London is the worst place in the UK to buy a home for first-time buyers, according to price comparison website Money Super Market’s First Time Buyer Index.
The inaugural survey analysed 35 UK cities against key criteria for first-time buyers, including the cost of a one-bedroom property, crime statistics, job opportunities and average salary in the local area.
London comes in last place due to its sky-high property costs and rising crime rates. Meanwhile, Oxford topped the list of the best places to buy followed by Bath, Wolverhampton, York and Aberdeen.
Other cities which were near the bottom of the list for first-time buyers after London included Newry, Hull, Sheffield and Leicester, due largely to low job opportunities.
Kevin Pratt, consumer affairs expert at Money Super Market, said: “Buying a property for the first time is exciting, but it comes with the hard decision of choosing a location that suits your budget, your job and your lifestyle. What is crucial is that people take the full range of factors into account.
“The first-time buyer sector is showing signs of life as property prices fall in some areas, thanks to the heat going out of the buy-to-let market. If buyers can be flexible, they stand a better chance of finding somewhere they can afford to purchase.”
Around 51 per cent of UK brokers have been approached by landlords looking to diversify their portfolios in the last six months, according to new research from OneSavings Bank.
And 56 per cent of enquiries were about diversifying into Houses with Multiple Occupants (HMOs), which can generate a higher yield for landlords despite new regulations set for October.
The findings echo last week’s ‘Emerging Landlord’ report from Simple Landlords Insurance, which found that landlords were becoming younger, better informed, with more expansive and diverse portfolios. 43% of HMO landlords are in buying mode, with flats and holiday lets also areas of growth.
According to OneSavings, landlords are also increasingly diversifying into commercial and semi-commercial properties after the Prudential Regulation Authority (PRA) introduced stricter underwriting standards for portfolio landlords with four or more properties and the changes to tax treatments for buy-to-let properties.
The research found 14 per cent of brokers said they had been approached by landlords wanting to increase the level of commercial property within their portfolio.
In addition, 9 per cent reported that landlords wanted to diversify into mixed-use properties. Unlike residential buy-to-let property, landlords holding only commercial property will not be affected by the reforms to mortgage tax relief.
Another six per cent of brokers said landlords were looking to diversify into student accommodation.
Adrian Moloney, sales director at OneSavings Bank, said: “Landlords are on the hunt for greater yields, and, in the face of regulatory and tax changes, diversifying into commercial property or more complex residential options such as HMOs can offer this.
“With the buy-to-let market becoming increasingly complex, there is an opportunity for informed brokers to support landlords seeking new niches.
“However, these brokers must in turn be supported by specialist lenders who can offer the flexible lending needed to finance the growth of these segments of the market.”
Likewise, insurance products will need to adapt to support changing investment strategies. Tom Cooper, Director of Underwriting at Simple, added: “We want to be able to support the emerging community on aspiring and professional landlords to grow their portfolios and profits with our back-up. We can be the safety net that lets landlords grow, diversify and thrive.”
As we all know, buy-to-let is now a lot more challenging for brokers. Gone are the days when a broker could just pull out a calculator and work out how much a landlord could borrow.
In the post-PRA world, brokers now have to gather a huge amount of additional information the landlord’s property portfolio as well as their business plan and cashflow statements, before they can even start to think about LTVs.
And that is all assuming the landlord is aware of the changes, many landlords themselves still have a lack of understanding around why lenders need so much more information than they did before.
While the topic has been covered frequently in the trade press since the rules were introduced five months ago, there has been relatively little about the changes in the consumer press. Therefore, many borrowers are unaware of the changes until they actually come to remortgage or buy add another property to their portfolios.
This means many are taken aback when their broker then explains to them how much information they now need to provide, and how much extra time is needed to put together a buy-to-let mortgage application. And actually, even those who do know about the changes might not know quite the impact all the extra information needed will have.
