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​A bright year ahead for UK property investors

Making predictions is hard and this year is no exception. Concerns around escalating geopolitical tensions and inflation loom large in the background, the latter driven by unprecedented growth in the money supply during the Covid pandemic.

In the US, the money supply is up by more than 35% and in the UK by more than 20%. In the UK, the situation has been compounded by Brexit, creating the need for structural changes to the way we trade. In our opinion, these UK headwinds will pass, whereas inexorable population growth, the pressing need to create more environmentally resilient assets and the under-delivery of housing will combine with more persistent inflation to give UK real estate another golden year.

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The £10trn residential market performed exceptionally well last year, up more than 10%, driven by the demand of investors seeking inflation-linked rental income. With continued demand and no supply solution, 2022 will see prices rise with increasing levels of institutional ownership, especially in the single-family market, where asset liquidity is better and construction risk lower.

After a total return of more than 35% in 2021, the industrial and logistics market may seem overvalued. Yet given that 97% of new space was leased within 12 months in 2021 and a development pipeline today of only 18m sq ft (4 months’ supply), rents will undoubtedly continue to grow. Logistics, alongside residential, will remain popular for inflation-correlated income to investors. The key issue for both will be that levels of suitable assets will be exceeded by demand.

It is also fair to say that with the Covid outlook significantly brighter this year, the prospects for the office and retail sectors are also better. Pandemic-induced ‘hybrid’ working patterns are here to stay, although companies will have to entice employees back to the office. Higher-quality modern assets with strong amenities on offer will see stronger occupational demand, as well as avoiding the substantial capital costs to meet tomorrow’s environmental standard. Similarly, retail should see a continued recovery as footfall gradually increases, although this is more likely to be concentrated in more accessible retail parks. These are also favoured by investors, as rents are lower and alternative uses underpin the value.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

Other alternative or operational assets, such as data centres and healthcare centres, have done well, with investors seeking ways to deliver returns outside of a crowded marketplace for mainstream assets. However, as it stands, there is not enough of these assets and they require a high level of specialist skills. For this reason, they cannot provide a scalable substitute to deliver income to a portfolio. Instead of chasing these alternatives, at Fiera Real Estate we favour targeting mainstream sectors while undertaking strategies that are more difficult to execute. For example, we will continue to develop new residential and logistics assets across the UK, achieving a better risk-adjusted return from our expertise.

Many of the current headwinds, significant as they are, will pass but structural issues such as inexorable population growth, the pressing need to create more sustainable and resilient assets and consistent under-delivery from a fragmented and politicised planning system are surely here to stay. Perhaps these are the real issues for investors in UK real estate to consider in 2022 and beyond.

When the future looks less clear, it is often useful to draw lessons from the past. Today, we are in a bull market where it is all too easy to make money. Last time, this led to new entrants riding the market with a poor understanding of risks relative to the return. If we have learnt anything from history, it is that at this point in the market you should undertake strategies where you can add value, have little or no leverage to defend against volatility and where you fully understand the asset risks. If you do this then you can capitalise on what remains a remarkable UK real estate opportunity.

By Alex Price

Source: Property Week

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Investors to inject tens of thousands into property

Investors are sitting on an average of more than £37,000 each in investment capital that they are poised to inject into property, according to a study by property investment platform Brickowner.

The property investment platform polled 126 investors about their investment intentions as the national COVID-19 vaccine, which is set to be the UK’s roadmap out of lockdown, continued. Asked how much money they had “allocated to invest into property via platforms or direct”, the average response was £37,345.

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Users were also asked to state what type of investment would interest them, with the most popular emerging as residential (67%), followed by commercial (48%) and care homes (42%). The average annual return they were looking for was 8.4% and the average most desired fixed term was two years and eight months.

Brickowner’s co-founder and chief executive Fred Bristol said: “The pandemic is very likely to have had a chilling effect on the enthusiasm of property investors over the last year – but there are real reasons for optimism.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

“First, it’s clear from surveys like ours that investors have not lost their love of property and want to invest. And, second, we are already seeing early signs of a turnaround that may be linked in part to the successful vaccine roll-out, a key precondition for the re-opening of the UK economy.

“Activity on Brickowner’s platform has risen dramatically since New Year. In fact, the amount invested in first two months of 2021 was almost double that of the last two months of 2020.”

