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London overtaken by rest of UK in build-to-rent growth

London’s build-to-rent sector has been outpaced by the rest of the UK for the first time, according to new figures from the British Property Federation (BPF).

Regions outside of London have overtaken the capital in construction of build to rent homes as demand grows for new properties that are built for rental purposes and managed professionally in hotspots such as Manchester, Liverpool and Bristol.

Although the sector largely emerged in outer zones of London, an increasing demand for build-to-rent is coming from areas such as Manchester, with many university graduates staying in the city after finishing their education.

While London had a total number of 62,016 build-to-rent homes completed, under construction or being planned in the second quarter of this year, UK regions recorded 62,021 homes in the same period.

Ian Fletcher, director of Real Estate Policy, British Property Federation, said: “This is a significant landmark moment for build-to-rent, with the sector’s total number of homes across the UK’s regions overtaking London’s total for the first time ever.”

Fletcher added: “Recognition of build-to-rent’s potential to deliver much-needed new, high-quality rental homes is gathering momentum across the country.”

The research, produced by Savills and commissioned by the BPF, also shows that the total number of build-to-rent houses complete, under construction or in planning has risen from 98,723 in the second quarter of 2017 to just over 124,037 in the same period this year.

The build-to-rent sector, which include services such as a 24-hour concierges and broadband as part of the rent, is aimed at mid-market buyers who want a wider package of provisions with their property.

One British property developer announced last year said that it would be offering free Uber rides which were included in the price of the rent.

Source: City A.M.

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Could environmental risk define future mortgage lending?

Mortgage lending mainly revolves around the risk associated with the borrower but what about the property – not just the bricks and mortar but the land it is built on and the air the occupants breathe? Should lenders be paying more attention to environmental risk? Robin Wells, head of sales & marketing at Future Climate Info (FCI), reports.

Lenders run their businesses based upon risk. Mortgage affordability defines how risky a borrower may be, with calculations based on many factors from income to credit history to demographics. But what about the risk on the asset itself? As we get smarter about these risks, will environmental risks that could damage or destroy the bricks and mortar become more defining factors in the mortgage process?

We are collecting more information on environmental risks – from flooding to pollution – and the scale of these risks is becoming more apparent. This, coupled with the continued expansion of the UK’s property footprint onto new land and the increasing risks created by climate change, mean that environmental risk can and should be on all mortgage lenders’ radars.

Surface risk: flooding
The most common and, arguably, well-known environmental risk in the UK is flooding. Around one in seven UK homebuyers have faced a potential flood risk when buying a property in 2017, a trend that picks up in more urban and populated areas. With one in four homebuyers in the capital encountering a potential flood risk last year, this puts London at the centre of the issue, compared to just 11% of those in rural and remote areas.

A combination of environmental factors over the past decades have been attributed to the increase in flood risk. When Michael Fish wrongfully dismissed the imminent arrival of Britain’s biggest storm on record in 1987, he could not have imagined that this type of once-a-century storm might become an annual event all over the world, with storms like Desmond, Eva and Frank.

Earlier this year, the Environment Agency warned that intense bouts of flooding are going to become more frequent, following a pattern of severe flooding over the past 10 years that can be linked to climate change and instances of extreme weather.

Homebuyers are also increasingly concerned ,as well as educated, about the environmental issues that cause flooding; and the implications influence their decision making. Compared to 2016, there were fewer properties at risk of flooding sold in 2017, particularly in urban cities and rural towns.

Yet there remains a lot to be done in the effort to educate and inform homebuyers on the potential issues they might face around flooding. Particularly 18 to 34-year-olds – the UK’s core first time population – are unlikely to perceive flood risk in their area. To address this issue, there have already been calls to introduce ‘flood certificates’ for properties, which, like Energy Performance Certificates, would show when the property was last flooded, the depth and nature of flooding, or give an assessment of feasible recommendations.

Over the next couple of years, it will be interesting to observe whether mortgage lenders will choose to limit their exposure in urban ‘flooding hotspots’. With flooding in the UK set to increase even further, particularly those applications stemming from locations with heavy rainfall on record or in the stormy north, lenders might need an additional review regarding risk before being approved.

Unseen risk: subsidence and sinkholes
Lenders might see subsidence and sinkholes as a surveying issue, and to an extent they are right. Issues with foundations can be fixed by builders or at least be mitigated against with insurance. But the broader issue that’s causing much of the instability – the huge network of mines under the British Isles – is something lenders should be more aware of when assessing risk to property portfolio investment.

The risk of subsidence comes from a result of poor ground quality, foundations or historic mining sites under properties themselves. A recent study found that between January 2014 and October 2017 more than 250 sinkholes formed around Great Britain, at a rate of around one a week.

The study also found that 40% of these sinkholes are the result of historical mining activity, which has left holes and cavities liable to collapse. Mining operations historically extracting metal, chalk and coal are responsible for most sinkhole occurrences, and these took place all over the UK ever since the Bronze Age. The British Geological Survey has records of more than 230,000 active and disused mines under our feet, a list which grows every day.

