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Harrow Council Leader Speaks Out About Landlord Rogues

The leader of Harrow Council has spoken out again against irresponsible buy to let investment landlords following another inappropriate property discovered by enforcement officers.

Enforcers came across a second poorly maintained property, noting a ‘sea of mattresses’ and makeshift bunkbeds at the two-bedroom house in Wealdstone. It was thought that the home could house as many as 18 people, including children. However, the landlord claimed that everything was as it should be with the house.

The property was an unlicensed house in multiple occupation (HMO) and had no smoke detectors, faulty electrics, and was covered in mould. This led to the leader of Harrow Council reiterating his pledge to weed out irresponsible landlords from the sector. Rogue landlords can pose a danger to tenants’ lives by letting out unsafe and worrying properties. They also pose a danger to the sector in general, with the action of a small minority of landlords bringing the buy to let market in general into disrepute.

Councillor Graham Henson, leader of Harrow Council, said: ‘What kind of monster would profit from housing children in filthy and dangerous conditions like these? What if these faulty electrics caught fire? Or the rotten ceilings collapsed? It’s a nightmare that belongs in the Victorian era, not today. It keeps me awake at night, worrying about illegal HMOs like these and the criminals that rent them out.’

He asserted: ‘We will never, ever stop uncovering properties like these and punishing those responsible.’

In a particularly worrying turn of events, enforcement officers were forced to make a swift escape as the bathroom floor began to fall from underneath them.

Councillor Henson insisted that formal action will be taken against the landlord and an emergency order has been put in place. An emergency order will prevent anyone from living in the house until it is made safe for human habitation.

Source: Residential Landlord

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Why are interest rates so important for investors?

All eyes turn to the Bank of England’s Monetary Policy Committee as it sets the base rate which in turn impacts interest rates. This is why they’re important to investors.

The Bank of England sets out the cost of borrowing or lending money as if you were taking no risk.

This base rate influences how much depositors can get for their cash savings, and investors can use this to compare the returns they want from investments such as shares and bonds.

If cash pays a higher rate, then investors should expect a higher return from their riskier investments.

The impact on bonds is usually the clearest. Government bonds and lower risk corporate bonds are most sensitive to interest rate movements and the prices would generally fall in order to provide a higher income offsetting the interest rate rise.

Some areas of the bond market are not so sensitive to interest rates such as short-dated bonds – i.e those about to mature and return their capital to investors, while high yield bonds are more sensitive to the outlook for the individual company but with an eye to the health of the economy.

Rising interest rates have a mixed and changing impact on equities and this creates a more complex situation, made even more so by the financial crisis of 2008/09. Initially, rising interest rates are seen as a sign of confidence in the health of the economy, that consumer confidence is both strong enough and company profits are healthy enough to be able to tolerate a rise in interest rates. This is currently the position we are seeing in the US.

However, higher interest rates mean higher costs for both businesses and individuals. The effects of higher rates varies with each business depending on their nature. Defensive businesses are less sensitive to interest rates, while consumer discretionary businesses can suffer if household spending drops.

In addition, there are other factors to consider – a heavily indebted company is more sensitive to interest rate rises especially if they need to renegotiate the debt sooner rather than later.

Rising interest rates usually curb demand and cool an economy, with the view to avoid it overheating and help prevent inflation getting out of control. Often economies tip into recession as central banks are too slow to react and then overreact as they try to catch up.

So investors need to plan for both the positives of higher interest rates plus the potential for policy error and recession. Having a mixed portfolio of equities makes sense as forecasting the cycle is difficult.

Cyclical companies (banks, miners and oil producers such as Lloyds and Rio Tinto) should do well in the early stages, while defensive companies (utilities, pharmaceuticals and tobacco such as SSE, Astrazeneca and Imperial Tobacco) provide protection should interest rates impact consumer demand.

Exposure to companies that offer higher quality growth and rising dividends mean that in the long-term, these companies can offer better returns.

However, when interest rates are rising it is important to focus on the quality of the company. The financial strength matters more when debt costs rise as companies with stronger balance sheets have more options and can survive tougher conditions for longer.

Source: Your Money

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London house prices expected to fall this year as Brexit uncertainty holds back demand

London house prices are expected to fall this year as Brexit hampers demand, according to a Reuters poll of housing market specialists.

