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Investor enthusiasm for UK commercial property slumps

Investor enthusiasm for commercial property in the UK has slumped further as sentiment swings towards France and Germany.

Only 27 per cent of international professional real estate investors said the UK is their preferred market, down four per cent in the last 12 months as Brexit uncertainty continues to weigh on investor sentiment.

Meanwhile support for the French market saw a 20 per cent year-on-year increase and appetite for German investments rose by seven per cent, according to the latest commercial property investment barometer by real estate platform Brickvest.

There was also a drop in the volume of assets under management that investors are planning to plough into real estate over the next year according to the quarterly survey of 6000 international professional investors.

Investors are planning to commit 2.5 per cent of their total AUM, a drop of 33 per cent on the planned amount of 3.7 per cent in the second quarter of last year.

Brickvest chief executive Emmanuel Lumineau said: “The latest figures of our Barometer reveal the continued negative effect of Brexit uncertainty on the UK commercial property market among international investors and particularly those based in France and Germany.

“We can expect this to continue over the third quarter and the October deadline at the very least.

“In the meantime, France and Germany are becoming more attractive destinations for international real estate capital.”

By Jess Clark

Source: City AM

Bank of England rates
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No rush for Bank of England to raise rates after a Brexit deal

The Bank of England probably has more time than it previously thought before it will need to raise interest rates, assuming Britain can leave the European Union with a transition deal, BoE interest-rate setter Silvana Tenreyro said on Wednesday.

The pound would probably rise after a Brexit deal, Tenreyro said. Combined with the ongoing slowdown in the world economy this would probably offset the inflation pressure building in Britain’s labour market and allow the BoE to keep rates on hold at their current level of 0.75% for a while.

“Coupled with signs of a weaker global outlook, recent developments likely lengthen the period until there is a sufficient pick-up in inflationary pressures for me to vote to raise Bank Rate,” Tenreyro said in a speech. “I do not currently anticipate such a pick-up in the next few months.”

Tenreyro said a “small amount of policy tightening” would be needed over the next three years in the event of a Brexit deal.

The BoE has long advised investors that rates are likely to go up in a gradual and limited way, as long as a Brexit deal is done.

In the event that Britain leaves the EU without a deal, it was more likely than not that the BoE would need to ease monetary policy to soften the shock, she said, repeating comments she made in March.

But this was “by no means certain,” she added.

The fall in yields on British debt reflected worries about the world economy and not just Brexit, she said.

Many investors are betting that the BoE’s next rate move will be a cut, not an increase, given their fear that a no-deal Brexit looks more likely.

Both contenders to replace Theresa May as the next prime minister have said they are prepared to take the country out of the EU without a deal if necessary.

BoE Governor Mark Carney said last week that the risks of a no-deal Brexit and an escalation of global trade tensions were rising, adding to bets in markets on a BoE rate cut.

Source: Investing

Marketing No Comments

Government urged to hold off on further buy-to-let interventions

The Government is being urged to hold a moratorium on further buy-to-let interventions after analysis found the market has swung in favour of large institutional landlords.

Research by the Intermediary Mortgage Lenders Association (IMLA) – based on the Government’s 2018 English Private Landlord Survey – warned that further changes could affect rental supply and mean higher rents for tenants.

IMLA’s analysis found professional landlords, as of the end of 2018, represent 48% of the private rental sector, up from 38% in 2010.

In contrast, the number of single-property landlords has fallen from 40% to 21% over the same period.

This was blamed on a tougher mortgage market, the increasing size of the build-to-rent sector and mainly, IMLA claims, due to Government changes such as additional Stamp Duty and the scaling back of mortgage interest relief making buy-to-let less profitable.

Kate Davies, executive director of IMLA, said: “We are concerned that layers of Government intervention have adversely affected small-scale landlords’ ability and appetite to invest in properties over recent years.

“As increased tax and regulatory responsibilities increasingly disincentivise landlords, we face a possible topping out of the private rental sector (PRS).

“While it’s good to see professional and institutional investors increasing their stake in the nation’s housing stock, the number of one-property buy-to-let investors has fallen by almost half.

“Squeezing the PRS puts the pressure on millions of renters in Britain. We are strong advocates of a fair market with a quality supply of homes. Restricting the PRS risks a lack of supply, rising rents and a fall in the quality of rental accommodation.

“We have repeatedly called for Government to put the brakes on regulating and taxing our nation’s landlords. We urge a more moderate approach to ensure our private rental sector remains strong for the millions of renters who rely on it.”

