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Mortgage Debt On the Up as House Prices Stagnate

According to the latest figures collated by the Money Charity, the UK’s total stock of outstanding mortgage debt was increased from £1.32 trillion to £1.37 trillion in the year to January.

If this is spread evenly amongst the 11.1 million homes across the UK that have outstanding mortgages, it means that typical outstanding mortgage debt per household currently sits at £123,292.

By the end of January, the average mortgage interest rate was 2.53%, or 2% for new loans. This meant that the average household should be accruing between £3,100 and £3,300 in interest each year.

Figures from the Financial Conduct Authority show that out of mortgage lending in the last quarter of 2017, 60.84% was lent to cover 75% or of the property’s value and only 4% of lending was to cover over 90%. January saw over 24,840 mortgages approved in total which is a decrease of 5% from January 2017. The value of loans being approved also fell with the figure of £188,500 being a 2% drop from the previous month.

Calculations from the building society Nationwide show that house prices dropped by 0.3% in February but were still up 2.2% from the same time last year. According to Halifax the average house depreciated in value by £522 in February, which was an improvement when compared with the drop seen the previous month. Halifax also reported that, over the quarter, house prices dropped by 0.7% but rose by 1.8% year-on-year.

According to the Office for National Statistics the typical price for first time buyers in December was £190,722. This shows a year-on-year increase of 4.7% – no change from the previous month. UK Finance said that, on average, first-time buyers were forking out around £32,493 for housing deposits. This is 17.1% of the cost of buying a typical home and 122% of the average annual income. On average, first-time buyers were being lent mortgages that were 3.65 times bigger than their salary, at £142,000.

Source: Money Expert

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BoE future rate hikes will have little impact on UK property

The Monetary Policy Committee kept the Bank of England base rate at 0.5 per cent for March, but previously warned that due to inflation and strong economic performance, rates are likely to rise faster than previously expected.

Some economists are predicting a 0.25 per cent rise as early as May, with potential for another increase later in the year.

Against this backdrop, is now a good time to invest in residential property?

Yes, for three key reasons.

First, we expect the impact on house prices of small interest rate rises will be concentrated in more expensive markets where people need very large deposits and higher incomes to support higher mortgage costs.

We’ve already seen house price falls in parts of London and the surrounding commuter belt, and affordability pressures and other economic uncertainties could lead to further reductions.

However, the Mortgage Market Review to stress test new mortgage offers against higher interest rates provides significant protection against default and, crucially for investors, house price falls are not a consistent story across the country.

In contrast to London, we’re seeing house price rises across the Midlands, south west and some of the northern regions. We expect house price growth in these areas to continue, albeit at a slower rate, regardless of Brexit uncertainty and interest rate rises, as average earnings have kept pace with house prices, aiding affordability.

Second, when investing in residential property, rental income is as important as capital growth, if not more so.

Private rental income, in contrast to commercial property, has proven to be extremely resilient across all economic cycles.

Fundamentally, we all need somewhere to live and the UK has a serious problem with undersupply of housing.

The government has said we should be building around 300,000 new houses a year, but in the last decade we have not even reached 200,000 a year.

Help to Buy and changes to stamp duty for first-time buyers have largely failed to stimulate growth in supply.

Brexit will not change this basic problem: even if immigration were to fall, with a growing domestic population and increasing longevity, the number of UK households will continue to rise.

And with uncertainty around interest rates, more people may choose the flexibility of renting rather than buying.

A significant minority of rented homes fail to meet Decent Homes Standards, meaning landlords of high quality, modern homes have an increased chance of attracting good tenants.

These factors all point to continued demand for well managed private rental accommodation and the outlook for residential rental income remains strong.

And finally, residential property offers an important diversification opportunity for both capital and income risk.

As an asset class, it shows low correlation with UK equities, fixed interest and cash over the medium- to long-term, through a combination of lower volatility and different underlying drivers and provides a diversified stream of income compared to traditional sources, such as bonds or dividends.