We have only been able to properly map what’s under our feet for the last few decades, and technology improvements are helping us to find more historic mines. But there are likely to be many more secrets for us to uncover. In the meantime, as developers look further afield to find more land to build upon, it’s possible that more homes are being built upon ground that is not as stable as it looks. Lenders may wish to take a closer look at what’s underneath the assets they are lending against to ensure they are not on shaky ground.

Risk in the soil: contaminated land
It’s not just the mines under our feet that could be a risk to lending. Most people will be unaware of the scale of contaminated soil that our properties sit on, and worryingly no one is fully aware. The government estimates that there could be as many as 100,000 potentially contaminated sites in the UK of up to 200,000 hectares. But that could still be the tip of the iceberg: estimates suggest we are only aware of a fifth of the total contaminated land sites in Britain.

Soil is often contaminated as a result of historical environmental mismanagement. An old gas works, a long-gone petrol station, an industrial rubbish dump from a long-razed factory – these things can all potentially require an environmental clean-up. Heavy metals and acids have often seeped into the soil, and could adversely affect people’s health, a result of a time before stringent regulation or indeed evidence of past misdemeanours.

Heavy metals and chemicals in the soil can affect homeowners digging in their gardens or excavating to build extensions. In recent years, environmental permits and regulation have meant new properties are less likely to have been built on contaminated land. However, the land on which older buildings from the 19th and 20th centuries were built may not have been adequately cleaned or even been flagged as potentially contaminated.

Under 78A(2) of the Environmental Protection Act 1990, the Department of Environment, Food and Rural Affairs (DEFRA) is tasked with supporting and funding the clean-up of any sites that local authorities find to be contaminated. But, in 2014 the government announced a wind-down of all financial aid to clean up contaminated sites, with the programme ending in March 2017. Since then, there has been no support for developers investigating or building on land. Between 2000 and 2017, the government paid out nearly £30 million in remediation to clean up more than 400 sites in England and Wales.

It’s unclear what this has meant for home developers since the funding dried up. There is a concern that prime locations could be overlooked to avoid the costs of clean-up, or that property prices may increase as a result of increased development costs.

For lenders, this unseen risk should be a concern. The scope of contaminated land in the UK could be vast, and a home sitting on soil that needs remediation could lose value.

A rising new risk: air pollution
Over the past couple of years, air quality has also grown to be one of the UK’s most pressing issues. Scientists estimate that as many as 40,000 Britons die as a result of air pollution each year, while the High Court recently judged 45 local authorities to be unlawfully breaching safe levels of nitrogen dioxide (NO2).

Our recent study shows that in 2017 nearly £25 billion was spent by homebuyers on properties in areas of the country where this is likely to occur, meaning that one in 20 residential transactions might have been affected. Again, as an issue particularly in urban areas, homebuyers are increasingly watching reports of poor air quality with growing concern about the implied ill-effects it may have on their health.

But unlike flooding and contaminated land, data on air quality is not a requirement for environmental reports. This makes it harder for homebuyers to find out this crucial information about their upcoming property investment. Future Climate Info has become the first UK provider to make this type of information available at no extra cost – giving homebuyers clarity of insight for the first time on the quality of the air they are signing up to breathe when they purchase a home.

In April, Barclays launched its first ‘green’ mortgage, with a discounted interest rate to borrowers who were buying energy-efficient new-build homes. The initiative was born out of an increase in demand from buyers to live in homes that are energy efficient, and an effort to support ‘greener choices’. Is it conceivable that lenders will offer a similar incentive for ‘clean’ or ‘breathable’ homes in the future?

Our analysis suggests that those buying in highly polluted areas might already be paying a ‘pollution premium’ of 32% more on average in affected areas of the country. These figures are impacted by expensive postcodes in cities like London, Manchester and Nottingham often suffering from high levels of NO2 due to traffic and stagnant weather conditions but could yet worsen in years to come. As opposed to the ‘green mortgages’, regulators and green finance measures by the Bank of England may see ‘pollution premiums’ increase to discourage sales in areas with poor air quality.

With the demand for both ‘clean’ and ‘green’ homes set to increase, this growing environmental risk will be the most interesting to watch over the next couple of years, and may see those professionals with a nose for what lies (and breathes) ahead rewarded for their foresight.

More information reveals more risk
As technology advances, our understanding of emerging risks that are involved in lending is getting better, as are our processes for risk modelling. We now have a better handle on the environmental risk around us. This, in turn may begin to uncover ways to improve lending processes that would have been unthinkable just a few years ago.

Today, mortgage lending mainly revolves around the risk associated with the borrower. Yet the borrower is not what the lender invests in: the mortgage is for the property, and the foundation it is built upon.

So, is it time for lenders to look more into (and around) the homes they are investing in, beyond its structure? If we are able to see, model and mitigate the wider risks to the bricks and mortar, based on the environment they exist within, surely smart lenders will begin to assess how these risks could impinge on their portfolios?

Will future climate shifts adversely affect some building societies with regional lending portfolios? Will first-time buyers be priced out of clean air neighbourhoods? Will elderly people find their equity is reduced due to smarter data finding previously unseen risk under their feet?

For an industry that is based wholly on risk, it makes sense to take note of the environmental risks above and below the bricks and mortar. Having access to the right data and insights to inform these decisions could become a critical issue for businesses as well as consumers.