Source: Property Wire

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Almost half of BTL landlords remain optimistic despite potential tax hikes

Property investors have been the target of many recent tax changes and may feel unfairly targeted at a time when they are facing potential Covid-related tax hikes to pay for the pandemic, and yet almost half of those who invest in the private rented sector remain optimistic going into 2021.

Despite the challenges of the coronavirus, almost half – 45% – of landlords say they are currently optimistic about the buy-to-let market, according to a new survey released today by Property Master.

The online buy-to-let mortgage broker found that less than a third – 29% – of those surveyed were pessimistic about the buy-to-let market, despite fears that the chancellor Rishi Sunak could increase taxes for those with additional homes, as part of the government’s attempts to claw back the cost of extra spending during the coronavirus pandemic.

Mortgage interest relief changes, the scrapping of the ‘wear and tear’ allowance and the introduction of the 3% stamp duty surcharge have hit landlords’ profits over the past few of years, which partly explains why so many people are exiting the BTL market and thus reducing the supply of much needed private rented stock.

Tax and regulation changes continue to have a negative impact on the buy-to-let market, with a number of landlords selling properties with a view to reducing their portfolio, or exiting the market altogether.

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But despite the concern that yet another proposed tax hike could see buy-to-let landlords exiting the market in droves before it is introduced, just 10% of the landlords surveyed by Property Master planned to exit the buy-to-let market in 2021 and almost 70% said they were not about to sell any of their properties in the new year.

Angus Stewart, Property Master’s chief executive, said: “For landlords, as for many other sectors, 2020 is a year that brought plenty of challenges. But in the case of landlords Coronavirus and the resulting economic uncertainty came on the back of a raft of regulatory and tax changes over recent years that have left the sector battered and which saw smaller landlords in their thousands throw in the towel.”

Stewart continued: “However, our survey shows the buy to let sector as a whole is a resilient one. Those landlords that have survived may well be stronger and our survey shows them as giving buy to let the thumbs up as we move into 2021.

“We see the year as being one of two halves. There is clearly continued turbulence forecast for the first half of the year as coronavirus and Brexit play out. But the fundamentals of the private rented sector remain and now more than ever an increased number of people need a good quality roof over their heads, and this will create plenty of opportunity for landlords to do well.”

The number of landlords surveyed by Property Master who planned to add to their portfolio in the new year was evenly split with those who had decided in 2021 to stick with their existing property portfolio.

Almost 43% of landlords said they planned to buy more property in 2021 and the same number planned to stick with the properties they already had. Almost 13% were undecided.

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In terms of buy to let mortgage rates, landlords seemed more relaxed about the outlook although many commentators have recorded an increase in rates in recent months.

Almost 54% of landlords surveyed thought that buy to let mortgage rates would stay the same as opposed to almost 38% who thought they would increase further. Just under nine per cent thought rates would decrease despite the rumours about a possible negative Bank of England base rate.

Stewart added: “A competitive and innovative buy-to-let mortgage market has proved to be a big plus for the private rented sector. Inevitably, the coronavirus has led to some caution amongst lenders especially around loan to value ratios, but we see this as easing as the year plays out.”

By MARC DA SILVA

Source: Property Industry Eye

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Birmingham rated the best place for property investors

Investors in Birmingham can expect a rental yield of 5.4% and price growth of 14.2% in the next five years, making it the best location for investors, according to UK developer SevenCapital.

Average rents have risen by 30% in the past decade, and are expected to increase by 15.9% in the next four. Prices in the city stand at £202,162.

There’s a raft of projects upcoming in the city – notably the Midlands Metro extension, HS2 and the 2022 Commonwealth Games

The second best city for landlords is Manchester, followed by Liverpool, Nottingham and Newcastle.

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Projected five-year price growth is particularly high in Manchester and Nottingham, at 15.76% and 16.92%.

Liverpool and Newcastle are on the cheaper end, with prices averaging at £186,527 and £198,307 respectively.

The only town represented in the study was Bracknell, which was rated the eighth best place for investors.

While the area has a high average price of £383,788, prices are expected to rise by 11.02% in five years.

Bracknell is home to tech businesses such as Dell, Microsoft and 3M, while the town is in the midst of a £770 million regeneration.

