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Comment: Build to rent and its advantages are here to stay

The latest Scottish Build to Rent (BTR) Forum, organised by Movers & Shakers and held in Edinburgh last week, demonstrated the growth of the BTR sector over the last year as well as the increasing appetite of investors to put their money into Scottish housing.

BTR is the provision of purpose-built private rented units by investors and developers. Many housing industry professionals now see it as a key part of the solution to the UK’s housing crisis. Such accommodation is highly popular in parts of Europe and the US and its influence is now growing in the UK too.

Rising house prices and still-high deposits have squeezed many potential – especially younger – house-buyers from home ownership. Many also choose to rent as they do not want the burden of a mortgage and prefer to retain flexibility at this stage in their lives. This has strongly boosted demand for rental accommodation, particularly in buoyant cities like Edinburgh, where over a quarter of all households are in the private rented sector (PRS) and two-thirds of younger households. However, PRS supply levels remain constrained due to numerous factors including a lack of new-build housing, tax and legislative changes in the PRS, and the rapid emergence of holiday lets. This combination of rising demand and constrained supply has seen rocketing rent levels – over the past five years rents in Edinburgh have grown close to 6 per cent annually on average, well ahead of inflation and wage growth.

As one developer at the forum put it, BTR is about providing housing for “the forgotten majority”, i.e. those who do not qualify for social rent but who do not want or cannot afford home ownership and are being squeezed by rapidly rising PRS rents.

By creating new supply through leveraging in private finance, BTR has a key role in helping to fix Scotland’s housing market crisis. Although there are only around 700 operating BTR units across Scotland, there are now close to 5,500 additional units that have been approved in planning, in the planning process or at a pre-planning stage. If these pioneering schemes prove their worth, there will be no shortage of investors willing to accelerate this delivery still further. While the current pipeline also represents less than 2 per cent of all PRS households in Scotland, the UK as a whole is now at more than three times this level and London is nearly five times.

This delivery also has wider economic impact. Homes for Scotland recently calculated that each house built in Scotland creates around four jobs. The existing pipeline could therefore contribute around 25,000 jobs and we could nearly double this if we were to raise BTR delivery to that of the wider UK.

In terms of attracting BTR investment, Scotland benefits from relatively low entry prices; strong yields; multiple dwellings relief on Land & Buildings Transaction Tax; a Rental Income Guarantee Scheme, and more certainty around the regulatory regime relative to the rest of the UK. However, it is also important to recognise that greater political uncertainty here (due to the potential for Indyref2 as well as Brexit) and the now-different landscape for the PRS in Scotland with the new Scottish Private Residential Tenancy (which started in December), has caused some cooling of interest in Scotland from investors. And it was argued at the Forum that, with some exceptions, local authorities in Scotland do not have a good understanding of BTR and the bureaucracy of the planning process (particularly in terms of negotiating Section 75 contributions) and securing a building warrant has created obstacles to investment. As one investor put it: “Scotland needs to get going or the capital will move elsewhere.”

Scottish Housing Minister Kevin Stewart spoke at the end of the Forum and reiterated the Scottish Government’s desire for this industry to grow quickly. BTR is here to stay, the question now is how rapidly we can grow it and help to build the homes needed.

Source: Scotsman

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UK’s land market ‘likely to become even more polarised’ post-Brexit

Post-Brexit subsidy plans could exacerbate property trends which see quality land attracting strong bids and less productive land struggling to sell.

The Government’s announcement direct payments will be phased out meant it was unlikely there would be a glut of land for sale as the UK leaves the EU.

Maximise

But the two-tier market was likely to get ‘gradually more pronounced’ as buyers look for the most productive land or to maximise public goods payments.

According to the Knight Frank farmland index for the third quarter, the average value of bare agricultural land in England and Wales dipped by 1.8 per cent, meaning prices had dropped 4 per cent over the past 12 months to an average £2,851/hectare (£7,045/acre).

And buyers were seeing no reason to rush into purchases, as Brexit uncertainty continued to weight heavy on the market.

The future of the EU’s future trade relationship with the UK was also a concern, with serious short-term implications for farming from a no-deal outcome.

Andrew Shirley, head of rural research at Knight Frank, highlighted there were factors outside the industry which influenced the market.

Rollover

“Rollover buyers are still extremely active,” he added.

And English buyers were active in Scottish markets looking to reinvest rollover funds from housing developments.