It also has a different risk return profile to commercial property and greater liquidity due to residential’s smaller average property sizes and larger volumes of transactions. As every property is different, investment at scale in the sector can be used to spread risk across a variety of locations and property types, and a large number of tenants.

Historically, residential property has provided attractive returns and low volatility over the longer term, regardless of the economic cycle, alongside low correlation to other mainstream asset classes.

Changes in interest rates will not change these fundamental investment benefits.

Alan Collett is chairman and fund manager at Hearthstone Investments

Source: FT Adviser

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Property sales bounce back in all but one UK region as first-time buyers replace investors

Residential property transactions rebounded in most UK regions during February, HMRC data shows.

The taxman’s UK Property Transaction Statistics for February 2018 shows 83,230 sales last month on a non-seasonally adjusted basis.

This is an improvement on the 81,580 recorded in January and reverses two consecutive months of falls.

England saw a 3% increase on a monthly basis to 72,140, while Wales was up 1.8% to 3,790.

Northern Ireland saw a 14% jump to 1,950, while Scotland was the only region to see a fall, down 14.2% to 5,350.

However, on a seasonally adjusted basis, HMRC says the transaction figures are down 0.3% on a monthly basis to 101,010, down 0.7% annually.

Brian Murphy, head of lending for Mortgage Advice Bureau, said: “What we can interpret from the statistics is that the housing market is continuing on a steady course, with transaction numbers broadly unchanged on the previous month and only very slightly reduced on the same time last year.

“This underscores industry forecasts that the market will continue to perform at the same level this year with a relatively steady number of transactions at a topline level, although the mix of buyers is changing as we see fewer investors, but the slack being picked up at entry level by first-time buyers.

“Having said that, as we continue to see a diverging regional picture with some areas experiencing a significant upturn in buyer activity, this overall trend masks the fact that some towns and cities have seen higher than anticipated levels of buyer activity in the first two months of this year.

“This ‘two tier’ market is therefore propping up the more subdued levels of activity in London and the south-east, a reversal of what we’ve seen in previous years, and potentially an indicator of what we may see over the course of the next few months.”

* However, haart’s monthly report found that transactions were down in February.

The agency said that buyer demand surged 20% last month and was up by 14% on February last year.

It also reported a rise in viewings and a 15% increase in transactions in London.

But transactions generally across England and Wales were down, however, by nearly 7% on the month and by 3% year on year.

Haart also says that house prices at exchange are down 2% on the year.

All the figures are from haart’s own network of some 100 branches in England and Wales.

Source: Property Industry Eye

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Interest rates set to be held, but May hike ‘in play’ despite falling inflation

Policymakers are expected to keep interest rates on hold at 0.5% after inflation fell to a seven-month low, but experts believe a hike may still be on the cards for May.

The rates decision comes after official figures showed inflation falling to 2.7% in February – its lowest level since July last year – as the squeeze on household finances finally begins to ease off.

While inflation cooled more than the Bank of England expected, economists predict the Monetary Policy Committee (MPC) will still be keen to bring rates up to more normal levels after more than 10 years of record low borrowing costs.

Howard Archer, chief economic adviser to the EY ITEM Club, said falling inflation “should make little difference to the monetary policy outlook and we expect this week’s meeting to prepare the ground for the MPC to hike rates again in May”.

James Smith, an economist at ING, added that improving wage growth may also spur the Bank into action.

Office for National Statistics figures on Wednesday showed that wage growth lifted to 2.8% in the year to January, a rise of 0.1% on the previous month, and the highest since September 2015.

But it still failed to outpace inflation, which was running at 3% in January.

Mr Smith said: “Policymakers are increasingly focusing on wage growth, which has been showing signs of life recently, potentially suggesting firms are increasingly having to lift pay more rapidly in a bid to retain and attract talent.