By MARC SHOFFMAN

Source: Property Industry Eye

housing market
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Housing market could take hit in Labour IHT reform

The housing market could take a hit if inheritance tax is reformed the way the Labour party intends, experts have warned.

Last month the Labour Party’s independent report on cutting inequalities in land ownership had called for the abolition of inheritance tax in a bid to stabilise house prices.

Under the plans, inheritance tax would be replaced with a lifetime gifts tax levied on the recipient on the gifts received above an allowance of £125,000. When this lifetime limit is reached, any income from gifts would be taxed annually at the same rate as income.

Since then the Office of Tax Simplification’s review of the IHT rules — which currently levies a 40 per cent charge on estates over £325,000 — has been published, calling for a reform of the seven-year gifting rule, alongside a new allowance and abolishing the tapered rate of Inheritance Tax.

Experts warned the ‘bank of mum and dad’ — which currently acts as the eleventh biggest UK lender in terms of buying property — would be scuppered by Labour’s £125,000 limit.

According to data from L&G, parents and grandparents will help buyers purchase a total of nearly £70bn of property wealth this year, much of which could be taken away by the taxman under the plans.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said a reform of IHT rules like the one Labour is suggesting would “fill parents with horror”.

She said: “Inheritance tax is already Britain’s most hated tax, but at least at the moment they can take steps to avoid it.

“They can pass as much of their wealth to younger members of their family throughout their lifetime as they want and as long as they live for seven years after making the gift, it’s not counted as part of their estate for inheritance tax purposes.”

The Labour report estimated that taxing gifts through the new system would raise £15bn in the 2020-21 tax year — £9.2bn more than under the current IHT system and in a ‘more progressive way’.

Last month (June 30) shadow chancellor John McDonnell confirmed the Labour Party was looking at the reforms in the report as a range of ways to distribute wealth more equally in the UK.

Ms Coles said the current rules on lifetime giving had helped encourage people to share their wealth within their family before their death and the earlier they make these gifts, the better from a tax perspective.

This means younger people benefit from payments when they need them most and the new rules would remove this incentive, she added.

Dan White, of White Financial Services, said there was “no doubt” that IHT could have an impact on potential buyers.

He added: “That said, if property prices drop then any potential ‘gift’ monies could be less relied on and may not require such large ‘gifts’ to help towards deposit funds.”

Ruth Whitehead, of Ruth Whitehead Associates, said: “The housing market could definitely take a hit as it would definitely impact on middle class families in the south of England trying to support their first time buyer offspring to buy in a very expensive market.

“But, Labour are only ‘looking at’ lowering the inheritance tax allowances. This would only come to pass if Jeremy Corbyn won a general election and became prime minister.

“Which isn’t going to happen any time soon, if at all. So I don’t feel that is, as yet, a matter of concern.”

By Imogen Tew

Source: FT Adviser

Marketing No Comments

Property investors call for more government support

The majority of UK property investors (97%) feel the government is not doing enough to support the UK property market.

Meanwhile, 33% of property investors called for a reversal on the changes to tax relief on buy-to-let mortgages and 17% believed introducing a tiered tax system on buy-to-let property would better support the UK property market.

Gareth Lewis, commercial director at MT Finance, said: “It is interesting that the stamp duty surcharge and removing it is more important to property investors than mortgage interest tax relief – it suggests this group of investors are the ones who are most likely to expand their portfolios.

“The government has introduced a series of changes to slow down an overheated property market and reduce the number of buy-to-let investors over the years.

“Property investors have been dealt some serious setbacks, impacted by changes to stamp duty and changes to tax relief but despite the changes, many remain resilient and still see property investment as a key tool for retirement planning, and a good home for their monies whilst interest rates are low.”

When asked who they would vote for if a general election were called today, half revealed they would back the Conservative Party, 18% said the Liberal Democrats, followed by the Brexit Party at 16%. Only 3% of property investors revealed they would back the Labour Party in a general election.

By Michael Lloyd

Source: Mortgage Introducer

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UK economy shows slowdown signs as recruiters, shoppers turn wary

British employers and shoppers are turning increasingly cautious, indicators showed on Friday, suggesting two of the drivers of the economy during the Brexit crisis are losing momentum.

In a week when business surveys pointed to a contraction in overall output in the second quarter, the latest signals from Britain’s boardrooms and high streets underscored the extent of the slowdown following a strong start to 2019.

That was when many companies were rushing to prepare for the original Brexit deadline in March.

The latest figures showed that the subsequent slowdown in the economy was not just payback for the stockpiling surge.