There are even some lenders who are not sure about all the information they need themselves and therefore, even when all the information has been provided, applications are taking a lot longer than they used to. Brokers are also finding that different lenders are asking for the information in different formats, creating even more work for brokers.
While in the main, brokers know about the changes, for those who only occasionally deal with clients with portfolios of properties, the extra information required can seem as incomprehensible to them as it does to their clients.
And this is then compounded by the fact many reports are suggesting that landlords are ‘selling up on masse’ as a result of the changes so there is little buy-to-let business around away.
However, we have not seen any evidence of this, and in any case, I think we need to give landlords more credit.
Landlords are not going to sell up just because of a few changes to tax rules, most will take a much more pragmatic approach. And even those who do sell up, it is more than likely another landlord will take on the property anyway.
We know that for many brokers, the extra time and effort needed to put together a buy-to-let application may put them off, but the reality is, there is still a huge appetite out there for buy-to-let, and we are working hard to support all our brokers to enable them to keep writing good quality buy-to-let business.
Vacant property expert, Stuart Woolgar, CEO of Global Guardians, discusses the country’s current housing crisis and the section of people who cannot buy, nor are they eligible for social housing
Housing in the UK is both in crisis and confusion, with arguments raging how best to solve the problem.
House purchase
The government says it is stimulating house purchase for first-time buyers by cuts to Stamp Duty and the Help to Buy scheme and pushing developers to build more affordable housing. However, the recent analysis by the Local Government Association (LGA) shows we are experiencing the biggest fall in home ownership in the last 20 years, with the key 25-34-year-old group dropping from 65% to just 27% on the property ladder. Why? Simply because house prices have risen around seven times faster in real terms than incomes.
At a recent housing conference, the Prime Minister said she wanted to break the ‘vicious circle’ where most young people can only get on the property ladder with their parents’ help; this was an unacceptable situation and the provision of more affordable housing was now a priority for the government to restore the dream of home ownership to millions across the country amid a lack of supply. However, house prices are unlikely to suddenly drop by a large amount so sizeable deposits for mortgages will still, somehow, have to be found.
In 2017 the Royal Institution of Chartered Surveyors (RICS) predicted that rents will increase by just over 25% in the coming years. With the already huge increase in the cost of renting a home over the past decade, combined with the above problem for house purchase, this means there is a large cohort of people who can neither afford to buy their own home because they don’t earn enough and don’t have enough disposable income to save for a deposit because their rents are so high, nor are they eligible for social or affordable rented housing because they earn too much.
Tackling the problem
Two years ago, a leading thinktank produced a report which suggested that allowing disused commercial land and buildings in London to be redeveloped could provide up to 420,000 additional homes for the capital by 2036. Figures compiled by the Policy Exchange found there were more than 500 hectares of empty or under-utilised industrial land across London alone, the equivalent to 750 football pitches, as well as a significant amount of vacant retail space in outer London.
They believed that if the government were to commit £3.1 billion a year to finance the purchase of this land or provide the finance to the local authority who owns it, maybe alongside a private sector investor partner/developer, in a PPP for example, around 21,000 homes could be built each year. Rental income from the homes and the sale of equity stakes could allow the government to recoup its money within 20 years and this scheme would be the largest government investment and delivery on housing since the 1970s.
Since the Government Property Unit (GPU) is pushing on with its target to reduce the UK public sector’s estate from 800 to 200 by 2023, a real opportunity exists for the public sector to lead the way and kick-start some of the proposals now on the table to tackle the housing crisis.
However, there is a real opportunity being missed across the country, which has in fact been picked up by the Greater London Authority in their recent investigation to find one of several solutions to the capital’s chronic housing shortage. This is the use of property guardians in otherwise vacant buildings: buildings that are currently sitting, awaiting development, with or without planning permission, or simply up for sale.
The use of property guardians, who pay a far lower ‘licence fee’ to occupy an otherwise empty property, residential or commercial, than the market rate for the area, could give a whole section of people, the ‘squeezed middle’ in the property sector as described above, an opportunity to actually save money to put towards a deposit on a home of their own.