Property prices in the capital are forecast to fall by an average of one per cent this year, which would mark the first annual dip in nearly 10 years, according to the poll of 30 experts. They are expected to bounce back within a couple of years though.

The survey predicted that home prices will rise on average 1.7 per cent across Britain this year, dropping back behind inflation, with a 2.5 per cent rise in consumer prices expected.

Looking further ahead, growth in house prices is expected to pick up next year – with a rise of two per cent nationally, and a more muted 0.5 per cent rise in London. By 2020, house prices are forecast to increase by two per cent both in the capital, and in Britain.

Reuters said the range of forecasts for London house prices in particular was very varied though, with forecasts coming in calling a six per cent fall to a 2.5 per cent rise.

Oliver Knight, associate at estate agency Knight Frank, told Reuters a lot of uncertainty lingered in the market “as to where we are with Brexit negotiations”.

“That has really kept a lid on further growth. There is a wait-and-see attitude,” he said.

Figures out last month from the Office for National Statistics said house prices in the capital had fallen by 0.7 per cent over the past year, which was the biggest fall since 2009.

The ONS said the dip in London prices is predominantly due to a steep fall in demand relative to supply, and that could balance out prices to make buying a home there more accessible.

Brexit may have reduced the appeal for overseas buyers, according to the ONS, while falling demand for property in London could also be partly attributed to reductions in mortgage interest relief.

“With the referendum and subsequent uncertainty regarding Britain’s political and economic environment, perceptions of the future value of London property have been adversely affected,” said the ONS. “This is what you might call a fall in ‘speculative demand.”

Source: City A.M.

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Parents in London charge the highest interest rates on loans to their kids

Parents in London charge the highest interest rates to their children when lending money to buy a home.

According to research from crowdfunding property service UOWN, 25.6 per cent of parents in the UK would charge interest on a home loan to their children.

The average interest rate for the so-called “Bank of Mum and Dad” was found to be 4.3 per cent – much higher than standard bank rates of two per cent.

But parents in London propose the highest rate at 4.78 per cent to those who want to get a foot on the ladder.

Then again, it is young people in the capital who are most likely to need the money from their parents, given that the average property price in London now stands at £619,067.

The research from UOWN comes as data from Legal & General found that more young people in London receive help from their parents than in any other region, and also have the highest parental contributions – almost £31,000 per transaction on average.

On the other end of the affordability scale, the most competitive interest rates in England, (or the most open-handed parents), can be found in the north east, where the average interest rate stands at 3.66 per cent.

Outside of London, UOWN’s survey found that that the Scottish Bank of Mum and Dad is the most expensive lender, charging 4.77 per cent.

Parents in Northern Ireland come just behind, charging their children high interest rates of 4.69 per cent, while the Welsh Bank of Mum and Dad comes in third.

The English Bank of Mum and Dad offers the most competitive interest rates of 4.12 per cent.

Interestingly, although over a quarter of parents would charge interest on a home loan to their children, only half of borrowers (50.4 per cent) said they would prefer to borrow money from their family than a bank.

Still, dealing with the Bank of Mum and Dad can be tricky – according to the UOWN’s survey, 1 in 5 people who have loaned money to a family member said the relationship has soured as a result.

Shaan Ahmed, founder at UOWN said: “Millennials today are facing pressures that haven’t been seen before, so it’s no surprise that parents want to help their children onto the property ladder.

“Ultimately the ’Bank of Mum and Dad’ is a testament to parents’ generosity and love across the country, but we need to bear in mind that parents face financial pressures just like everyone else, and therefore need a return on their investments.“

Source: City A.M.

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Economy warms up after winter slump, Brexit worries remain

Britain’s economy looks to have picked up speed after a winter slump, data showed on Tuesday, giving the Bank of England some of the reassurance it needs to get back to its plan to raise interest rates.

British services firms grew more quickly than expected in May although the approach of Brexit held back many companies.

The IHS Markit/CIPS services purchasing managers’ index (PMI) hit a three-month high of 54.0 in May, above a median forecast of 53.0 in a Reuters poll of economists and up from 52.8 in April.

Markit’s chief business economist, Chris Williamson, said the recovery made it more likely the BoE – which wants to be sure the slowdown in a wintry start to 2018 was temporary – would raise rates for only the second time in over a decade.

“But with the forward-looking indicators suggesting that the economy could relapse, a rate rise is by no means assured,” he said in a statement.