BY RYAN BEMBRIDGE

Source: Property Wire

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Rising Yields Boosting Professional Buy To Let Investors

Rising yields are boosting professional buy to let investors, especially those considering adding to their portfolios.

Rents have hit a new record high at an average of £896 per calendar month, with growth accelerating to 1.3 per cent a year, according to the ninth edition of Kent Reliance for Intermediaries’ Buy to let Britain report.

As a result, rising yields have now hit a two-year high. The average yield now stands at 4.5 per cent, its highest since the first quarter of 2017.

In London, rents have only risen by 0.5 per cent. However, with property prices falling, yields in the capital have reached 4.1 per cent, their highest level since the end of 2015.

However, despite rising yields, growth of the private rental sector is subdued on the back of government intervention and the economic impact of Brexit uncertainty.

The value of the £1.3 trillion private rental sector grew by £6 billion in the last year, as the expansion of supply dwindled, and property prices weakened in several parts of the country. The value of the average rental property has risen by 0.3 per cent in the last year, with Brexit uncertainty gripping the wider housing market

As the costs of property investment rise, landlords are seeking to recoup these in higher rents to preserve their profitability and protect rising yields. Around a quarter (24 per cent) of landlords, already expect to raise rents in the next six months, nearly five times the number that expect to reduce them.

Improved finances among tenants is also allowing more leeway. Wages are currently rising at 3.4 per cent, up from 2.9 per cent a year ago and well in excess of inflation.

Professional landlords are not just seeking to recoup higher tax costs in the form of higher rents. Many now operate via limited companies to mitigate the impact of the changes to mortgage tax relief. Analysis of Kent Reliance for Intermediaries’ mortgage data shows that in the first quarter of 2019, 72 per cent of buy to let mortgage applications were made through a limited company, significantly higher than in 2016 (45 per cent).

Andy Golding, Chief Executive of OneSavings Bank, commented: ‘Landlords have rolled with the punches as best they can, but there is no escaping that growth is subdued in the private rented sector following four years of government intervention. Brexit uncertainty has only compounded this issue, having the obvious knock-on-effect on landlords’ confidence.

‘The positive news is that for those landlords looking to expand their portfolios, underlying market conditions seem to be changing. Yields are climbing as rents rise faster than house prices, providing further opportunities for committed investors.’

Source: Residential Landlord

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Professional landlords call for manual underwriting process

Over a third of property investors want buy-to-let lenders to apply a manual underwriting process for professional landlords, as they struggle to obtain buy-to-let mortgages off the high street, MT Finance’s has found.

The lender’s Property Investor Survey showed almost half (42%) of property investors said they had struggled to secure a mainstream buy-to-let mortgage in the last 12 months, with 54% citing affordability criteria as the primary barrier to mainstream funding.

Gareth Lewis, commercial director at MT Finance, said: “The results from our Q1 2019 Property Investor Survey reflects the impact of stricter affordability and stress testing from high-street lenders on professional property investors’ ability to obtain mainstream funding.

“The need for reliable, transparent, and quick access to funds is ever-critical and specialist finance- such as bridging loans, will continue to pick up when a more personalised approach to underwriting is required.

“With highly professional specialist lenders offering flexible products at competitive rates, bridging finance has become an attractive proposition to those property investors who are looking to expand their portfolio and need certainty when conducting their business and who often need to move swiftly to capitalise on an opportunity.”

This was followed by age restrictions at 32% and insufficient deposit capital at 14%.

Yet, 46% of those unable to obtain a buy-to-let mortgage filled the funding gap with other sources of liquidity, as 50% of those opted for bridging loans, 34% refinanced through a specialist buy-to-let lender, and 16% opted for a secured loan.

As a result, 58% of the 125 property investors surveyed did not think buy-to-let lenders are doing enough to support them.

When asked what mainstream buy-to-let lenders could do to better support them, 36% said applying a manual underwriting process for professional landlords would better support them, followed by increasing LTV thresholds at 32% and relaxing age restrictions at 26%.

By Michael Lloyd

Source: Mortgage Introducer

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Property investors defy Brexit scaremongering

UK property investors are planning to increase their property portfolios in the next 12 months, according to research provided exclusively to FTAdviser.

According to an independent survey commissioned by Experience Invest, 39 per cent of real estate investors in the UK are planning to add to their holdings, with just 11 per cent seeking to reduce their property portfolios.