At Global Guardians, we have many examples of people who have done that, simply by being a property guardian for a few years. All our guardians live in accommodation that is safe, secure, clean and heated with utilities and domestic facilities far better than in a lot of rented accommodation, with the benefit of regular monthly inspections to ensure the property is maintained to rigorous standards.
It is such a simple and social solution for a whole section of the population who are currently frustrated with their accommodation lifestyle and it has the dual effect of lessening the financial burden that a property has for its owner, even if it is lying vacant or simply being gradually refurbished. As property owners, insurance and rates or council tax still must be paid, as well as security to keep it free from squatters, criminal damage or ASB of all types. This financial benefit is a key one, especially for local authorities or housing associations as well as government departments, where budgets are permanently under pressure.
With the public sector thinking outside the box like the GLA for more social solutions to the current housing crisis, hopefully, more of the ‘squeezed middle’ can be helped. It won’t solve the housing crisis, but it is certainly a contribution that should be actively considered.
Case study: The Excalibur Estate in Catford, south east London
A good example of putting out of date buildings to good social use while redevelopment is planned and executed is the old Excalibur Estate in Catford, south east London. This 12-acre site is home to 187 prefab bungalows built hurriedly at the end of WWII when there was an acute shortage of housing due to the Blitz. With an intended lifespan of 10 years, these homes remain decades on.
After years of consultation, in 2011 plans were finally approved to redevelop the site but still became bogged down in ongoing delays and objections by heritage groups and the new development is now scheduled for completion by 2021. However, while all the discussions have been ongoing, these old properties still have the potential to provide much needed low-cost housing for many people.
When Global Guardians gradually took over the vacated properties, they refurbished them to modern standards and they are providing inexpensive homes to an increasing number of local people while at the same time keeping the Estate secure and safe from squatters and ASB, as well as generating savings for the Estate owners in terms of security, insurance and maintenance costs and generating council tax income as well. It is proving a win-win situation for all parties.
It is fair to say that UK house prices are under pressure after the decision to leave the European Union and the ongoing “troubled” negotiations. When you also throw in a benign economy, also considering the positive performance since the 2008 mortgage crisis, it is perhaps no surprise that sentiment has taken a hit. However, when looking at the bare statistics, what is the real story of UK house prices?
UK HOUSE PRICE MONTHLY CHANGE
If you look at the graph below you will see that since February 2017 there have only been five months in which house prices are fallen. While the London effect will have impacted the monthly change, it is worth reminding ourselves that these figures do take into account the rest of the UK and everything is on a weighted basis. So, if you look at the basic statistics, yes, the UK market is under pressure but is it really as gloomy as some experts would have you believe?
UK HOUSE PRICES ANNUAL CHANGE
It is fair to say that the annual, and even longer, performance comparisons are more relevant to the property market, investment in which should be considered on a long-term basis. There will be situations where investors are able to “flip” a property to make a short-term gain but on the whole the best performances come from long-term investment strategies. This is perfectly illustrated in the following graph which shows that in the 12 month period to the end of February 2018 UK house prices still increased by 4.4%. Even though this is one of the lower annual increases of late, it is still well above inflation.
It would be foolish to suggest that UK property prices do not have potential for further downside in the short to medium term. It would be misleading to suggest that the worst is over because who really knows what the Brexit negotiations will hold. However, to suggest that the UK housing market is in freefall, prices are plummeting and demand is rock bottom, would appear to be a little wide of the mark?
REGIONAL HOUSE PRICES
It is safe to say that the London property market dominates the UK housing market and has done for many years. It is interesting to see that while the London market recently posted an annual 1% fall in property prices (and a more recent 2.1% monthly fall) the UK property market is still in positive territory. We have areas such as the West Midlands posting an annual rise of 7.3%, the East Midlands posting a rise of 6.3% and Scotland (where there are political concerns and a pending independence referendum) posting an increase of 6.2% over the last 12 months.