UK land was looking ‘relatively cheap’ by European standards and Mr Shirley suggested its reputation as a safe haven in times of political and economic uncertainty could soon ‘come to the fore’.

Tom Stewart-Moore, head of farms agency Scotland for Knight Frank, said there were similar trends throughout Scotland, but there was a lot of regional difference.

“The good, premium places are selling really well,” he said.

UK's land market 'likely to become even more polarised' post-Brexit Commercial Finance Network

He added there was good demand for prime arable land, but less so for forestry.

David Hebsdich, partner at Carter Jonas, said the outlook was more nuanced than ‘two-tier’ implied, with buyers looking at factors including accessibility, fertile ground or sporting uses.

“In a post-Brexit world, the new schemes available will be added to this list as another key consideration,” said Mr Hebsdich.

He added the ability to take payments in a lump sum could generate an opportunity to manage retirements and release land.

“However, whether this amount will be significant enough to impact the market is debatable,” he said.

Source: FG Insight

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This is the best place for buy-to-let investors to buy!

It’s no surprise that the UK buy-to-let market is suffering a crisis of confidence right now. Landlords are becoming jittery over the stagnation (or in the case of London, painful decline) in property price growth over the past couple of years, not to mention tales of a possible market collapse in event of a cataclysmic ‘no deal’ Brexit.

They’re also becoming more and more troubled over the growing raft of regulations befalling the sector, a natural consequence of politicians trying to curry favour with the growing number of young and middle-aged adults still stranded in the rental trap.

Indeed, recent data shows that in this climate, landlords are more likely to reduce the size of their property portfolios than to buy up more bricks-&-mortar assets.

Irish eyes are smiling Sure, conditions might be tough in Britain, but there’s still plenty of opportunity for buy-to-let operators to make a fortune. They simply have to look a little further afield.

Ireland, for instance, has proved a lucrative hunting ground for property investors for years now. A report from WorldFirst shows that little has changed.

The Emerald Isle just took top spot on the international payments specialist’s European Buy-To-Let League table for the third year in a row, with the average rental yield there registering at 7.69% in 2018. By comparison, the average rental yield in the UK stands at 4.67%, it said.

Commenting on the data, WorldFirst said that “investors in Ireland’s property market have benefitted from significant returns due in large part to reasonable property prices in comparison to soaring figures in other Western European countries. A stable euro, continued economic growth and consistent rental demand have also contributed to the country’s performance.”

WorldFirst said that while sterling has plunged around 17% over the past three years against the euro, Ireland still continues to offer strong returns for investors. It noted that “while a one-bedroom city centre apartment would now set you back almost £11,000 more than it would have this time last year (+6%), the good news is that average rents have risen by £127 (+11%) per month.”

UK buy-to-let remains robust That’s not to say that the British buy-to-let market is totally unattractive, though. Strong rental demand means that average rents in England and Wales were up 2.6% year-on-year in September, according to estate agency YourMove, a rise which WorldFirst attributed to landlords increasing rents in response to the government’s decision to axe tax relief for proprietors.

All things considered, though, I believe that investing in stocks is far superior to taking the plunge in the rental market here or abroad. Indeed, if approached the correct way, buying into share markets has the capacity to make the sort of returns that most buy-to-let landlords can only dream of.

Source: Investing

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UK economy heading for worst year since crash, say economists

The British economy is heading for its worst year in almost a decade amid the growing risks from no-deal Brexit , according to a leading economic forecaster.

After official figures revealed zero growth in GDP in August, the EY Item Club said the economy would struggle to recover in the final months of the year owing to the increasing likelihood of Britain crashing out of the EU in less than six months time.

The group of economists, which is the only non-government forecasting organisation to use the Treasury modelling of the economy, said it had downgraded its growth forecast for this year and next as a consequence.

It forecast growth of 1.3% for the whole of 2018, down from a previous estimate of 1.4%. This would be the worst annual period for growth since the financial crisis. It also downgraded the outlook for the second quarter running.

EY Item Club forecast a modest recovery next year if there was a smooth Brexit deal, with growth of 1.5%, down from its previous estimate of 1.6%.
Economists have said failure to reach such a deal could significantly harm the UK economy, with the International Monetary Fund warning of “dire consequences” for growth.

The government’s economic forecaster, the Office for Budget Responsibility , last week raised the prospect of a no-deal scenario triggering border delays, companies and consumers stockpiling food and other supplies, and aircraft being unable to fly in and out of Britain.