A further 35 per cent said they would be maintaining their current number of properties, with 15 per cent planning to sell some assets to then reinvest in new properties.

The research dispels the myth that investors are turning their backs on bricks and mortar as an investment as a result of tighter tax regulations and ongoing Brexit uncertainty.

Of the 54 per cent that plan to invest in more properties during the year, Greater London is the most popular destination, followed by the North West and Midlands.

The least popular areas for property investors, according to the research, were Northern Ireland, East Anglia, Wales and Scotland.

Jerald Solis, business development and acquisitions director at Experience Invest, said: “In light of tighter tax regulations on landlords and on-going Brexit uncertainty, there have been some doom and gloom predictions about the future of the UK property market. But this research shows that, as an investment asset, real estate is still hugely popular, with a significant number of property investors looking to grow their portfolio further in 2019.

“It is interesting to see that, while London remains the most popular location for property investment, other regions across the UK are very close behind. In particular, the North West has established itself as something of a ‘hotspot’ for buy-to-let investors, with cities like Liverpool and Manchester providing strong rental yields and healthy capital growth.”

Property investors are most attracted to houses, with 67 per cent looking here for their next purchase. This is closely followed by flats at 54 per cent and new builds at 39 per cent.

Other leading asset types within real estate were commercial and semi commercial properties.

Adrian Lowcock, head of personal investing at Willis Owen, said: “The results are not too surprising, property has been a very successful investment for many over the past couple of decades and, as such, there are a lot of investors who will reinvest into the asset class as they see it as the gift that keeps on giving.

“The recent falls in prices in some areas are nowhere near enough to convince property investors the bull market is over and they have also been supported by Governments who have looked to shore up the property market following the financial crisis.”

Mr Lowcock added: “I am not sure buy-to-let landlords would look at many other investments as a genuine alternative. They are often a different type investor and they are not necessarily the type of people who would invest in shares.

“Property is a physical tangible asset which they can work on, see and manage whilst owning shares is less visible and more often than not requires investors not to take any action – just to do some occasional background reading.

“Brexit is a huge risk to the property market and arguably some of the damage has already been done. An eleventh-hour agreement might help avoid big falls in the property market but it will take a while to see what damage has been done and how long it might take for the market to recover.

“Overseas investors might take a bit longer to come back as property investment requires a bigger financial commitment and is more illiquid than the stock market.”

The research was based on responses from more than 500 buy-to-let landlords and real estate investors from across the UK.

By Jenny Turton

Source: FT Adviser

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Refurbishment loans: the three key factors for clients to consider

The reduction in demand and values in the London residential property market have been well documented over 2018. With changes in taxation, stamp duty and Brexit uncertainty putting off buyers, some areas in the City of London fell by 13.4% in the 12 months to October 2018.

In response to these pressures, property investors are using refurbishment more and more, as a way of adding value and increasing rental yields. There are huge opportunities here, but investors must also keep in mind the wider market dynamics.

Keep an eye on GDV and purchase price

With Brexit looming there is likely to be further falls in property prices over the coming months, therefore investors should be aware that their perceived gross development value (GDV) on purchase today, may not be as high once a refurbishment is finished.

This also means properties need to be bought at the right price up front. Negotiation will come into play here, with investors ensuring they have enough headroom in the deal to make a healthy profit.

It’s fair to say buyers markets have been rare in London for almost two decades and investors should now look at this period as a good opportunity to secure a competitive purchase.

Following Brexit, a likely revival in overseas interest and economic stability should help the market recover slightly, with us seeing a modest return to growth Q4 2019 and onwards.

Planning gain and enhancement

With some investors finding the planning process cumbersome and confusing, planning gain and enhancement is where our borrowers are seeing the biggest opportunity. That said, there is an overarching feeling that some local councils could be doing more to make the planning process simpler and faster.

Converting commercial to residential

Octopus Property has also seen an increase in borrowers seeking planning for converting commercial property to residential and subsequently renting them as a house of multiple occupation (HMOs) or a holiday let.

The expected increase in rental yield for HMOs and holiday lets following a refurbishment, is particularly attractive to developers looking re-gear and retain their property as part of a portfolio.