Executive summary

  • More information is being collected on environmental risks – from flooding, soil contamination, subsidence and sink holes to pollution and air quality. Environmental risks should be on all mortgage lenders’ radars.
  • The most common environmental risk in the UK is flooding. The Environment Agency has warned that intense bouts of flooding are going to become more frequent due to climate change and extreme weather.
  • The risk of subsidence comes from poor ground quality, foundations or historic mining sites under properties. A study found that 40% of sinkholes are the result of historical mining activity, which has left cavities liable to collapse.
  • Another environmental risk is contaminated soil that properties sit on. The government estimates there could be as many as 100,000 potentially contaminated sites in the UK but estimates suggest we are only aware of a fifth of them. In 2014 the government announced a wind-down of all financial aid to clean up contaminated sites, with the programme ending in March 2017.
  • Air quality is another potential hazard – up to 40,000 Britons die as a result of air pollution each year. The High Court recently judged 45 local authorities to be unlawfully breaching safe levels of nitrogen dioxide.

Source: Mortgage Finance Gazette

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UK economy picks up speed, raising chance of rate rise

Britain’s large services industry grew last month at its fastest rate since October, a survey showed on Wednesday, prompting investors to increase bets that the Bank of England will raise interest rates next month.

After a weak first four months of 2018, the IHS Markit/CIPS services Purchasing Managers’ Index (PMI) rose to 55.1 in June, easily beating economists’ average forecasts in a Reuters poll of 54.0, unchanged from May’s reading.

June surveys this week for the smaller manufacturing and construction sectors also beat expectations.

 Taken together, the three PMIs point to overall economic growth of 0.4 percent in the second quarter, double the pace of the first, IHS Markit said.

Sterling rallied and British government bond yields rose as financial markets priced in a greater chance that the Bank of England will raise interest rates to 0.75 percent from the 0.5 percent they have stood at for most of the past decade.

In May, the BoE postponed a widely-expected rate hike after the economy slowed more than forecast in the three months to March, due in part to unusually harsh winter weather.

High inflation and continuing deep uncertainty about the terms Britain’s departure from the European Union in March 2019 have acted as underlying drags on growth.

The central bank also said in May that in the event of a recovery, rates were likely to rise for only the second time in more than a decade as part of a gradual move away from the emergency stimulus programme it rolled out during the financial crisis.

“These PMIs – the last before the Monetary Policy Committee finalise their August 2 decision – are consistent with a robust second-quarter rebound, and keep our call for an August hike on track,” Morgan Stanley economist Jacob Nell said.

SPEND WHILE THE SUN SHINES?

Last month BoE chief economist Andy Haldane joined two other members of the BoE’s nine-strong Monetary Policy Committee in calling for a rate rise, and data was revised to show the first-quarter slowdown was less severe than first thought.

The BoE has forecast 0.4 percent GDP growth for the second quarter and also expects inflation to pick up in the coming months due to higher oil prices.

Wednesday’s survey backed up the BoE’s view, showing service firms contending with higher wage and fuel costs and overall input costs rising at the fastest pace since September 2017.

New business flowed in at the fastest rate in just over a year, with firms registering a boost to consumer spending from unusually warm weather.

But expectations among businesses for the next 12 months — during which Britain is due to leave the EU — were below their average for the years since the financial crisis, with Brexit-related uncertainty to blame, IHS Markit said.

Britain cannot yet count on a transitional EU trade deal for the period immediately after Brexit, which means firms cannot rule out border disruptions after March.

“Such a divergence between current and expected future activity stokes worries that the upturn is being fuelled by short-term spending … and likely masks a lack of longer-term business investment,” IHS Markit economist Chris Williamson said.

Euro zone PMI data on Wednesday showed businesses in the bloc at their gloomiest since late 2016, despite activity growing at its fastest in four months, reflecting concerns about a possible trade war with the United States.

Source: UK Reuters

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Why the death of the first-time landlord has been exaggerated

Buy-to-let has taken a hit, but there’ still strong demand from first-time property investors, says John Fitzsimons.

The last couple of years have seen a huge number of changes aimed at the buy-to-let market, from the introduction of a higher rate of Stamp Duty for investment purchases to changes in the tax relief on offer.

Just to add to the fun, last year the Prudential Regulation Authority introduced new rules covering the way buy-to-let mortgages are underwritten.

The accepted thinking has been that these changes would mean a ‘professionalisation’ of the landlord sector –  it would be harder to make the sums add up if you’re a small-time landlord with just one or two properties, but the people for whom property is their entire profession would be better placed to ride out these changes and continue to do well.

Flooding the market

That’s why there have been plenty of warnings about a swell of amateur landlords selling up, and potentially flooding the market with properties.

Recent research from the National Landlords Association, for example, suggested that as many as 380,000 landlords were looking to reduce the size of their portfolio over the coming year.

It isn’t one-way traffic though –  as the amateurs sell up, the professionals step in, or at least that’s how the thinking goes.

It appeared that this transition was already beginning last year – research by Countrywide found that the number of landlords active in the market had fallen by 154,000 since 2015, though the number of rental properties had jumped by 171,000 over the same period.