The Item Club said Brexit uncertainties were influencing business investment decisions, but added that efforts to find alternative suppliers in the UK rather than the EU may lead to an increase in spending.

It also said weaker growth in the eurozone had sapped appetite for exports, as the world economy digests the impact of US import tariffs that have already begun to drag on economic activity.

Inflation is forecast to fall from about 2.7% to 2.3% by the end of the year, above the Bank of England’s target rate.

Consumer spending growth is estimated to remain limited as a consequence, as UK households remain under pressure from weak wage growth and relatively high levels of inflation.

Howard Archer, the chief economic adviser to the Item Club, said: “Heightened uncertainties in the run-up to and the aftermath of the UK’s exit could fuel business and consumer caution. This is a significant factor leading us to trim our GDP forecasts for 2018 and 2019.

“Should the UK leave the EU in March 2019 without any deal, the near-term growth outlook could be significantly weaker.”

Source: Gooruf

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Nearly half of all landlords in the UK Buy to Let sector are ‘Pension Pot’ landlords

Nearly half of all landlords in the UK Buy to Let (BTL) sector are ‘Pension Pot’ landlords, latest research from Your Move, one of the UK’s largest estate agency networks, has today revealed. Your Move’s annual Landlord Survey defines ‘Pension Pot’ landlords as those who are over the age of 45 and view their portfolio as a long-term retirement investment. Over four in ten property owners in the BTL sector class themselves as ‘Pension Pot’ landlords, with nearly a quarter (23%) of this group, having been a landlord for 15 years or more.

Your Move surveyed 1071 buy-to-let landlords to learn more about their portfolios, behaviours and attitudes towards tenants, letting agents and the lettings market. ‘Accidental’ landlords – those who were not expecting to be landlords – were the second most common type of landlord (29%), followed closely by ‘Professional’ landlords (20%).The survey also revealed that ‘Accidental’ landlords are most likely to be female and under the age of 45, often thrust into the market through inheritance or other changes in their personal circumstances. ‘Professional’ landlords, however, tend to be male, over 45 years old, and consider being a landlord as a job or career.

The findings also showed that ‘Pension Pot’ landlords are more likely to live close to their rental properties than either ‘Accidental’ or ‘Professional’ landlords, with 41% living within 1-5 miles of the property.

Further, nearly three in 10 (29%) ‘Pension Pot’ landlords see their properties as a business, with over half (53%) investing in more than one property. However, even though these landlords may be more ‘investment minded’, Your Move’s survey found that ‘Pension Pot’ landlords are also more likely than the other groups to build a personal rapport with tenants and want tenants who will protect their investment. In fact, 18% said they like to meet or talk to new tenants before signing a contract, which was the highest proportion of any group. Over half (53%) felt it was important that tenants view the property as their own home.

Source: London Loves Business

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Half of landlords use property as pension

Nearly half of all landlords in the UK’s buy-to-let sector are aged 45 plusand view their property portfolio as a long-term retirement investment, according to a poll.

The survey, conducted by estate agency network Your Move among 1,071 buy-to-let landlords, found these so called ‘Pension Pot’ landlords were more likely to live closer to their rental properties than ‘accidental’ or professional landlords.

Four out of 10 (41 per cent) of those in surveyed in the pension pot category were living within five miles of their rental properties.

Just under three in 10 of those in this category saw their properties as a business, with 53 per cent investing in more than one property.

Martyn Alderton, national lettings director at Your Move, said the research suggested the private rental sector is still appealing to many landlords as a source of income and funding into retirement.

He said: “It is also clear that ‘Pension Pot’ landlords are keen to build a personal rapport with tenants who will look after their investment.

“As an industry, it is increasingly important that we continue to support these ties, providing long-term benefits to tenants looking for a property to call their home and also for landlords looking for ways to fund their retirement.”

David Hollingworth, associate director of communications of mortgage broker London & Country, said the results of the survey showed landlords in the ‘Pension Pot’ category clearly perceive that investment as an important channel within their retirement portfolios.

He said: ‘People are investing over the long-term and it is, therefore, not surprising that they see property investment as part of their pension pot.

‘In the past, there has been concern that landlords would be dumping stock at the first sign of a downturn, but, in the Financial Crisis, that didn’t transpire and people stuck with it – People were instead looking at the income they could generate from rental income.”

Source: FT Adviser

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Hammond predicts economic boost from ‘Brexit deal dividend’

Speaking in the run up to the Budget later this month, Hammond told the BBC that there has been a “measurable change of pace” in the negotiations between the UK and the EU, adding that the UK could benefit from a “deal dividend”.