“This, combined with the latest Brexit progress – which bolsters the Bank’s argument that the move to the post-Brexit world will be smooth, makes a May rate hike increasingly likely.”

Governor Mark Carney has already warned borrowers that rates will need to rise “somewhat earlier and by a somewhat greater degree” to get inflation back on target after stronger-than-expected growth in the economy.

Experts believe the comments last month paved the way for two rate rises in 2018, and another in 2019, which would see rates climb to 1.25%.

The MPC is expected to raise rates alongside the next set of quarterly inflation forecasts in May, according to economists.

However, this month’s meeting comes amid signs that the economy is also struggling to pick up pace.

Official figures showed the economy grew by less than previously thought, up by 0.4% in the final quarter of 2017 against the 0.5% initial estimate.

This means it has remained in line with the 0.4% seen in the previous quarter, while experts are pencilling in 0.4% again in the first quarter of 2018 as construction and manufacturing sectors struggle.

The powerhouse services sector continues to be a bright spot, unexpectedly reaching a four-month high in February, according to the most recent purchasing managers’ index.

Chris Williamson, IHS Markit’s chief business economist, said the services sector boost keeps a May interest rate hike from the Bank of England “very much in play”.

But not all economists are convinced over the rates outlook, with Samuel Tombs at Pantheon Macroeconomics saying the latest inflation figures “give the MPC reason to doubt the case for raising interest rates again as soon as May”.

Source: BT.com

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Modular Homes – The Solution To The Housing Crisis?

We continue to face a growing housing crisis and industry experts are divided in their opinion of potential solutions. Modular Housing is one such potential solution. Modular Homes are built in “modules” off site at factories and then transported to and assembled on site. They are placed on existing on-site foundations and their assembly involves clipping the modules together, connection to pre-existing services and the practical completion of exterior and roof structures.

Arguably the biggest advantage with Modular Housing is the speed and efficiency in how it can be delivered. Modular Homes are much quicker to construct in comparison to traditional build homes with some developers offering practical completion on-site in as little as two weeks. The homes can be assembled with relative ease and do not face the same challenges as the traditional housing market such as the shortage of skilled workers (caused by an ageing workforce and an exodus due to Brexit) and the British weather! They are also considered much more cost efficient as the modules are assembled on a production line. Modular Homes are also considered to be much more energy efficient leaving a much smaller carbon footprint. Cheaper, greener homes assembled quickly- all good news, right?

Whether Modular Housing is the solution or part of the solution to the current housing crisis, remains to be seen and there are some challenges. Whilst designs on a production line may seem like a good idea many registered providers and developers have their own requirements and bespoke housing offering and this may require investment in an off-site production facility. Berkeley Homes, which currently builds 4,000 homes a year, is planning to create a factory in Kent where up to 1,000 houses and apartments will be produced annually which will then be craned on to sites. The regulatory position is also far from established. Modular Homes require Building Control sign off but inspectors have to take extra precautions when signing off. Building Regulations continue to change. The evolution and technology seems to be moving much faster than the regulation. This uncertainty poses an issue for the already risk averse finance industry. There is also a misconception that Modular Homes lack the quality of traditional homes due to the “cheap” build cost. It is also unclear whether all new home warranty providers will embrace Modular Housing. Some people have also argued that the UK is not equipped to deal with and deliver Modular Housing unlike some of our European counterparts and we lag behind in terms of production and delivery.

Despite the challenges, there is growing interest in Modular Housing and there is no doubt that prefabrication is undergoing a revival. As well as Berkeley, several other developers including Legal and General and Urban Splash have launched prefab’ homes divisions. Wolverhampton Homes, in partnership with Wolverhampton City Council will be delivering 23,000 Modular Homes as part of a pilot scheme. Also, recently, Tide Construction submitted a planning application for a 546 unit modular high rise in Croydon. Does this mean that the housing industry is changing? It is too early to say but whatever happens, industry professionals will be keeping a keen eye on such pilot schemes.