In November, Octopus overhauled its refurbishment loans to support the increase in demand. To help borrowers increase their leverage and reduce the need for third party investment or high interest debt, it increased its max loan-to-cost to 90%.

It also updated its pricing, loan size and works limit and support underserved areas of the market such as foreign nationals, complex company structures and expats.

These changes have resulted in a strong year end with our highest level of enquiries and applications coming in November and December, an increase of 130% in comparison to the prior two months.

Despite the pressures on house prices and wider market uncertainty, refurbishment provides plenty of opportunities for investors.

Source: Mortgage Introducer

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Renting property will “continue to be the norm” for young people in the UK

New research shows the important role the UK’s rental sector will continue to play in 2019 and beyond, underlining the opportunity for property investors in Britain.

Summary:

  • Changing lifestyles and high costs means young workers in the UK are set to continue their reliance on the country’s private rented property sector
  • Less than one in five young families in some of the UK’s core cities own their homes
  • 34% of young families now rent, compared with just 9% in the late 1980s

For the first time in 30 years, there has been a rise in the number of young families becoming homeowners in the UK.

But more people are expected to continue renting their homes in 2019 and beyond.

New research from the Resolution Foundation shows that there’s been a 3% uplift in young families becoming homeowners since 2016, when levels reached a new record low.

However, with more young people favouring the flexibility of renting, coupled with the increased costs of owning, the analysis was also quick to stress the ongoing importance of the UK’s private rented sector, with renting set to “continue to be the norm” for many young Britons.

The demand for rental homes is particularly pronounced in the UK’s core cities. Fewer than one in five young families in London, Manchester, Liverpool, Brighton and Birmingham own their homes.

On a national basis, the report found that 34% of young families in the UK now live in the private rented sector; in the late 1980s, this share stood at just 9%.

But while demand for rental homes is likely to rise further still, supply is likely to be unable to keep pace. Published in August 2018, the latest report from the Ministry of Housing highlighted how there was a 46,000 fall in the number of available rental properties on the market in 2017.

It underlines the opportunity for property investors to help support the development of the sector, in addition to achieving strong growth in a significantly undersupplied sector of the UK property market.

Source: Select Property

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Overseas Property Investor Numbers Fall

The number of UK buy to let property investments let out by investors based overseas has more than halved in the last eight years.

The latest data released by Hamptons International has revealed that the percentage of overseas based landlords letting buy to let properties in the UK fell from 14.4 per cent in 2010 to just 5.8 per cent in the first 11 months of 2018 – the lowest level on record.

Every region in the UK has seen a fall in the proportion of homes let by an overseas landlord since 2010.

The largest drop has been seen in London which has gone from one in four (26 per cent) of homes let in London owned by an overseas based landlord in 2010, to just 10.5 per cent this year. A fall of 15.5 per cent.

In other parts of the UK, the proportion of overseas based landlords has fallen by 10 per cent in the South East since 2010, followed by the North East and East Midlands, both experiencing a drop of 6 per cent.

Outside the capital, Yorkshire & the Humber has the highest proportion of homes let by an overseas based landlord (6.7 per cent), but this region has only seen a 4 per cent fall in overseas based landlords since 2010.

Western Europeans make up the biggest group of overseas based landlords at 34 per cent, followed by Asian (20 per cent) and North American (13 per cent).

However, since 2010 the proportion of Western European based landlords has fallen by 2.1 per cent, compensated for by a pickup in Asian landlords (+2.1 per cent). Middle Eastern based landlords have also risen by 1.4 per cent since 2010 and now account for 11 per cent of overseas based landlords.

Head of Research at Hamptons International, Aneisha Beveridge, said: ‘The proportion of homes let by an overseas based landlord has more than halved since 2010. Sterling’s depreciation since 2016 undoubtedly makes it cheaper for international buyers to purchase property in Great Britain. However, the conversion of pounds back into local currency means additional costs which cut into an overseas landlords’ monthly income. This combined with a harsher tax regime for overseas investors is dissuading some international investors from entering the rental market.

‘Throughout this year rental growth has been sluggish averaging 1.5 per cent and only passing 2.0 per cent on two occasions. Affordability is not just an issue for those looking to buy a home, but impacts tenants paying rent too. And these affordability barriers will continue to keep a cap on rental growth in the future.’

Source: Residential Landlord