We are also seeing evidence that London property investors are looking to cash in their “London premium” using funds raised to acquire properties outside of the capital where many deem there to be “better value for money”. This has prompted some experts to suggest the London house price boom is over, investors are looking elsewhere and prices will continue to fall. In reality we have been here on numerous occasions, the London market is hit hardest when the UK hits trouble but time and time again it has bounced back. Will it bounce back this time?
CONCLUSION
It would be foolish to suggest that the UK property market is not under pressure and investors are not concerned about Brexit, they are. However, when you look at the basic facts and figures relating to UK property prices in recent times it looks nowhere near as bad as some “experts” would have you believe. As they say, what can’t speak can’t lie.
SCOTLAND is experiencing a “mini housing boom” with prices rocketing by more than seven per cent in February – six times the rate for England and Wales and almost double the next fastest part of the UK, according to figures from estate agency Your Move.
Some of the growth was due to fewer transactions, a typical February trait, along with a relatively small number of high-value sales in the Morningside area of Edinburgh.
These pushed the city’s monthly rate to 7.3 per cent – more than half of the monthly increase in Scotland.
Nevertheless, Your Move’s housing price index indicated that the market remains strong with a large majority of local authorities seeing growth in the last year.
While prices in England and Wales rose just 0.1 per cent month-on-month in February, in Scotland they were up 2.3 per cent.
Overall, the average price in Scotland is up more than £12,000 a year, leaving the average property worth £182,936.
“Scotland continues to enjoy unexpectedly strong housing growth – with prices rising at their fastest rate in a decade,” said Your Move’s managing director in Scotland, Christine Campbell. “Both high-priced property and the major cities are fuelling a mini housing boom.”
Alan Penman, business development manager for Walker Fraser Steele, one of Scotland’s oldest firms of chartered surveyors and part of the LSL group of companies, added: “Scotland’s market grows ever stronger as the rest of the UK weakens.
“But, while price growth might be returning to the levels of the last housing boom, transactions remain well down.
“The attractiveness of Scotland’s centres such as Edinburgh is matched only by the tightness of property supply there.”
Monthly house price growth in Scotland is now running at its fastest since 2004, with the exception of the month before the introduction of the Land and Buildings Transaction Tax (LBTT) in 2015.
Annual house price growth is now at its fastest since April 2008, which signalled the end of the last housing boom.
Growth in February was boosted by the sale of eight new properties in the Morningside EH10 area of Edinburgh for an average £1.15 million each.
Even without these, price growth for February in Scotland would be two per cent, but growth is heavily dependent on Scotland’s two big cities.
Edinburgh accounts for 28 per cent of the increase in prices over the year, and Glasgow a further 14 per cent.
Your Move said there was still strength across the market, with almost a third of local authorities in Scotland setting a new peak price in February.
That included high-priced homes in East Renfrewshire – which was second only to Edinburgh – with monthly growth of 7.1 per cent, and East Dunbartonshire, which rose by a more modest 1.8 per cent.
However, the market strength also included mid-priced areas like Angus (up 5.2 per cent in the month), Falkirk (2.9 per cent) and, cheaper still, North Lanarkshire (2.5 per cent), where average prices at £131,293 are well below the national average.
Only four areas across Scotland have seen no rise in the last year: Stirling (down 3.2 per cent), East Ayrshire (down 1.9 per cent), Aberdeen City (down 1.2 per cent) and South Ayrshire (down 0.6 per cent).
The commercial property deals market has started to wake up again in recent weeks, according to a commercial property director who expects Q3 and Q4 to again be the busiest in the marketplace during 2018.
Speaking at a property market update, Ben Hall, senior director at GVA in Leeds, reflected on recent market conditions and deals, including the £26m City Point deal which was acquired by West Midlands Pension Fund in recent weeks.
Hall said it was tricky to value and price assets currently and that there was a polarised market between defensive buyers and value-added buyers. This has caused some delay in deals particularly in the value-added space, he said.