Source: Mondaq

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Mismatch between housing costs and earnings in Brighton and Hove highlighted by new report

The South East Home Truths 2017-18 report by the National Housing Federation estimates that the average home now costs almost £395,000 in the Brighton and Hove City Council area.

This is 14 times the typical local salary, the report said, making home ownership impossible for many.

The report also said

• The cost of renting privately has added to the pressure on people’s income. Average monthly rents now stand at £1,292 swallowing up around 55 per cent of private renters’ income.

• A significant number of housing benefit recipients are in work – 27 per cent – yet are still unable to afford their rent. This is higher than the England average. This shows rents across the region are increasingly unaffordable.

• One of the reasons for the growing crisis is down to a large shortfall of new housing. From 2012 to 2016, an estimated 5,700 too few homes were built in Brighton and Hove.

Housing associations in the south east built more than 6,000 homes in 2016-17 and started a further 8,700.

And more than 4,800 of these starts and completions were classed as being for “affordable” home ownership, including shared ownership.

National Housing Federation external affairs manager Dave Smith said: ‘The housing market has seen a relentless rise in the gap between house prices and people’s salaries.

“Brighton and Hove is no exception. Attaining a mortgage is increasingly unrealistic and private sector rents make saving up that bit more difficult.

“As this year’s Home Truths report shows, it is more important than ever for the sector to be able to deliver homes that are truly affordable.

“If we want to get serious about ending the housing crisis, we need to start looking at unlocking more land so we can build homes faster.”

Hyde Housing’s operations director Tom Shaw said: “The delivery of more homes of all types in Brighton and Hove is important to meet demand.

“Hyde has set up a partnership with Brighton and Hove City Council to significantly increase the supply of new affordable homes in the area.

“We are investing over £60 million to build 1,000 new low-cost homes for sale and rent specifically for local people earning the typical local wage.”

Councillor Anne Meadows, who chairs the council’s Housing and New Homes Committee, said: “Building affordable rented new homes for local people is a key priority for Brighton and Hove City Council.

“There is a huge demand for housing in the city and, with the supply of low-cost rented homes not keeping pace with demand, we’re having to look at innovative solutions to build much-needed new homes.

“The joint venture is the biggest commitment to affordable housing in the city for a generation.

“Alongside our New Homes for Neighbourhoods programme, building new council housing, it will deliver decent and genuinely affordable homes for local residents and create a significant number of jobs and apprenticeships.”

Source: Brighton and Hove News

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Bank of England’s BTL changes make it harder to get a mortgage

Six months after the Bank of England’s (BoE) latest attempt to cool the buy to let market, almost two thirds of landlords (63%) who are aware of the changes say it is now harder to get a mortgage.

The changes, which come from BoE’s Prudential Regulatory Authority (PRA), were introduced in two stages last year. The first stage in January 2017 required lenders to apply an interest cover ratio (ICR) of 5.5% to all products with terms of less than five years. More stringent stress tests were also introduced for all buy-to-let mortgages, with monthly rental income typically needing to cover 125 percent of mortgage repayments.

The second stage, introduced in September 2017, requires portfolio landlords, i.e. those with four or more buy to let mortgages, to undergo specialist underwriting processes when seeking new buy-to-let mortgages. This includes additional affordability tests with providing supporting documentation such as business plans. It also means that underwriters must look at the landlord’s entire portfolio when considering new applications, not just the property needing to be financed.

According to the National Landlords Association’s (NLA) latest research, 63% of landlords aware of the changes believe it makes obtaining new buy-to-let mortgages more difficult. This increases to 70% for portfolio landlords, i.e. those with four or more buy-to-let mortgages.

Similarly, almost half (48%) of landlords aware of the changes believe it has slowed down the finance process and 46 percent believe the changes reduce the range of mortgage products available.