The news comes as the Financial Times reports that the UK is close to securing a Brexit deal, with the thorny issue of the Irish backstop almost settled, according to anonymous sources.

“I believe there will be a dividend, a deal dividend for us,” Hammond said at the International Monetary Fund (IMF) annual meeting in Bali.

It comes after the Office for Budget Responsibility (OBR) yesterday warned against the dangers of falling out of the EU without a deal.

The body warned of greater trade barriers and worse migration flows resulting from a possible hard Brexit could hit the economy, referencing the so-called Three Day Week of 1974 when energy shortages caused GDP to drop by almost three per cent.

But Hammond said its current forecasts do not account for the deal the UK wants to negotiate.

“The OBR’s forecast, which is the basis of our current projections for the economy and our fiscal position, is based on pretty much a mid-way point between no deal at all and an EEA [European Economic Area] solution,” he said.

“The deal that we’re trying to negotiate with the EU now represents an improvement from the point of view of the British economy over that mid-point and therefore should deliver us an upside in the form of higher economic growth and better outcomes than were otherwise anticipated.”

But the chancellor’s Budget is also expected to safeguard against a hard Brexit, with £15.4bn set aside in case negotiations between the UK and the bloc break down.

However, he said that negotiations appear to be on a surer footing now, telling the BBC: “There’s a real sense now of engagement from both sides of shared enterprise in trying to solve a problem rather than posturing towards each other – a really important step change.

“But that shouldn’t conceal the fact that we’ve still got some big differences left to resolve.”

Source: City A.M.

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Where is the UK Property Market Heading?

Many have been surprised to discover that the property markets in Scotland and Northern Ireland are showing renewed signs of life. These markets have traditionally been overshadowed by London and the Southeast. Brexit has been the catalyst for change in the UK property market so far, but what else is at work?

Rising Prices

A Royal Institute of Chartered Surveyors (RICS) survey spotlights ongoing price growth for properties in Scotland and Northern Ireland. While London and the Southeast remain uncertain, it appears that one may expect more improvements in Scotland and Northern Ireland.

Value for Money

When house prices rise, markets beyond London and the Southeast have traditionally been left behind but this trend appears to be changing. While some market watchers believe that this is only a temporary departure from the norm, it is hoped that the difference between North and South will grow smaller.

One recent problem has been over-emphasis on capital gains. The UK business hub effectively exists in London and the Southeast, so these regions attract more investment and employment opportunities. When post-Brexit uncertainty causes the economy to slow down, business is impacted. One effect of this sentiment change is a reduction in wage inflation although records suggest that unemployment in Britain is at an all-time low.

Scotland and Northern Ireland

While the value for money factor puts Scotland and Northern Ireland in good standing right now, what does the future hold? The SNP government is pushing for independence in Scotland and Northern Ireland appears to be a pawn in the power struggle between the UK government and the EU. While it’s possible that weak prices in the past have made both markets more affordable, it’s also possible that the 2008 financial crash taught investors a lesson.

Rental Properties

Many have withdrawn from the buy to let market in the wake of the government’s pursuit of property investors and subsequent tax increases. There are still areas throughout the country where property remains unaffordable to both first-time buyers and those looking to ascend the property ladder. As a result, the pressure is being put on rents due to the short-term drop in buy to let investment and the increasing number of people who are looking for private lets.

Growing competition for private sector rental properties, with many areas lacking badly-needed social housing, has resulted in improved returns even during these challenging times. While raising taxes make it understandable that many people have given up the buy-to-let market, is this the sensible thing to do?

First-time buyers still need help from short-term incentives and government schemes to get a single foot on the property ladder. There is increasing mobility in the employment market and therefore a need for more temporary rental accommodation. Austerity has left local authorities struggling to cope with slashed budgets, resulting in fewer social housing options. This all supports the goals of long-term buy-to-let investors who are likely to realise greater rental income for the time being.

Source: CRL

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Planning hurdle passed in bid to build 1,600 new homes at Western Harbour

Developers will finally bring forward detailed plans for around 1,600 new homes which have stalled for more than 15 years.

Forth Ports’ proposals to redevelop its Western Harbour site between Leith and Newhaven passed a planning hurdle when the updated development framework was approved by councillors.