That has seemingly been reflected in the mortgage market too, with the sharp growth of limited company buy-to-let.

This is where you purchase and own properties through a company vehicle, rather than as an individual, and is a popular move for full-time landlords.

But is this really the death of the first-time landlord?

Record numbers of mortgage deals

It’s notable that mortgage lenders are actually increasing the number of options first-time landlords can choose from.

Just last week Accord announced that it was expanding its range of deals for first-time landlords, having only entered this area of the market a year ago.

Chris Maggs, commercial manager at Accord, explained: “The buy-to-let market has undergone some significant regulatory and tax changes in the past three years, which have undoubtedly resulted in a more challenging environment for landlords.

“However, it’s clear that there is still appetite for first-time investment in the sector.”

Accord isn’t the only one either. According to financial information website Moneyfacts, the number of deals now available to first-time landlords has hit a record high.

Back in July 2016, the number of products open to first-time landlords stood at 929. Today that has jumped to 1,268.

Demand is returning among would-be investors

Greg Cunnington, director of lender relationships at mortgage broker Alexander Hall, says that the majority of his firm’s buy-to-let business is with what would be classed as amateur landlords, and says that they have seen an upturn in interest in buying investment properties.

David Sheppard, managing director of broker Perception Finance, said that while the market may be tougher for those looking to get into buy-to-let, “if well researched and done right it can still be a good income stream”.

David Smith, policy director at the Residential Landlords Association, pointed out that where some landlords are opting to sell, it may be other landlords who are choosing to buy, rather than first-time buyers.

He added: “If you’re a first timer entering the market, you’re more likely to want to go for a property that’s been rented before.”

It obviously isn’t all rosy though, as Chris Norris, director of policy and practice at the National Landlords Association, pointed out.

Noting the trade body’s latest research, he said: “Larger portfolio landlords are more likely to have sold than expanded over the last three months, meaning the stock is there for potential new investments.

“However, property sales for single property landlords far outstripped new purchases over the same period, which should serve as a warning sign for anyone considering their first buy to let.”

What do we want the landlord sector to look like?

So if first-timers are returning to look at investing in property, is that a good thing?

Personally, I don’t really buy the idea that a market dominated by professional landlords, with enormous portfolios, is automatically an improvement.

The very nature of these large portfolios means that responsibility for handling problems that arise on a day-to-day basis may be outsourced to letting and managing agents.

It’s fair to say that these firms do not always have a great reputation for offering tenants a good service.

In contrast, small-time landlords may be more likely to take a more hands-on approach.

>We need to keep driving up standards in the rental market – whatever your thoughts on the Government’s drive to increase homeownership, the rental market will remain a hugely important sector.

But I’m not convinced that the key is pushing out small-time landlords to the benefit of those with significant portfolios already.

Besides, there needs to be some sort of entry path for the landlords of tomorrow, so it’s important that there are plenty of lenders active in offering the finance they will need to help with their purchases.

Source: Love Money

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Incentives For Longer Tenancies Favoured By Buy To Let Sector

Proposals for incentives for property investors offering longer tenancies are being welcomed by the buy to let sector.

The much-publicised consultation on the matter of three year tenancies has recently seen the government propose a number of options in order to aid the implementation of the three-year tenancy model. The proposals come in response to a growing demand from families and older people for longer tenancies in the private rental market. The government had suggested that it would be consulting on plans to have three-year tenancies as standard, with a six-month break clause and certain exemptions for students.

One of the options proposed by the government is financial incentives. The government argues that these could be ‘quicker to implement’ than mandatory three-year tenancy agreements.

Policy director for the Residential Landlords Association, David Smith, spoke out about the matter: ‘With landlords having faced a barrage of tax increases we believe that smart taxation, such as that being proposed today, would provide the longer term homes to rent many families and older people want. We would warn against making it a statutory requirement to introduce three year tenancies. Many tenants simply do not want to be tied to a property long term. It is vital that the market is able to provide the flexibility that many need in order to swiftly access new work and educational opportunities.’

In contrast, Build To Rent operators were in support of the government’s proposed three year tenancies in the private rental sector. Managing director at Moda, a BTR developer, Johnny Caddick said: ‘It makes sense that residents are given security of tenure. So we support these moves provided people have flexibility if they only wish to stay for a year or two. We need a customer-centric rental market if people are to grow confidence in the property sector. That has to mean encouraging more rental development through the planning system that is willing to provide better homes with no risk of eviction because the landlord wishes to sell or move back in.’

Source: Residential Landlord

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What opportunities and risks do housing standards present for lenders?

Housing experts gathered for the MFG Lunch Club, in association with Legal & General Surveying Services, at Cabotte in the City of London to discuss the way forward for housing standards.

The past year has seen more scrutiny of building standards and focus on build processes and systems as a result of the Grenfell Tower tragedy than at any other time in living memory. The conclusions and decisions we make now will impact our ability to build for the future and affect the confidence of the entire industry.

If we are to meet the challenge of our housing crisis, what needs to be done to forge a framework – at component, system and building regulation level – that can deliver the confidence in delivering the new homes that need to be built quickly?

