters over the government’s spending cuts. CEBR has accused the institute of ignoring “the housing market fundamentals” and claimed the price drop was simply a “minor correction”. The CEBR said: “It is unfortunate, but hardly surprising, that many commentators are purporting the minor correction in house prices over recent months is a prelude to an even steeper decline that will engulf the housing market over the coming years. “Those forecasters projecting a double dip have got it wrong.” CEBR was hopeful the combination of new housebuilding and low interest rates would be enough to combat the impact of tax rises and spending cuts in the long term. However it warned that house prices were unlikely to return to the “dizzying” heights seen before the recession until at least 2013.

Britain 'will grow faster than US, eurozone and Japan'

2010-08-01T22:31:00.001-07:00

Goldman Sachs believes Britain will bounce back stronger than other world markets next year, after second quarter growth of 1.1% David Smith Published: 1 August 2010 Recommend (0) British growth has been better than predicted, and unemployment remains low (Paul Vicente)Britain will enjoy a stronger recovery next year than the US, the eurozone and other advanced economies, despite the government’s tax rises and spending cuts, according to forecasts from Goldman Sachs. The investment bank predicts growth of 2.9% for Britain next year, followed by 3.2% in 2012. It says America will grow by 2.4% next year, Japan by 1.7% and the eurozone by 2.2%. Typically, the American economy enjoys a stronger upturn than Britain. One difference in the recent recession was that unemployment rose much more in America than in Britain. Figures released on Friday showed the US economy grew at an annualised rate of 2.4% in the second quarter, down from 3.7% in the first. Measured in the same way as Britain’s data, it was 0.6%, barely half Britain’s second-quarter expansion of 1.1%. Research by Goldman’s economists was influential in persuading the chancellor’s advisers that early cuts in public spending would not harm the recovery and the economy could continue to grow in the face of tax rises and spending reductions. The bank remains upbeat about the global economy, which it predicts will grow 4.7% this year and 4.8% in 2011, buoyed by 10% growth in both years in China. Its positive outlook is supported by the Baltic dry index, which measures freight rates for shipping dry commodities and is used by some economists as a lead indicator for the global economy. Its sharp fall in recent months has led to predictions of a “double-dip”. However, on Friday the index rose for the 11th day in a row, taking it up nearly 16% from its lows, though it remains well below its spring peak. The Bank of England’s monetary policy committee is expected to leave Bank rate unchanged at 0.5%

Lending levels fall to four-month low

2010-07-26T03:34:00.000-07:00

Monday 26th July 2010

Lending fell sharply in June, with the British Bankers Association reporting that the number of mortgage approvals for house purchase fell to a four-month low of 34,813.

The long-term average for the month is 59,387 approvals.

Andrew Montlake, director of independent mortgage broker Coreco, said the figure is worrying.

He said: “The latest figures show that mortgage lending still has a long way to go to reach healthy levels, and the fear is that with turbulent economic waters ahead, the lending climate is going to get significantly tougher in the second half of the year, with the fallout from the stress-testing of European banks and the dark clouds of public sector cuts and fiscal tightening looming overhead.

“Despite this gloomy prognosis, we must guard against talking ourselves into a double-dip scenario, as the reality is that for the property sector, falling house prices and more properties coming on to the market will hopefully stimulate activity by tempting wait-and-see buyers back through estate agents’ doors.”

Public still confident about house prices

2010-07-26T03:29:00.000-07:00

Monday 26th July 2010

Four in ten people who are planning to move home believe that buying now makes financial sense as they are confident house prices will rise over the next year.

Altogether, three-quarters of home movers believe that prices will either stay the same or go up.

Rightmove reported this morning from a survey of 20,000 prospective home movers.

But while confidence remains bullish, it has fallen: the 75% who believe prices will stay the same or rise compares with the 84% of price optimists recorded in April.

Miles Shipside, Rightmove commercial director, said: “A 9% drop is a significant shift. However, three-quarters of people still believe that prices will either be the same or higher in 12 months’ time. This suggests that either the government cuts have not yet bitten hard enough to knock the inherent belief in property as a long-term safe bet, or there is a strong sense that the property market’s dark days are behind us.”

He added: “With austerity measures starting to bite, a growing nervousness is to be expected.”

Rightmove itself has just recorded a drop in asking prices and is predicting that further falls in the second half of this year will wipe out gains in the first half.

Irwin Stelzer's View on the Economy - 25th July 2010

2010-07-25T08:45:00.000-07:00

* The housing sector, afflicted with an excessive inventory of unsold houses and potential buyers made nervous by a weak jobs market, is not likely to recover very soon.
* The jobs market will improve only slowly, and the long-term unemployed will find it especially difficult to get work, as will poorly educated teenagers and adults.
* Even if businesses do use their spare cash to make acquisitions — it should come as no surprise if the pace of such deals accelerates — that won’t do much to create jobs, and might actually lead to cost-cutting layoffs.
* Small businesses are more rather than less likely to remain on the sidelines, waiting to see the cost implications of healthcare “reform” and, if passed, an energy bill, and to find out just what the tax-raisers have in mind for them.
But not all of the things that are more rather than less certain are on the gloomy side of the ledger.
* Corporate earnings are surprisingly robust.
* Another meltdown of the financial sector is not in the cards.
* Growth in Asia and Latin America is likely although not certain: much depends on whether China’s economy slows, as some are predicting.
* The jobs market is more — rather than less — likely to improve, albeit slowly.
* Inflation remains tame, permitting the Fed to keep interest rates low for what Bernanke calls “an extended period”.
Most important of all, as The Economist puts it so well: “America still towers over rivals in scientific virtuosity, military power, the vitality of democracy and much else.” That is what will matter in the long run.

www.huntersnet.co.uk