The number of people hired for permanent jobs via recruitment firms in Britain fell for a fourth month in a row in June, recruitment industry group REC said on Friday.

The figures represented a stark contrast to the robust hiring activity in 2018.

“Brexit stagnation continues to seize up the jobs market as the slowdown in recruitment activity continues,” said James Stewart, vice chair at KPMG which produces the report with REC.

For temporary staff, hiring rose marginally in June, marking the weakest patch of growth since May 2013, when Britain’s economy began to emerge from the after-effects of the global financial crisis.

Britain’s labour market has been one of the strengths of the economy since the 2016 Brexit referendum.

Unemployment fell to its lowest rate since 1975 at 3.8% in the first quarter of 2019, according to official data.

Many economists have linked the jobs boom to uncertainty about Brexit which has made employers favour hiring workers — who can be laid off quickly — over the longer-term commitment of investing in equipment.

But the jobs surge has put more money into people’s pockets which had driven consumer spending, offsetting a fall in investment by many companies.

Data on Friday showed Britain’s high street retailers had a “washout” June, however, as shoppers did not respond to early summer sales discounts.

“We saw retailers discount early on in June, adding further pressure to tight margins, yet they still weren’t able to salvage the month,” said Sophie Michael, head of retail at BDO, an accountancy and business advisory firm.

The survey chimed with another weak reading of retail sales published last week.

The Bank of England has said Britain’s economy probably had zero growth in the April-June period, contrasting with growth of 0.5% in the first three months of 2019.

BoE Governor Mark Carney warned on Tuesday that the prospect of a no-deal Brexit and the rise in protectionist trade policies around the world, led by U.S. President Donald Trump, posed growing risks to the British economy.

Surveys published this week of Britain’s manufacturing, construction and services sectors suggested the economy contracted by 0.1% in the second quarter.

That would be the first fall in gross domestic product since the end of 2012.

A survey published by an employers group showed British businesses turned gloomier, bucking an improvement in sentiment earlier this year.

By William Schomberg and Catherine Evans

Source: Zawya

UK house prices
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UK house prices surge 5.7 per cent in June

UK house prices shrank by 0.3 per cent in June compared to the previous month, according to data released today.

But the growth rate rocketed 5.7 per cent on an annual basis last month, according to Halifax’s latest house price index, to take the average UK house price to £237,110.

That compares to May’s £237,837, when Halifax recorded an annual growth rate of 5.2 per cent – the best in two years until today’s figures.

Russell Galley, managing director of Halifax, said: “This extends the largely flat trend we’ve seen over recent months.

“More generally the housing market is displaying a reasonable degree of resilience in the face of political and economic uncertainty.

“Recent industry figures show demand looking slightly more stable, with mortgage approvals ticking along just above the long-term average.”

However, he warned that a “major restraining factor” for the UK housing market was the lack of houses up for sale.

“With the ongoing lack of clarity around Brexit, people will be looking for more certainty in the coming months, both to encourage them to list their property and to create the confidence needed to encourage buyers,” Galley added.

“Of course, the likelihood of continued historically low mortgage rates will underpin prices in the near term.”

Halifax figures are a ‘complete outlier’
Howard Archer, chief economic adviser to the EY Item Club, dismissed Halifax’s data as a “complete outlier in annual terms”.

It compares to Nationwide’s annual growth rate of just 0.5 per cent in June and Office for National Statistics (ONS) data of 1.4 per cent growth for April.

“There are signs that housing market activity may have got a little help from the avoidance of a disruptive Brexit at the end of March, but the overall benefit looks to have been limited,” Archer said.

“Improved consumer purchasing power and robust employment growth has also recently been helpful for the housing market but this has recently shown some signs of levelling off.”

Meanwhile, former Royal Institution of Chartered Surveyors (Rics) chairman, north London estate agent Jeremy Leaf, also questioned the figures.

“It paints a confusing picture with the annual house price increase actually greater than it was last month while comparative figures from 12 months ago are also unreliable,” Leaf said.

Buyers ‘looking beyond Brexit’
Leaf added that Brexit uncertainty has softened UK house prices, with today’s figures likely to dampen buyers’ appetites as prices continue to fall.

However, he said that many buyers have stopped delaying purchases and are pushing ahead with house hunts even amid the political uncertainty hitting the market.

“We are finding that some buyers, including some investors, are looking beyond Brexit and political uncertainty and are prepared to go ahead if they can perceive value,” he said.