BoE rate-setter Silvana Tenreyro said on Monday much of the weakness in Britain’s economy in early 2018 would probably prove temporary, but the timing of when rates would next go up remained an open question.

 Sterling was heading for its biggest daily gain against the U.S. dollar in seven weeks as the PMI revived bets on a BoE rate hike in August, when it updates its economic forecasts. [GBP/]

Adding to the recovery signs, separate data showed shoppers ramped up spending in May including on cars.

Britain’s economy looked set to grow by 0.3 or 0.4 percent in the April-June period, a jump from quarterly growth of just 0.1 percent in the first three months of 2018, Markit said.

However, some of the improvement was due to companies catching up on work after heavy snow in early 2018. New business grew at one of the weakest rates seen since shortly after voters decided to leave the European Union nearly two years ago.

 Business confidence moderated for the third time in the past four months and job creation was the second weakest since March of last year, hampered by a lack of skilled candidates for jobs.

Britain went from being the fastest Group of Seven economy to the slowest last year as the Brexit vote pushed up inflation and made companies wary about investment.

Samuel Tombs, an economist with Pantheon Macroeconomics, said the economy would suffer if tensions between London and Brussels rise later this year when a deal for Britain’s future relationship with the EU is due to be hammered out.

“If the Monetary Policy Committee forgoes the opportunity to raise interest rates in August, the activity data – plus a Brexit showdown in the autumn – likely will mean that the next hike is put on hold until next year,” he said.

 Markit said services firms faced a sharp rise in costs due to higher fuel prices and rising salaries but they increased their own prices at the weakest pace since June 2017.
Source: UK Reuters
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UK house prices have soared 100-fold since 1966, rising three times faster than wages

UK house prices are 106 times higher than they were when England won the World Cup in 1966, according to research from online mortgage broker Trussle.

Average house prices have gone up from £2,006 to £211,000, the company found, while wages have risen at around a third of the rate, moving from £798 to £26,500.

But for the country’s footballers, the story is somewhat different.

On average Premier League footballers earn 1,136 times more than top-flight stars like Bobby Moore and George Best did back in 1966.

It’s estimated that the average wage of the current England squad is just below £80,000 per week – more than 3 times the annual UK average wage.

Ishaan Malhi, CEO and founder of Trussle, said: “A lot of has changed since England won the World Cup. We’ve put a man on the moon, invented the internet and we’ve seen technology transform almost every aspect of our lives.

“We’ve also seen the UK housing market change dramatically. Prices have soared in the last 52 years, wages have struggled to keep pace and for young people, the chances of getting on the property ladder today will feel a lot slimmer than they did in 1966.”

The research from Trussle comes as analysis from trade union GMB published yesterday showed that rents in London are far outpacing wage growth.

Analysing data from the Valuation Office Agency, GMB found that between 2011 and 2017, rent prices for two-bedroom flats in London increased by 25.9 per cent, whilst over the same period, monthly earnings increased by just 9.1 per cent.

Source: City A.M.

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Lending to UK SMEs in the property sector dropped by over £1bn last year

Bank lending to UK small and medium sized businesses (SMEs) in the real estate sector has fallen nine per cent in the last year from £13.9bn to £12.7bn.

According to commercial lender Ortus Secured Finance, lending to SMEs in the real estate sector fell significantly quicker than the level of overall lending to UK small businesses, which dropped two per cent from £58.2bn in 2016-17 to £57bn in 2017-18.

The London-based lender says that the lack of funding for property developers is helping to contribute to the current housing crisis with not enough homes being built.

In London alone just under 33,000 homes were built in the past year, compared to the 66,000 that Mayor Sadiq Khan says the capital needs.

Jon Salisbury, managing director at Ortus Secured Finance, said: “Smaller property developers are struggling to access the funding from traditional lenders to compete in a tough market.

“The fall in lending to SMEs in the property sector is indicative of the wider lack of financing available to smaller businesses from the high-street lenders across all industries as the economy rebalances.”

However, the Ortus data showed that there were three sectors where SMEs saw in increase in bank lending in the last year, including manufacturing which saw the greatest rise of 11 per cent to £6.3bn in the last year.

“Although a few key sectors, such as manufacturing, saw increased bank lending, more needs to be done to make sure financing support reaches businesses across all parts of the economy,” said Salisbury.