Introduction
James Ginley, Technical Director, Legal & General Surveying Services: In relation to housing standards, lenders are advised from the different pockets of expertise that exist, including surveying services. Some think lenders should be specific about what they want from the valuation but I don’t necessarily think that. Lenders set their own risk parameters and customer parameters. It’s for other areas of the market to come up with solutions, such as quality benchmarks, customer protection, advice and mortgage proposition.

The changing environment has been brought about in the last year by a variety of matters. We’ve got a government that is interested, more so than ever, in the housing capacity problem but it is difficult for them to crack while there are other matters such as Brexit.

Housing goes in fits and starts. The fits include problems in demographics – first-time buyers and increasingly last time buyers. We have events around the quality of buildings, following the Grenfell Tower fire, where lots of unforeseen consequences have emerged. Not much has happened in the valuation space post Grenfell and by that I mean market impact on high rise tower blocks. We have a void in thinking about the way forward on the topic, where the responsibilities lie, where building regulations may go. And along with the housing standards debate comes the housing supply debate.

Apart from traditional house building there are other ways of doing things from modern methods of construction (MMC) to offsite factory environments. Where are the parameters of quality in those different environments? The debate is complex.

Warranties
Luke Christodoulides, Senior Corporate Account Manager, NatWest Intermediary Solutions: A few years ago there was a very different view to modern methods of construction. There is now offsite house building such as the L&G factory. Once warranties are in place we are happy to lend. So it’s about understanding each MCC and how they look and feel.

James Chidgey, New Homes Relationship Manager, Mortgage Advice Bureau (MAB): Warranties simplify things for lenders, they provide that reassurance. Problems occur where you don’t have standards. There has been a challenge on defining some of these types of construction and this is being discussed in working groups to try to simplify the terminology. On the NHBC website there are 54 different systems that are approved so how do valuers and lenders understand all that? Customer understanding and customer protection is coming more to the fore now.

Graham Sibley, Market Development Manager, National House Building Council (NHBC): The bottom line with MMC from the consumer point of view is that any home we warrant should be mortgageable and insurable on normal terms. NHBC will do the rigour we need to do on any home and even more so on an untried or untested product right through from the factory to onsite and the finished home. Lenders want that confirmation and the confidence they get from an NHBC warranty or an equivalent warranty as there are a number of warranty providers in the market.

We are looking to set an industry standard and threshold of quality for all warranty providers to ensure the right level of warranty and security is in place.

MMC working group 
Mark Farmer, Founding Director & CEO, Cast Real Estate & Construction Consultancy: (Mark heads up the Ministry of Housing, Communities and Local Government’s MMC working group on assurance, insurance and finance).

A white paper issued by the government last year looked at the whole issue of mortgage finance and buildings insurance for MMC-led housing. The working group that I lead is trying to address this so mortgage underwriters can feel comfortable. Mortgage finance for MMC housing has been fairly erratic in terms of take up and there are still issues of education.

Part of what the working group has been tasked with is to get to terms with the terminology of MMC. Is it just modular homes that are built and transported on the back of a lorry and moved to a site? No, it is so much more than that. So part of the issue is to try to clarify what is out there in terms of different systematic approaches to building, component-led and sub-assembly-led construction which is morphing into hybrid approaches.

The working group is also looking at evidence building. We don’t have enough evidence of what MMC really looks like and how it performs. Once we have that we can build systems with data that goes into the underwriting for mortgages or buildings insurance policies.

The biggest part of this, which will move the market on, is to create a unified approach to how the warranty market and the manufacturing market deals with quality and standards. There is a big opportunity to address what is quite a disparate warranty market, bringing it onto a level playing field through some kind of protocol for the warranty providers. A protocol would also be a barrier for entry for poor warranty providers and manufacturers.

Pioneering MMC
Peter Andrew, Deputy Chairman, House Builders Federation (HBF): From a developer’s perspective, the prognosis for MMC is good. There are some real drivers in the market place for MMC to move in the right direction, primarily around skills. There is a lack of skills in the housing industry and we need to address that if we are to deliver 300,000 homes on a sustainable basis. So we need other forms of construction.

The second issue is around quality and the prognosis for offsite manufacturing is good. The home building industry, while sceptical, is ready to employ MMC but it’s a disorganised market. If you are a big player you have the resource to go in, understand it and do trials. But if you are a small player it’s really quite difficult to understand what’s good and what’s bad.

It feels a little bit like pioneering with MMC. If we can bring confidence into the market driven by the confidence of both lenders and warranty providers there is a really good chance the market place will grow; and MMC could be a really good contributor to the overall housing stock. We’ve got a way to go but it’s a really good start and there is some momentum behind it.

Luke Christodoulides, NatWest: Along with other lenders we are very keen to look at this market, more so than we have in the past. The new build sector is healthier than it has ever been. If you go back a few years there were two main players but now you can see a want in lenders’ new build appetite.

James Ginley: There are 19 warranty providers in the UK and some lenders assume the warranty provider is the insurer. So if lenders think that what does the customer think they are getting?

