Property investors returning to the market
A couple of weeks ago, we reported how investment experts got it wrong again; house prices are up. More recent news shows just how wrong they got it. There is a renewed confidence in the outlook for UK property and property investors. Landlords and homeowners are more optimistic. Rent rises have been called “inevitable”. Property sales are up. Even the lettings market in prime London property is joining the party. Why? It's simple. Supply and demand….
Landlords’ optimism grows
The latest survey from Paragon Mortgages shows that buy-to-let property investors are more optimistic about the outlook for the private rented sector.
Fewer property investors expect to sell today than a year earlier. Last year, 25% of landlords anticipated selling some of their properties. That number is now down to 17%.
Property investors had time to consider the upcoming changes to mortgage interest rate relief fully. The stamp duty surcharge has bedded in. Paragon also reports that:
- The number of property investors willing to invest in buy-to-let property has increased
- Average void periods remain unchanged at 2.7 weeks
- Almost half of void periods are less than 2 weeks
- Average rental yield is 6.1%
Paragon’s Managing Director, John Heron, says:
“With no material improvement in the supply of new housing against a background of strong population growth and household formation, it is no surprise that landlords are continuing to experience strong rental demand. It is promising therefore that there has been some improvement in landlord buying intentions albeit from a low base.”
He also expects rents to rise.
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ARLA says rent rises are inevitable
The latest rental sector report from ARLA Property mark indicates growing demand for rental properties. In January 2017, its branches reported that prospective tenant numbers had grown by almost a third from December 2016. Over the last 12 months, demand for rental property is up by 10%.
The organisation also reports that the supply of rental stock rose in January, but by far smaller margin than demand. Its CEO, David Cox, commented:
“When supply and demand are out of kilter, as they have been for so long now, the market isn’t balanced and fair for tenants, and rent prices will just continue to rise. Worse still, should the government decide to implement an outright ban on letting agent fees when the consultation takes place, the situation will likely get worse for tenants.
“The costs of the vital services letting agent fees cover will need to be recouped, and this will get passed on to renters in inflated rental prices. Combined with new landlords’ tax, particularly the upcoming changes to mortgage interest release, means the rental market is far from reaching equilibrium.”
ARLA clearly considers that further rent rises are inevitable. That’s good news for buy-to-let investors.
London property sales slow in the fourth quarter – UK sales grow in January
Property sales may have turned a corner in January 2017. While the Council of Mortgage Lenders (CML) reported a 3% fall in the final quarter of 2016, UK property sales increased by almost 5% between December 2016 and January 2017.
Affordability issues have hampered the London market. Mortgage activity in London is down, with 18,500 loans extended in the fourth quarter. But while mortgage activity is at a four-year low, remortgage numbers are growing. The number of remortgages is now as high as it has been since 2008.
Average household income in London is now £87,300. The average amount borrowed to purchase a home was £335,400. It equates to a typical income multiple of 3.97, a little higher than the UK average of 3.29.
Meanwhile, UK property sales have increased by 4.9% between December and January. HMRC data shows that sales are 0.3% higher than in January 2016. It’s now the fourth-month running in which sales numbers have grown. The rate of growth had exploded since December when sales increased by 0.2% from November.
These sales numbers are a clear reflection of growing confidence in the UK property market: house price sentiment has reached a post-Brexit high.
Lettings in prime London rebounds
The supply of rental property in London rose again in the final quarter of 2016, but at a far slower pace than in the last quarter of 2015. The increase in supply over the last two years has been blamed for lower rental prices. However, the pace of rental price falls has moderated, and Knight Frank has pointed to higher demand for rental properties as being positive for 2017.
This strength is most marked in the higher and lower end of prime central London. Demand is strong in the super-prime (above £5,000 per week) sector. The number of deals in this super-prime rose by 5% year-on-year. Below £1,500 per week, the market is also strong. Between these values, there are signs that demand is improving.
Tom Bill is quick to point out that the deflation in prime rental prices and falls in demand are not entirely Brexit-related. He says:
“While the UK’s decision to leave the European Union has raised some questions over the status of London as a leading global financial centre, this trend for greater efficiency pre-dates Brexit and relates to the increased regulatory pressures on banks as well as a low-interest rate environment that curbs profitability.”
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