This includes the sale of Lateral office building, on Sweet Street on the South Bank of Leeds. Hall said it had been leased to the government for a further four years but it needed underwriting and also was in need of refurbishment.
The building came to market 12-18 months ago at £28m and is currently under offer for a reported £24m; which he said reflected the need to get price right from the start. Cushman and Wakefield, agents for the property, said they were unable to comment on the status of the sale at this time.
Hall said other deals such as 3 St Paul’s in Sheffield with a blended yield of 6% and a £3m York city centre acquisition proved activity had picked up in recent weeks.
He said: “There are not enough investment products out there. There is stacks and stacks of equity who want to buy commercial property but a lack of property investment choice. In terms of buyers, it is a very polarised market in terms of who is looking to invest in commercial property.
“Depending on what category your buyer is in can make valuing and pricing tricky.
“We have defensive buyers – pension funds, private investors/high net worth, family trusts and, the most recent entrant to the market, Local Authorities; who have been active in the last one or two years.”
Hall said that value-added deals were not straight forward unless the pricing was “spot on.”
He added that investors were not always looking to break the bank but were expecting a yield of around 6%. Sectors of particular interest to buyers include Grade A office space, industrial, distribution; as well as “alternative” options, including hotels.
Hall said: “In the defensive sector, selling is an enjoyable experience. There is a lot more interest and pricing is driven down due to the weight of money.
“The value-added, territory market, is a lot more difficult.
“We are almost moving away from traditional valuation. There is regard to comparable yields and capital valuations. But the pricing has to balance risk and that can be the difficult point.”
Hall said of the Yorkshire marketplace: “The theme of 2017 was a lack of product. There was not a lot of activity in Q1 and Q1 but it happened during Q3 and Q4.
“Since Easter, I have felt more positivity with investors wanting to sell. I think we are going to see more activity following suit with last year.”
The profile of the typical modern landlord is evolving, shifting towards professional landlords focused on growing and diversifying their portfolios – while accidental landlords with one property look to exit the market.
The ‘Emerging Landlord’ published by Simple Landlords Insurance found a polarisation in attitudes towards the private rented sector, with accidental and part-time landlords feeling most negative about legislative changes and their future.
Those with larger portfolios however, felt far more positive about the future and plan to increase their property investments.
Some 38% of the landlords with two or more properties said they plan to buy at least one more in the next year – dwarfing the 11% of landlords with single properties who are planning to expand.
Meanwhile, 30% of single property landlords plan to sell, compared with just 8% of landlords with more than two properties.
Tom Cooper, director of underwriting, Simple Landlords Insurance, said: “From Section 24 to Right to Rent, increased stamp duty, capital gains tax, regulation and licensing, you’d be forgiven for thinking it was all doom and gloom in the private rented sector.
“But our evidence shows there are landlords adapting to the changes and emerging like phoenixes from the ashes. We wanted to find out more about them.
“The research reveals it is the landlords positioned at the larger end of the market – or aspiring to get there – who are least fazed by changes, and best poised to take advantage of increasing demand, bargain stock being sold off, and stable house prices.”
The emerging community of landlords is generally young, well-informed, deliberate investors. Out of the 500 surveyed, the average number of properties held decreased with age: for the 25-34 bracket, the average portfolio size was 2.16, while for 45-54 year olds, it dropped to 1.48.
The number of accidental landlords is also on the decline, falling from 18% in 2016 to 15% in 2017, widening the gulf between them and more professional investors.
Carl Agar, founder of the Home Safe Scheme and managing director of Big Red House, said: “Times change. Markets change. But property can still be a way to make money if you change too.
“There’s a clear difference between the big players and the dabblers, the old school landlords and the new kids on the block.
“Your ‘traditional’ landlord is seeing all of these new rules imposed and their returns drop. Meanwhile those new to the market are comparing those returns to what they’d get putting their money into a savings account – and it actually looks pretty good. They’re seeing opportunity, and building the rules, regulations and changes into their business model.