BOPAS
Professor Nick Whitehouse, Oxford Brookes University and Buildoffsite Property Assurance Scheme (BOPAS): BOPAS was set up some years ago and BLP joined as insurers but the feature of Lloyd’s Register as assurers is critical because of risk. Some of the features of BOPAS include a full Lloyd’s assessment of competencies to make sure that firms have the skills.

We often find that knowledge of a warranty is not always very deep. It only really penetrates when people have to make a claim. BOPAS has set itself at a high standard. There has been a fairly low but steady number of firms joining and going thought the process covering a whole variety of different approaches to offsite construction. But in recent years huge numbers are applying. There is discussion between all the warranty providers to try to get commonality on standards.

BOPAS has a database that is readily accessible and you can look up a building to see how it was built, when it was built, when an extension was added, etc. Inspiration and aspiration start to align. Robustness and long-term value become very important and that is something that offsite construction can deliver.

At Oxford Brookes University we do a lot of post occupancy evaluation and we see traditional construction is struggling to meet the standards that are set by the building regulations, particularly with permeability, thermal walls etc, let alone more obvious defects such as cracks and condensation.

Block management
Richard Benson, Managing Director, Block and Estate Management, Kinleigh Folkard & Hayward (KFH): We manage blocks of flats from new build to existing stock, from traditional construction to some modular buildings where, for example, you bring in bathrooms and slide them into the building. There is a misunderstanding by residents as to what a warranty actually covers. They think everything in the block is covered. As an example, some residents are concerned with lift designs and they automatically assume the lifts are covered. They don’t realise it is mainly the construction side of things that the warranty covers.

In terms of the Grenfell fire. Over the last 12 months we have seen a significant spike in health and safety, for obvious reasons. There has been a shift in compliance. At the moment everyone is concentrating on a specific type of cladding, but the reality is there are other types of cladding. The modular housing looks great but how do we maintain it, what is the longer-term maintenance of it?

Land
Mark Farmer, Cast Real Estate & Construction Consultancy: There are commercial pressures for developers. Too much money is spent on land so effectively you have less money for the build. The reality is that is not a sustainable model. We need to take the manufacturing process and embed it into the wider supply chain to include SMEs, not just big manufacturers. The only way you can do that is to move towards what is known as platform design, commonly used in the automotive sector.

This is where you have commonality of components put together in lots of different ways – a library of components. So a vision that in 10 years’ time an SME builder would have an assembled component that is driven by a range of product platforms. You do less on site and derisk the construction process by making it more assembly-led and doing more in a controlled environment. The SME gets access to industrialised construction but to get there we have a massive journey to go on in terms of educating the design profession.

Ben Derbyshire, president of the Royal Institute of British Architects, gets this and I think he will promote that debate. There is a whole swathe of the profession that sees it as a blight on architectural creativity but I don’t think it is. It allows architects to get on and build beautiful buildings. The chassis and components of the building are much more manufactured.

Peter Andrew, HBF: From a housebuilders perspective, the high land cost over the last 20 to 30 years is due to a shortage of consented land over a long time period. The consolidation we saw in the industry back in the late 1990s and early 2000s up to 2007 was where big land developers could not get enough consented land so bought another housebuilder to get that consented land back – and that just drives up the price of land. The shortage of land is a key driver to the price of land getting higher. Land used to be 25% of the outturn of a house, it went up to almost 50% around 2007 but it has dropped back again. The HBF has driven more planning consent and that is evident in all the stats and as a consequence land prices stabilised. In some parts of the country land prices have gone backwards and in other parts we are getting a supply of land that is slightly ahead of the number of homes being built for the first time in my memory. So that is a positive step.

For big housebuilders, their risk is in what they build, they always want to build with product. They are worried about reputational risk and systemic failure if they use a different product from standard construction. I think customers are open to buying anything that is mortgageable so standard construction is not the be all and end all from a customer perspective. House builders are very open to building with different products and materials but it comes back to confidence. They will not build 18,000 homes out of a new product without it being absolutely assured in every single way. As we get this platform that Mark is talking about that confidence will grow and more of it will happen.

Regarding the repetitively of components, that is exactly where housebuilders are moving to at the moment. There is a lot of repetitively in standard house building already. Standard construction isn’t really as standard as it was 20 years ago, there is a lot of offsite manufacture in it. If you are building 20,000 homes a year you absolutely need repetitively. It doesn’t have to look the same but some of the internal spaces and components could be the same but the specification might change in terms of what it might look like.

We are on the journey to that and I think it will lead to more consistent, high quality than perhaps you get with some traditional build. The offsite manufacturing requires skills ,as well as traditional build – we’ve got to blend those two together so they don’t compete and find enough people to do both and drive up quality onsite as well as offsite.

Graham Sibley, NHBC: It leads to what the consumer expects or understands from a warranty and insurance. What the warranty provider does is to ensure their homes are structurally sound, they are going to stand the test of time, the components in there are going to last 60 years – and that is what the mortgage lender and the insurer require.

You have to have the data to look for trends. NHBC data is over 80 years old. By inspecting homes we see what trends emerge. I think valuers would want to know that, it would give them some confidence of how homes have been built.

Peter Andrew, HBF: One other matter challenging the industry is that customer perceptions are rising and customer requirements are broadening. So if you look at the car industry which adopted processes 20 years ago, now we’ve got consistent quality in the car industry across all manufactures and massive choice. That is literally just round the corner in house building; we are in the place where the car industry was 20 years ago.