“Access to finance is crucial for smaller businesses to make the investments need to take their operations to the next stage, but without it many can see their growth stall and operations limited in scope.”

Source: City A.M.

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Let’s hope the gentle slowdown in house prices continues for a long time

House-price growth slowed again last month, according to the latest figures from Nationwide. The building society reports that house prices fell by 0.2% during the month of May, while the annual growth rate slipped to 2.4% from 2.6% in April.

Given that the consumer price index (CPI), the Bank of England’s key inflation measure, is also 2.4%, that means that house prices are flat in “real” (after-inflation) terms.

Overall, this is the ideal. (I’ll explain why below).

The question is though, will it stay like this – or are there bigger falls on the way?

Why we need UK property to lose its appeal as an investment  

Despite the legislative kicking that buy-to-let has had in recent years, and continuing evidence of a sharp slowdown in the UK housing market, the idea of property as a decent investment is dying hard. Yet there are signs that it no longer has the same hold on the imagination as it once did.

Here’s a little anecdote to illutrate the point: last month, private bank Weatherbys held an event for their clients, at which they very kindly asked a question on the behalf of MoneyWeek.

It’s a question Merryn often asks when she’s interviewing a fund manager or other investment celebrity: “If you had to lock up your money in one asset for ten years, and you couldn’t touch it during that time, what would you invest in?”

It’s an interesting question – it’s distant enough that you have to consider your views on the long run and on how much risk you’re willing to take, but it’s not so far out that you can simply opt for “reliable” stores of value.

After all, the history of the last century or so suggests that British or American stocks will mostly deliver satisfactory returns once you’ve held them for 20 years, but a decade-long holding period is not such a sure thing.

Anyway, we gave a series of options – bitcoin; a portfolio of developed-market stocks; emerging-market stocks; US dollars; physical gold; developed-market government bonds; emerging-market government bonds; or a property in prime central London. The audience members then voted for their preferred option.

Hardly anyone opted for bitcoin (3%) or US dollars (2%). Government bonds of either stripe also won very few votes (3% developed; 4% emerging). Interestingly, almost the same proportion of people (13%) voted for gold as voted for developed market stocks (12%).

In the end, the victor surprised me – it was emerging-market stocks, with a whopping 40% of the vote. I was quite impressed by this, although it may reflect a strong “risk-on” mentality – it would be interesting to see what the outcome was today, for example.

Prime central London property did manage to come in second, on 25%. This shows the enduring appeal of the idea that “you can’t go wrong with bricks and mortar”. Of all areas of the UK housing market, prime central London has probably been hit hardest. Depending on who you ask, prices in London’s poshest postcodes are now back to 2013 levels. Yet despite that, it’s still seen as a good place to put your money.

However, I reckon that five years ago prime central London property would have won outright (that’s a guess, but I don’t think it’s a bad one). The massive increases in stamp duty on that end of the market has had a huge impact there.

But today, it seems clear that the main driving force behind the wider slowdown in the UK property market is the fall from grace of the amateur landlord.

Why speculative landlords leaving the market is good news

This could be good news – not for landlords, maybe, but for the wider economy.

As we’ve said on many occasions, you want house prices to stay roughly where they are or to head gently lower in “nominal” terms. But you want them to fall in “real” terms – in other words, get cheaper relative to inflation.

That way, you don’t bankrupt your banking sector (which has loaned lots of money against property), or get consumers in too much of a panic (British households seem to based their view of the economy on what’s going on with the price of their own house). But at the same time, house prices become more affordable and mortgages – assuming they are fixed rate, which most are now – become less onerous in real terms.

For a gentle slowdown, rather than a crash, you need a number of things to happen. For one, you need mortgage lending to be steady rather than rampant (boom), or collapsing (bust). That seems to be the case. The Bank of England is tightly monitoring that side of things, so while money remains cheap, it’s not always easily available.

You also need to avoid a big jump in unemployment. Forced selling on a wide-scale basis is most likely to happen if unemployment soars. So far, that seems unlikely too.

Finally, buying property as an investment needs to look less appealing. In 1997 – when property was still recovering from the 1990s crash – private landlords owned 10% of Britain’s housing stock, reports Nationwide. By 2017, that had risen to 20%.