Richard Lambert, CEO of the NLA said:

“These findings show that the PRA’s changes seem to be greatly affecting the ability of landlords to find new finance and increase their portfolios. Given that the private rented sector now makes up 20% of the housing market, it is vital that professional landlords are incentivised to continue providing good quality affordable housing to those who need it. This appears to be achieving quite the reverse.”

“Landlords looking to add new properties to their portfolios need to be conscious of the new requirements. We suggest talking to your mortgage broker or bank before committing to any new property.”

* NLA Quarterly Landlord Panel – Q4 2017 (814 respondents)

Source: Property 118

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UTB poll: 92% of brokers braced for rate rise

Some 92% of property and asset finance brokers think the Bank of England will further increase the base rate this year, research from UTB has found. 

A poll of over 120 respondents found that just 7% believe the base rate will remain unchanged throughout 2018. Surprisingly 1% feel that we could see a drop.

In a further question, brokers were asked to indicate whether they believed Theresa May would still be the Prime Minister at the end of the year.

And 72% believed she would see out the year in Number 10, however 28% believed there would be a change of Prime Minister in 2018.

Harley Kagan, group managing director – United Trust Bank, said: “Since November 2017 when the base rate was increased, speculation about when the next move would come has been rife.

“However, in all the polls we’ve held at UTB, this result has shown the biggest consensus amongst finance brokers expecting a rate rise this year.

“However, although there seems to be expectation that an increase could come as early as May, there are several factors which might cause the Monetary Policy Committee (MPC) to show more caution.

“For example, The Term Funding Scheme ended in February. This provided below market cost liquidity to banks in order to encourage lending to the public and its removal may already be having an impact on saving and lending rates.

“In addition, the Bank of England has so far assumed a relatively smooth path to Brexit, but with substantial divisions within parliament, and within the Conservative Party itself, Theresa May is unlikely to find it easy to guide through her preferred Brexit based on a fragile majority. Indeed, more than a quarter of brokers believe she may not be the PM presiding over the actual Brexit at all.

“With so much uncertainty still surrounding what the UK’s economic and trading position will look like come April 2019, there’s a strong argument for leaving rates alone until the outlook becomes clearer.”

Source: Mortgage Introducer

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Three buy-to-let investment zones to look out for in 2018

After a difficult year for buy-to-let investors saw profits in London slump, you could be forgiven for thinking it’s a bad time to expand your property portfolio. But, despite a drop in confidence due to Brexit, and following successive tax increases for buy-to-let purchasers, the property market is still going strong — it’s just that investors are moving away from the capital and looking north instead.

The North of England is currently undergoing something of a miniature economic boom, with digital and tech industries driving demand for high-quality rental accommodation among young professionals. Regional regeneration projects, innovative new housing, and exciting new cultural events are boosting the profile of northern towns and cities, shaking up a property market that was once seen as a stagnant.

If you’re looking to invest in a buy-to-let this year, you could see high rental yields and strong capital growth in the north, so it’s well worth taking a look at real estate that’s not in the pricey south-east. Here, I’ve shared three of the most promising northern towns and cities, including which areas and markets are hotly tipped to be a success with investors in 2018. Just read on to find out more.

Manchester

It’s an exciting time to invest in the unofficial capital of the north. Property prices in the city look set to rise faster than ever, with research from Home Track published in the Financial Reporter claiming that prices could rise as much as 20-30% by 2022. So, property in Manchester looks to be a safe bet for those looking for strong capital growth on their investment.

The outlook for rental yields also looks promising. Following the recently announced expansion of Media City UK in Salford Quays, and the success of the digital and tech sectors in the city’s Northern Quarter, Manchester’s population of affluent young professionals is on the rise. As a result, there’s currently a high level of demand for top-quality rental accommodation.

Given the city’s 80,000 strong student population, it’s also a solid area of investment for those looking to offer student lets. In suburbs popular with students, such as Fallowfield and Chorlton, it’s not uncommon to see rental yields over 6%, according to Leaders.