The All-Party Parliamentary Group (APPG) for Housing and Planning started in 2016 and last year published 14 recommendations from quality to a housing ombudsman. HBF commissioned a study with WI Consulting looking at the various recommendations and how they can be dealt with. One of those is about unifying the various codes and we are working with all the big warranty providers. In April they signed up to working towards a unified code to cover the consumer as well as house builders and warranty providers. But also to move towards what a voluntary housing ombudsman would look like covering the whole of housing.

Graham Sibley, NHBC: Consumer awareness is very important. NHBC and other warranty insurers are regulated by the FCA and PRA so at the centre of that is treating customers fairly. The consumer has to be at the heart of every decision from making sure the product is sold correctly and that people are aware of what it does.

Exposure limits 
James Chidgey, MAB: How do valuers do comparables on MMC when it is still early days and most buildings are traditional brick and tile?

James Ginley, LGSS: The valuers’ role is to follow the market not lead it. It’s a problem when you can’t demonstrate value because of uniqueness so we have to go further afield. There are certain construction types where that is already the case such as where you have modular with cladding, or where there are concerns around proximity to infrastructure because it’s a new site in a location that hasn’t been tested.

There are possibilities for surveyors to do upfront valuations that aren’t necessarily defining value but giving parameters around value which then can be absorbed into lenders’ systems. If lenders can define what exposure they want and define their parameters of value then they define what they want in terms of asset liability. So rather than the approach we have currently, which is valuing after the event, you could do it upfront.

But it needs centralised control so you don’t have just one valuer you have a variety of available information that combines the lenders’ position of types of product set against different benchmarks from different valuers. At the moment you are looking at individual units.

Peter Andrew: One of the challenges around valuation is the creation of new towns and villages, really big sites that change a place. Some of these sites don’t get their value until after placemaking. (Placemaking is a multi-faceted approach to the planning, design and management of public spaces.) What is the value over and above the surrounding area before and after placemaking? That is a real challenge because placemaking value is needed to make the town work and these things are infrastructure heavy. How do you get the value for that early on within a site?

Luke Christodoulides, NatWest: It’s about the relationship the builders have with the lenders and with the technical teams of valuation panel managers. We’ve been doing some work with L&G on pre-site exposure limits and how we can publish that as well. It’s all about getting the information upfront as quickly as we can, the valuer does the assessment for us then we can set our exposure limit and we know where we stand quite early on.

James Ginley, LGSS: We have to deliver that data back to the lender in a way that they can absorb it. We have to build systems so the lender can utilise those management information tools in real time. It can then be communicated to the broker world about positions on site.

Defining MMC
Mark Farmer, Cast Real Estate & Construction Consultancy: The term MMC won’t go away because it has gone into common language. There are levels of manufacturing content that go into projects, which could be a level of components, level of sub-assemblies all the way to full modular apartments.

There are also advanced techniques that are increasingly coming into construction that involve non-tradition materials. There is a debate as to whether something like a zinc roof is a modern method, it is certainly non-traditional.

Ultimately you will see more site innovation where a home might be built traditionally but with non-traditional materials. You are also going to see the beginnings of site worker augmentation which could be in the form of robotics, it could be in the form of augmented reality visualisation tools. Do you class that as MMC? It can still be used in traditional forms of building.

We want to encourage innovation in the market and tie that back into potential underwriting risk for lending and legacy risk for buildings insurance.

Source: Mortgage Finance Gazette

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More than 10,000 commercial properties lying empty amid homes shortage in the capital

Central and local government as well as the Mayor of London have all come under attack for the level of empty commercial properties in the capital amid the housing crisis.

Research by Live-in Guardians, which arranges for people to occupy empty properties at a reduced market rate to help keep them secure, found that the number of vacant commercial properties in central London and around the outskirts has reached more than 10,000.

The data, based on Freedom of Information requests to 22 local authorities in London zones 1-3, shows 10,666 commercial properties lying empty.

Arthur Duke, founder of Live-in Guardians, warned this figure could be higher as many councils are unable to record the data.

He lambasted the Ministry of Housing, Communities and Local Government, the Mayor of London and councils for not doing enough while there is a housing crisis in the capital.

The worst areas were the City of London with 3,409 empty buildings, Hammersmith & Fulham with 1,288 and Ealing with 1,147 vacant commercial properties.

Kensington & Chelsea, and Newham Councils did not respond to the request.

Duke said: “This is a reflection of extortionate property prices coupled with ferociously high business rates that push companies further away from the centre of town to the suburbs.

“Many of the buildings from our research include office buildings, retail premises, police stations, warehouses and factory buildings. We also have former law courts, restaurants, a former go-karting track and even a few banks.

“More should be done to make use of these empty spaces, which are, in fact viable temporary homes with a little imagination and effort – that benefit all parties.

“The Government should see these empty buildings as an alternative temporary form of living and has the added bonus of helping guardians save money they could potentially use to buy their own property in the future. Once guardians are living in commercial spaces, the owners are typically exempt from paying business rates and there’s no requirement for expensive security costs.”