Brian Murphy, head of lending for Mortgage Advice Bureau, said: “The market trend continues to follow a similar direction of travel to the one that we’ve observed since the beginning of this year; those who need to move are doing so, regardless of politically-driven news headlines, and are far more likely to make the decision to purchase based on their own circumstances should the need dictate.

“The availability of competitive mortgage products is also providing many with support, as lenders remain very much ‘open for business’ with some repricing downwards of late in order to gain more traction in the market.”

What will UK house prices do after Brexit?
EY’s Archer predicted that even in the event of a Brexit deal, the UK’s prolonged departure from the bloc will hamper growth of UK house prices over 2019.

The accounting giant predicts prices to rise only around 1.5 per cent this year.

“Prolonged uncertainty will weigh down on the economy and hamper the housing market,” Archer said.

“Consumers may well be particularly cautious about committing to buying a house, especially as house prices are relatively expensive relative to incomes.”

While a lack of homes on the market and very low interest rates should prop up the market in the meantime, Archer warned the nature of Brexit will dramatically impact UK house prices.

With a deal, house prices could grow by around two per cent over 2020.

But in a no-deal Brexit, Archer warned house prices could “quickly drop” by as much as five per cent.

By Joe Curtis

Source: City AM

BTL products Fixed rates Professional landlords
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Cost of BTL products dips

The average price of a buy-to-let mortgage has dropped over the past three months in a further sign that demand was drying up.

Latest data from Mortgage Brain’s quarterly analysis of the market showed the average cost of both tracker and fixed-rate buy-to-let products dropped and some experts have put the reduction down to providers trying to entice landlords in a difficult market.

For example, the analysis showed the cost of a 60 per cent loan-to-value two-year tracker mortgage dropped 3 per cent in Q2, while the same product at 70 per cent LTV now costs 2 per cent less than it did in March.

Landlords looking for fixed rates have also seen a decline in cost as the data showed a 2 per cent reduction in the cost of five-year fixed products.

The findings also showed a fall in cost of about 1 per cent for 60 per cent and 70 per cent LTV three year-fixed buy-to-let mortgages.

Although seemingly marginal, Mortgage Brain stated that a 3 per cent drop for a £150,000 mortgage at 60 per cent LTV could save a borrower upwards of £230 a year in a market where margins are slim.

Mark Lofthouse, chief executive of Mortgage Brain, said: “With new regulations, tax changes, and the potential for base rate rises coming into play, the buy-to-let landscape remains as complex as ever.

“While the mortgage cost movement over the past three months has been minimal, the majority of the movement has been favourable and with specialist advice and support from brokers, buy-to-let investors and potential landlords can continue to make the most of the low rates and costs in the buy-to-let market.”

Landlords have been subject to a number of regulatory changes in recent years, with the introduction of an additional 3 per cent stamp duty surcharge on second homes in April 2016 shortly followed by cuts to mortgage interest tax relief.

Buy-to-let borrowers are also now subject to more stringent affordability testing under the Prudential Regulation Authority’s tightened underwriting rules and the government has proposed abolishing the so-called ‘no fault’ Section 21 notices which give landlords the power to evict tenants at the end of their tenancy without a reason.

Back in January, the Intermediary Mortgage Lenders Association warned this year’s tax return would be the first time many landlords would see the effects of the changes on their earnings.

The data from Mortgage Brain also showed the difference in cost between residential and buy-to-let products, demonstrating the variation in risk between the two strands of mortgages.

The latest figures showed the cost of an 80 per cent five-year fixed product was 19 per cent higher than for its residential equivalent, while tracker products cost about 7 per cent more in the buy-to-let sphere.

Nick Morrey, product technical manager at John Charcol, said: “The difference between buy-to-let and residential products is interesting as it highlights the risk difference between the two.

“It would appear that the difference is highest for five-year fixed rates, which is a reflection of the need for them for landlords whose properties do not meet the affordability stress tests on other products and therefore effectively find themselves being able to only consider five-year fixed rates.”

According to Mr Morrey, this has created a “captive market” where lenders can levy a higher rate on five-year fixes and still sell the product as for some landlords it is the only option.

Mr Morrey added that the drop in costs for buy-to-let lending in general was not unexpected given the high level of competition in the area and the fact the market had seen some signs of declining demand due to changes to tax and regulation.

He said: “To grow or even maintain market share, lenders are shaving down their rates as much as they can and looking to tweak their criteria to cast a slightly wider net.”