Liverpool

With the city set to benefit from a £5.5 billion regeneration scheme that will transform the northern docks area (Liverpool Echo), Liverpool is an increasingly desirable place to live. But, despite how popular the city is with young professionals, rental properties are in short supply, and there’s currently not enough available to meet demand.

The popularity of the city and the scarcity of quality rental accommodation are both very good news for investors. With landlords enjoying rental yields as high as 8%, returns in Liverpool are currently some of the highest in the country, beating southern hotspots such as Southampton, Coventry and even trendy Brighton to take the top spot in a survey by This Is Money. There’s also a buoyant student rentals market, with demand driven by the 50,000 students living in the city: the areas surrounding Liverpool Hope and John Moores University are especially lucrative for house and flat shares.

Gateshead

If you’re looking for a low-cost investment with solid rental yields, look no further than Gateshead. Property prices are rising slowly but steadily meaning that, while it’s not one for quick capital growth, it’s still a dependable bet for investors looking for property that will retain its value. The expanding north east job market is attracting a steady supply of professionals to the area, while upcoming regional events, such as the Great Exhibition of the North later this year, look set to cement Gateshead’s profile as an investment hotspot even further.

Average property prices in the north-east town are still 46% under the national average (Telegraph), making it an affordable investment for buy-to-let investors with smaller budgets. In terms of rental yield, investors can expect healthy returns owing to overall low property prices: a one-bed flat in central Gateshead could see an average yield of 7.6%, according to Property Data. While neighbouring Newcastle boasts two large universities, most students are looking for something closer to their place of study, so the focus should definitely be on professionals in smaller homes over large student house shares.

If you’re looking to expand your property portfolio this year, you may want to step away from London and south-east England and take a look at the housing stock in areas like Liverpool, Manchester, and Gateshead. With affordable house prices that are rising steadily, and great potential rental yields, it could be your next big success.

Source: SME Web

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Why are luxury property prices in London falling?

There were only 369 houses sold for £5 million or more in the UK last year, down 15% on 433 sold in 2016 and down a third on 545 in 2014, shows research by Lendy, one of Europe’s largest peer-to-peer secured lending platforms.

Lendy says that these super-prime property sales were worth £3 billion last year, falling from £3.7 billion in 2016 and £4.7 billion in 2014.

The property platform explains that key drivers of the fall in luxury home sales are likely to include a slowdown in purchases by overseas high net worth individuals since the Brexit vote, and banks becoming more cautious in lending, even to the wealthiest individuals.

Lendy says that since the Brexit vote, non-UK high net worths (HNWs) have started to turn more cautious on super-prime residential property. Some are choosing to put investment plans on hold until the Brexit process is complete, or instead purchase larger portfolios of lower-value property.

Lendy adds that banks have also become more cautious on their lending to high net worth individuals, with even private banks instituting more stringent lending criteria and reducing LTVs. This has made it more difficult to obtain the multi-million pound mortgages needed for super-prime purchases.

The property platform says that the London boroughs of Kensington & Chelsea (118 sales) and Westminster (111 sales) remain the most popular locations for super-prime residential purchases. 62% of all £5m+ purchases in 2017 were located in just these two boroughs.

These areas were followed by the London boroughs of Camden (44 sales) and Barnet, home to The Bishops Avenue, known as London’s Millionaire’s Row (14 sales). Fifth is Elmbridge in Surrey, which has become known as ‘Britain’s Beverly Hills’ (10 sales).

Liam Brooke, co-founder of Lendy comments: “Super-prime residential properties have definitely seen a slowdown in just the past 12 months, with overseas investors keen to see what Brexit will look like, and what effect it will have on the market.

“Private banks have also tightened up their lending criteria for high net worth investors. A £5 million mortgage isn’t as easy to come by as it once was, even for investors with very substantial wealth.”

Source: London Loves Business