Regardless of whether you think that’s a good, bad or indifferent thing, there is no doubt that it has had an effect on property prices. If you suddenly introduce a whole new class of buyer into a market, then you’re going to not only boost demand, but you’re going to change the nature of the market too.

Want to know why Britain is so inundated with “luxury flats”? That’s down to builders meeting demand from landlords (as Nationwide notes, roughly 60% of flats are privately rented, compared to the average of 18% for other property types).

But now, demand from landlords is collapsing as tax changes make the whole thing far less attractive. The Association of Residential Letting Agents just reported that the number of landlords selling their properties rose sharply in April. And in the longer run, what we’ll be left with is landlords who know what they’re doing, rather than crossing their fingers and taking a punt on a combination of massive leverage and constantly falling interest rates.

If we can get back to a situation where properties are viewed by most people as places to dwell, rather than as potential lottery tickets, then not only will we take some heat out of the market, but the sense of inequality will diminish as home ownership starts to rise again. Combine that with a pick up in wages (which seems to be happening), and an undeniable increase in physical housebuilding, and we might just get to the point where the market is at something close to sensible valuations again (relative to income), without causing a catastrophic economic collapse.

Source: Money Week

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Letting agents report record numbers of landlords heading for the exit

A record number of landlords are now exiting the market, letting agents say.

The ARLA Propertymark Private Rented Sector Report shows that the number of landlords exiting the market rose to five per branch in April, up from four in March, the highest since the data started being recorded in 2015.

The figure had risen for the first time in March after sitting at three landlords consistently since April 2017.

The number of prospective tenants registered per member branch also rose, from 66 to 72 between March and April, the strongest demand since September 2017 when there 79 registered per branch.

However, supply was flat at 179 properties on average per branch.

In comparison, in April 2017 agents managed a similar 185 per branch but in April 2016 they managed 185, and 193 were recorded in 2015.

The research also showed the number of tenants experiencing rent hikes increased to 26% in April – the highest since September 2017 when 27% of landlords put rents up for tenants.

This was up 24% year-on-year.

David Cox, chief executive of ARLA Propertymark, said: “The barrage of legislative changes landlords have faced over the past few years, combined with political uncertainty, has meant the buy-to-let market is becoming increasingly unattractive to investors.

“Landlords are either hiking rents for tenants or choosing to exit the market altogether to avoid facing the increased costs incurred. This in turn is hitting renters most, at a time when a huge number of people rely on the rented sector, and leaves us with the question of where will these people find alternative homes?

“As demand for private rented homes massively continues to outstrip supply, the Government can no longer divert its attention from the broken housing market.

“The recent news that the Government is regulating the industry is a step in the right direction, but ultimately we just need more homes.”

Source: Property Industry Eye

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Intermediaries Report Remortgaging Surge On Property Investments

There has been a remortgaging surge from UK buy to let investors, with intermediaries reporting that 52 per cent of buy to let mortgages in the first quarter of 2018 came from investors looking to remortgage.

The figures reported for Q1 mark a sharp rise from the 29 per cent recorded in the first quarter of 2015 before the Summer Budget of that year. During the Budget, tax changes were announced including the gradual removal of tax relief on buy to let mortgage interest.

Intermediaries have also seen a drop in the proportion of mortgage applications from first time landlords, down from 19 per cent to 13 per cent. There has also been a fall in landlords remortgaging to raise funds to extend their portfolios. Remortgaging for portfolio expansion has dropped from 39 per cent to 22 per cent.

Of those looking to remortgage, the proportion aiming to secure a better interest rate reached the highest level ever in Q1 2018. This is in sharp contrast to three years ago when equal numbers of landlords were remortgaging for a better rate and to raise capital. In the first quarter of 2018, 60 per cent of landlords stated that securing a better interest rate was their main agenda. This is in comparison to the 30 per cent of landlords who said that raising capital was their main priority. The gap between landlords looking for a better rate and those raising capital is at its widest since 2013.

Managing Director of Mortgages at Paragon, John Heron, said: ‘There’s a wide range of factors contributing to the surge in landlords remortgaging at the moment. These include the expiry of the initial term on mortgages taken out ahead of the stamp duty changes for second properties, the expectation of rate rises on the horizon and a desire to minimise interest costs in the face of new mortgage affordabilty rules. It will be interesting to see the extent to which mortgage applications for purchases and portfolio extensions increase once these factors have played out.’

Source: Residential Landlord