The company will now bring forward full plans by February – as original outline planning permission is due to expire next year. The framework was resubmitted due to the original masterplan for the site no longer meeting aspects of the council’s planning guidance.

The new community will include a large park, a board-walk promenade and a new school for which plans are set to come forward “in the next couple of months”. Forth Ports has submitted a funding bid to the Scottish Government for a loan to accelerate delivery of affordable housing at the waterfront site.

Charles Hammond, Forth Ports group chief executive, said: “We are pleased with the decision by City of Edinburgh Council to approve our revised design framework for Western Harbour in Leith.

“Forth Ports and Rettie & Co have been working together for over two years on these proposals that will result in the delivery of a community of 1,600 mid-market rental home and park which should also create the setting for the new primary school for the area.”

He added: “Through our other recently completed developments at Harbour Point and Harbour Gateway, we know there is a great deal of demand from people looking for these mid rent homes and an opportunity to create a community.

“Our proposal represents a major boost for the Leith economy and for Edinburgh as a whole and we now hope for a positive outcome from the Scottish Ministers on the possible loan funding for this project. Work is well underway preparing a full planning application in readiness for submission before the end of February 2019.”

Three blocks of flats on the Western harbour site have already been built in the first phase of the project – along with a hotel and an Asda supermarket.

This phase of the development won planning permission in principle in 2002 – but the renewed agreement is set to expire next year. The new flats will range from three to eight stories high and each block will have its own surrounding green space built around a park.

The city council’s development management sub-committee welcomed the revised vision for the Western Harbour.

Ward Cllr Chas Booth said the response from local residents had been “overwhelmingly positive”.

He added: “This space has laid empty for a long time and local residents are very keen to see development come forward. If the decision to go ahead with the trams is made later this year, this is highly accessible from a public transport perspective.

“This is a good application. I hope that between now and the detailed application, it can still be improved in terms of pedestrian and cycle access and in terms of the green space.” Councillors unanimously approved the revised design framework. Planning convener Cllr Neil Gardiner said:

“This allows for more creativity in future applications – that should be supported. “The larger blocks allow for better green space and I’m very happy to see that car parking is either underground or captured within the blocks – it’s not predominantly on the streets.”

Source: Edinburgh News

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Property market ‘struggling for momentum’

The residential property market is “struggling for momentum” as new buyer interest falls and sales expectations turn negative across the UK, according to the Royal Institution of Chartered Surveyors.

The September 2018 Rics UK Residential Market Survey found a slight fall in new buyer demand and a deterioration in new sales instructions across the market, as the net balance reading slipped to -11 per cent from -9 per cent in the previous month.

The results suggested a renewed fall in new buyer enquiries due to affordability constraints, lack of stock, economic uncertainty and interest rate rises hampering activity.

The survey questioned chartered surveyors operating in the residential and lettings markets and found average stock levels on estate agent’s books was close to record low levels.

Rics reported sales expectations over the next 12 months had turned negative across the UK and found the time taken to complete an average sale had increased to 19 weeks.

House price growth was unchanged at 2 per cent in September and has fluctuated between 2 and 3 per cent for the past year.

The survey found a subdued sales outlook in areas such as London and the south east had placed downward pressure on house prices, while figures continued to rise in the West Midlands, Northern Ireland and Scotland with a positive expectation of rising prices in the coming 12 months.

Jeremy Leaf, former Rics residential chairman and north London estate agent, said the market had not seen the “autumn bounce-back” expected after such a quiet summer.

He said: “It is interesting that activity remains fairly flat nationally, which means London is still in negative territory, turning the old north/south property divide on its head.

“It is particularly disappointing that sellers seem reluctant to make their properties available in sufficient numbers, which would have improved choice and get the market moving in the period running up to Christmas.”

Mr Leaf said his customers are still citing Brexit uncertainty as a factor in a “needs-driven market”.

Craig McKinlay, new business director at Kensington Mortgages, said the figures showed the UK housing market was suffering from a bottleneck effect.

He said: “When we look at the big picture, a lack of supply coming onto market is slowing down the housing chain – discouraging homeowners from downsizing and in turn, preventing suitable properties being freed up for first time buyers or second steppers.

“With the Autumn Budget a few weeks away, it would be great to see the government offer incentives for older homeowners to downsize, for example an exemption from stamp duty.

“There has been a lot of focus on first-time buyers, quite rightly; but unless the government can make it financially worthwhile for current homeowners to move, then the bottleneck will only continue to be squeezed.”

Source: FT Adviser