“Personally, I’m looking forward to a more professional and more prosperous private rental sector, driven by a new breed of landlord investor.”
As well as being bigger, younger and more professional, the emerging landlord is also investing differently, and diversifying their portfolio.
Holiday lets and flats are very attractive options for new landlords seeking to spread their risk, with holiday lets attracting the highest proportion of new entrants to the market. Some 22% of these are landlords are in their first year, with flats right behind with 16% new entrants.
The owners of HMOs in particular were also feeling optimistic, with 43% in buying mode and just 4% planning to shrink.
Cooper added: “At Simple, we believe the right insurance can be the safety net that allows landlords to develop their strategies and their businesses for the future.
“Financial services need to keep up with the market and develop products that can grow with the landlords set to survive and thrive.”
Two-year mortgage rates have hit their highest level since July 2016, analysis has revealed.
The average fixed-rate on a two-year deal now stands at 2.5%, according to Moneyfacts.
Rates have steadily been rising since September 2017, when the average two-year fix was priced at just 2.17%.
In November the Bank of England raised the base rate for the first time in almost a decade, and speculation about another rise in May has helped drive up mortgage market costs in recent weeks.
Charlotte Nelson, from Moneyfacts, said: “The mortgage market is experiencing a period of upheaval, with rates that were once at all-time lows now starting to rise.
“In the lead-up to May’s base rate announcement, both the interest swap and Libor markets have started to factor in a potential rise.
“Just like before the base rate rose in November, providers now have little choice but to factor in these higher costs into their mortgage pricing.”
A number of lenders have been raising rates in recent weeks, with Sainsbury’s today upping costs across a number of deals.
However, Bank of England governor Mark Carney has this week hinted that a base rate rise is not a foregone conclusion.
Nelson added: “As well as the latest fall in inflation, Mark Carney suggested in a recent interview that Britain leaving the EU has cast doubt over an imminent rate rise.
“If the markets do cool off as a result, it will be interesting to see if mortgage rates will follow suit in the shorter term.”
Bank of England rate setters have sent mixed signals over whether to hike interest rates next month, pointing to the prospect of a split vote.
Michael Saunders, a member of the Bank’s nine member Monetary Policy Committee, brushed aside recent weak economic data, saying that the significance of the slowdown is “questionable”.
Economic activity in March was hit by unusually heavy snow
Michael Saunders, MPC member
He added: “Economic activity in March, and especially retail sales, was hit by unusually heavy snow.
“Previous experience suggests that such snow effects typically reverse in the next month or two.”
This, Mr Saunders added, means that the Bank’s “foot no longer needs to be so firmly on the accelerator”.
“Any further tightening is likely to be at a gradual pace and to a limited extent. A key point is that ‘gradual’ need not mean ‘glacial’,” he said.
Mr Saunders was one of two members of the MPC to vote for a hike in rates in March, from 0.5% to 0.75%, in order to curb growing inflation triggered by the collapse in the Brexit hit pound.
But inflation fell back to 2.5% from 2.7% in March, a one year low, easing pressure on the Bank to act.
Mr Saunders’ comments come in stark contrast to Bank governor Mark Carney, who cautioned markets on Thursday that a rate rise in May is not a certainty.
Currency traders, who had send the pound soaring in the belief that a May hike was a certainty, were caught on the back foot.
The pound tumbled following Mr Carney’s comments, falling from 1.42 US dollars to 1.40.
Connor Campbell, financial analyst at SpreadEx, said: “There was a slight improvement from sterling as Friday went on, thanks to a hawkish rebuke to Carney’s Thursday dovishness from MPC member Michael Saunders.”
“However, the pound-boosting potential of these comments was tempered by the fact that a) this wasn’t some dove-to-hawk switch given Saunders’ stance last month, and b) he doesn’t feel that ‘the exact timing of rate changes must be totally predictable or signalled in advance’.”
The Bank of England will reveal on May 10 whether or not the MPC has decided to raise rates.