More than 10,000 commercial properties lying empty amid homes shortage in the capital Commercial Finance Network

Source: Property Industry Eye

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P2P platform Lendy tops £400m funding

Peer to peer secured property lending platform, Lendy, has broken the £400 million barrier in financing UK property market.

Lendy’s latest milestone comes as some banks pare back their lending and more property developers seek out alternative finance options.

The firm reached £300 million in lending in April last year and has funded hundreds of bridging and commercial property development loans since its launch in 2012. These include residential developments, commercial property, and conversions.

The £400 million has been invested by over 21,500 investors who have earned more than £40 million in interest so far.

Lendy says one of the keys to its success has been the level of due diligence it carries out, such as its property valuations are always carried out by RICS registered property valuers.

Property developers are turning to alternative forms of finance such as P2P thanks to quick turnarounds and availability. Lendy can move from an initial offer to drawdown of the loan in days, in sharp contrast to the months that can be taken by banks’ credit committees. It is also often able to offer loans secured against properties that the banks would be unable to value confidently.

Lendy’s large and growing user base allows it to fund loans of any size extremely quickly, with loans often oversubscribed by up to five times.

Investors

Lendy also continues to see strong growth in its investor base, which is attracted to the platform for a number of reasons.

It has a four-step due diligence process, undertaken by an in-house team, and panels of major law firms and valuers. All loans are secured against UK property lending at a maximum LTV of 70%. Lendy says that returns to investors are between 7% and 12% a year and the minimum investment is just £1.

Liam Brooke, CEO of Lendy, commented: “For some time, we have been stepping in where big banks have neglected property developers. With banks set to limit their property lending even further – we are ready to help fill the funding gap.”

“To pass the £400 million barrier in a little over a year after reaching £300 million is testament to the relationship we have with developers and the quality of the loans we provide.”

“A combination of quick turnarounds for developers, coupled with good returns and excellent due diligence on properties for our investors, is helping Lendy grow at a healthy rate.”

Source: Mortgage Finance Gazette

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Bank of England rate-setter Michael Saunders says rate hike needed faster than markets expect

Interest rates may have to rise faster than markets are pricing, according to one of the most hawkish members of the Bank of England’s monetary policy committee (MPC).

Michael Saunders today said that against a background of stronger inflationary pressures “rates might need to rise a little faster”.

Saunders was one of the three members of the rate-setting MPC to vote for interest rates to rise to 0.75 per cent at the last meeting in June, when chief economist Andy Haldane surprised City observers with a vote to hike.

The split vote highlights the difficult trade-off for the MPC, with what it sees as signs of rising inflation on the domestic front amid relatively weak economic data.

Speaking to CNBC, Saunders today said that he wants an “earlier return to a neutral rate” for monetary policy, at which it does not stoke further inflation.

He said: “I think the neutral rate is significantly lower than it used to be. And even if rates were to rise a little faster than markets price in I think that the general picture is still limited and gradual, not too far, and not too fast.”

A rebound in UK growth after a weak (albeit upwardly revised) GDP reading of 0.2 per cent in the first quarter and a “tightening in the labour market feeding through to pay growth” are key to the rates outlook, Saunders said.

Yet despite his hawkish message on rates, Saunders delivered a fairly downbeat assessment of the strength of the UK economy.

Brexit has held back the “big cyclical investment surge” which would normally be expected in similar economic conditions; “It’s clear that Brexit is dampening investment intentions compared to what we would otherwise have,” Saunders said, although adding that it has still grown.

The neutral rate for interest rates has been lowered by a combination of demographic pressures – with an ageing population – and lower productivity growth, he said, alongside tighter fiscal policy since the financial crisis.

Source: City A.M.

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More certainty for renters under new govt plans

Longer tenancies are set to be introduced under new plans, which will give renters more security.

Housing secretary James Brokenshire said the government was consulting on a new longer tenancy model of a minimum of three years, with a six month break clause to allow tenants and landlords to exit the agreement early if needed.

He said the government wants to make renting “more secure” as families, vulnerable tenants and older people who rent face the uncertainty of suddenly being forced to move or evicted.

According to government data, people stay in their rented homes for an average of nearly four years. But despite this, 81% of rental contracts are assured short-hold tenancies with a minimum fixed term of just six or 12 months.

Brokenshire said: “It is deeply unfair when renters are forced to uproot their lives or find new schools for their children at short notice due to the terms of their rental contract.

“Being able to call your rental property your home is vital to putting down roots and building stronger communities.

“That’s why I am determined to act, bringing in longer tenancies which will bring benefits to tenants and landlords alike.”

‘Abusive practices in the leasehold market’

The government also announced proposals to tackle “abusive practices” in the leasehold housing market.

Such practices include costs rising without extra services, and unfair terms meaning people are put off from buying new build homes.

Brokenshire said legislation to ban the unjustified use of leaseholds on new homes will be “brought forward at the earliest opportunity”.

And for flats, he said that in the future, ground rents for long leases will be limited to “a peppercorn rate”.

Any new government funding scheme will contain the condition that the money can’t support the unjustified use of leasehold for new houses.

Both proposals apply to England only.

Source: Your Money