By Imogen Tew

Source: FT Adviser

housing market
Marketing No Comments

Pound slides on UK growth concerns, BoE rate cut bets

There was no real catalyst for this morning’s sell-off, with investors instead dumping the Pound following a dire week of UK economic data and concerns that the Bank of England could join the Federal Reserve in cutting interest rates in the second half of the year. Yesterday’s soft services index ensured that this week’s PMI prints all came in much worse-than-expected, while suggesting that the UK economy barely grew in the second quarter of the year.

Even prior to this week, investors had already begun ramping up expectations for Bank of England interest rate cuts, particularly given that the Brexit impasse has shown no signs of ending any time soon. These expectations have heightened in the past few days following some dovish comments from BoE Governor Mark Carney earlier in the week.

Financial markets are now placing around a 50% chance of a cut before the end of the year. While we think that this is a slight overreaction, the current backdrop of growing calls for BoE rate cuts and increasing bets in favour of a ‘no deal’ Brexit come the end of October are far from providing a conducive environment for Sterling strength.

Euro heads for worst week in 3 ahead of payrolls report

Elsewhere, the Euro edged modestly lower again this morning, putting it on course for its worse weekly drop in three weeks ahead of this afternoon’s US labour report.

The common currency has been firmly on the back foot in the past couple of weeks as European yields extend their move downwards. The German 10-year government bond yield has dropped particularly sharply since Mario Draghi’s dovish speech in mid-June and is now at an all-time low of -0.4%. This far from provides an attractive proposition for foreign investors.

As we mentioned yesterday, this afternoon’s payrolls report presents itself as a particularly significant event risk for the currency market. Last month’s payrolls report was uncharacteristically poor, so the bar for a rebound this month is pretty low. That being said, even a pretty big upside surprise would, in our view, be insufficient to prevent the Fed cutting rates later this may, although may be enough to quieten calls for an aggressive pace of policy easing during the rest of 2019.

Today’s payrolls report will be released at 13:30 UK time.

Written by Matthew Ryan

Source: Ebury

Marketing No Comments

The peer-to-peer industry isn’t doing enough to protect investors

The abundance of peer-to-peer lenders offering high yielding loans has been getting the attention of regulators.

Many peer-to-peer lenders target unsophisticated retail investors, who can invest as little as £100. And yet, there is a relatively high cost to on-board small investors, because platforms have to handle customer calls, and anti-money laundering requirements.

There have been dozens of failures, but the closure of Lendy has shocked the industry. The high-profile peer-to-peer lender accrued more than £160m on its loan book, and by the time the administrators were called, £90m was believed to be in default.

Many firms are being supported by equity injections (crowdfunded by retail investors), but given their high cash burn, it is simply a matter of time before they too fail.

Some providers offer woefully inadequate provision funds, which give a false sense of security. When Collateral collapsed last year, it emerged that they did not have the correct regulatory permissions.

Profitability aside, there is a fundamental issue with most peer-to-peer firms.

They are just a data intermediary between borrowers and lenders, rather than a financial intermediary. They earn fees based on volume of transactions, regardless of the underlying loan performance, whereas financial intermediaries, such as banks, have obligations to repay depositors when loan investments go bad.

Without this alignment of interest, the level of due diligence performed during the underwriting process is limited, and the onus is on the investor to understand the risks and read the terms and conditions.

But many investors do not bother reading the small print, which is usually signed electronically at the click of a button. Investors are often unaware of the risks.

Clearly, more needs to be done to protect investors. Recent regulatory changes to protect investors include a cap on investor wealth in such investments.

However, minimum standards of underwriting criteria should be introduced by the Financial Conduct Authority, such as valuation methodology and borrower’s solicitor requirements, so that risks are managed.

In Germany, for example, a banking licence is required by all lending firms. Obtaining this is a more thorough process to check that the lender’s systems and staff are appropriate.

Default rates are currently artificially low, because at the end of a loan term, borrowers easily jump ship to another peer-to-peer lender eager to lend money.

Meanwhile, the shortage of good quality loan opportunities means that small peer-to-peer players, who don’t have established broker relationships, will end up lending on risky assets and borrowers.

Both borrowers and brokers are wary of the ability of peer-to-peer lenders to raise a sufficient quantum of funds within the timescales required. The weak underwriting process of some peer-to-peer firms means that they are mispricing the loans, so ultimately the investors are insufficiently compensated.

Having emerged only in the past decade, peer-to-peer firms were largely not in existence during the 2007 crisis, so like a game of musical chairs, when the credit cycle turns, no one wants to be holding the loans when the music stops.

By Vivek Jeswani

Source: City AM