April 2018 Property Investor´s Factfile

The Property Investor’s Factfile presents a range of relevant data from national / London house prices, the latest buy-to-let Limited Company (SPV) loan rates, LIBOR / SWAP rates and rentals to mortgage debt figures and information on the first-time buyer sector.  Below are some noteworthy observations over the last month:

Property Market Trends

• Data published by the Halifax reported strong annual price inflation in the East Midlands and East Anglia, at 7.3% and 7.2% respectively, followed by Scotland at 6.7% and Yorkshire and the Humber at 6.1%.  However, with prices in London seeing their sharpest annual fall since 2011, Paul Smith, economics director at IHS Markit (that collated the data) commented: “The subdued performance of the UK housing market, especially in the south of England, seems to reflect a general lack of appetite amongst households at present for activity related to major purchases in line with the general squeeze on real incomes seen in recent months. Allied with a general undercurrent of Brexit-related uncertainty, plus the likelihood of higher – albeit still historically low – interest rates later in the year, the market seems set to persist in a subdued state for the foreseeable future”;
• Nationwide reported a similar “subdued” tone to the Halifax in it’s late March house price growth report.  Despite tempered consumer confidence and wage growth below the cost of living, house prices are expected to hold steady in 2018 – attributed to strong employment figures and a lack of properties on the market.  Robert Gardner, chief economist commented: “Looking ahead, much will depend on how broader economic conditions evolve, especially in the labour market, but also with respect to interest rates”;
• Royal Institute of Chartered Surveyors (RICS) surveyor confidence data reported that buyer demand in March fell for the 12th consecutive month.  Full insights can be seen via the March 2018 UK Residential Market Survey.  Simon Rubinsohn, chief economist at RICS commented: “The latest results provide little encouragement that the drop in housing market activity is likely to be reversed any time soon. It has the potential to impact the wider economy contributing to a softer trend in household spending. This could make Bank of England deliberations around a May hike in interest rates, which is pretty much odds-on at the moment, a little more finely balanced than would otherwise be the case”;
• The Land Registry House Price Index for February demonstrated a 4.4% year-year increase across the UK. The West Midlands and East Midlands saw the largest growth rates at 7.3% and 6.3% respectively. Scotland saw a monthly price drop of -2.7% as did London at -2.1%. Buyer data also showed a 4% increase in the number of first-time buyers;
• Other regional-specific data by Hometrack’s Cities House Price Index reported year-on-year growth (up to February 2018) in Edinburgh (8.0%), Liverpool (7.8%), Birmingham (7.7%), Leicester (7.7%), Manchester (7.1%), Leeds (6.9%), Nottingham (6.6%), Sheffield (6.0%), Cardiff (5.3%), Portsmouth (5.3%), Newcastle (5.0%), Bournemouth (4.9%), Glasgow (4.5%) and Bristol (4.1%).  Slowdowns in price growth were seen in Cambridge (-1.5%) and Aberdeen (-7.7%);
• A new BBC house price calculator, developed by Hometrack, enables users to enter a postcode to see whether it is cheaper to rent or buy based on affordability, how many rooms a property should have within a set budget, deposit requirements, amongst other metrics.

Rental Market Observations

• The most recent HomeLet Rental Index report indicated that average rents across the UK rose by 0.9% in February 2018 relative to February 2017 (average monthly rents are now £912).  According to the data, average London rents are at £1,569 per month – increasing by 1.5% in March 2018 compared the same month in 2017. Excluding London, the average UK rental value was £759 in March 2018, up 1.1% on 2017.  Homelet’s interactive infographic may be of use to observe some broader rental market trends;
• Your Move’s latest Buy-to-Let Index indicated that average rents are up 2.5% year-on-year in England and Wales.  With average rents estimated at £829 per month, according to the data, London and the North East saw a price fall and yield levels have stabilised at the start of the year;
• For the 12 months up to March 2018, Landbay’s Rent Check reported increased rental values in Nottingham (3.6%), Edinburgh City (3.5%), Leicester (3.3%), Conwy (3.1%), Peterborough (3.0%), Clackmannanshire (3.0%), Bath & North East Somerset (2.6%), Gwynedd (2.6%), Northamptonshire (2.6%) and Falkirk (2.5%).  Rental value drops were seen in Aberdeen City (-5.5%), Aberdeenshire, (-5.4%), Windsor & Maidenhead (-1.4%), Kingston-upon-Thames (-1.3%), Hammersmith & Fulham (-1.1%), Luton (-1.1%), Kensington & Chelsea (-1.1%), Wokingham (-0.9%), Richmond-upon-Thames (-0.9%) and Hackney (-0.9%);
• Please see other rental data and statistics in the RENTING section (page 2) of this months factfile.

Macro-Economic Conditions for Buy-to-Let Property Investors / Traders

• UK Consumer Price Inflation (CPI) fell by 0.2% to 2.5% in March (its lowest rate in a year and 0.5% above the Bank of England’s target).  Whilst a base rate rise is still looking likely, markets are generally commenting that further hikes will move forward at a slower pace;
• Office for National Statistics (ONS) data indicated that average weekly earnings excluding bonuses rose by 2.8% in the three months to February, unchanged from the three months to January. According to senior statistician, Matt Hughes: “The labour market continues to be strong, and for the first time in almost a year, earnings have grown slightly after inflation has been taken into account.”;
• According to the Institute of Directors, confidence in the UK economy has turned positive for the first time since Theresa May triggered Article 50 of the Lisbon Treaty exiting the European Union in March 2017.  The organisation reported that the uncertainty surrounding the UK’s trading status with the EU is no longer amongst the top three business concerns since the negotiations began.  Senior economist at the Institute of Directors, Tej Parikh commented said: “After nearly a year of economic pessimism winning out among business leaders, the scales have tipped gently into the positive. It seems likely that meaningful progress in Brexit negotiations since December (2017) has brought some much-needed reassurance. The sensitivity of business leaders to their political environment highlights the imperative for clear communications from policymakers. The wrong signals or lack of engagement can have a real impact on firms’ investment and employment plans”;
• According to Bank of England data, 12.7% of all mortgages in Q4 2017 were taken out by buy-to-let investors – a slight decrease on the 14.4% in Q4 2016 and 16.3% in 2015;
• In spite of the air of negativity surrounding the buy-to-let sector, data from ludlowthompson has recently shown that there are 2.5 million buy-to-let investors in the UK, 5% more than over a year ago.  UK landlords now own an average of 1.8 buy-to-let properties each (a figure that is rising for the fifth consecutive year).  According to chairman Stephen Ludlow: “Even taking into account the implementation of Government changes to buy-to-let tax relief, there are a number of tax reliefs available to landlords. Investors should also note that, historically, growing earning power and rising wages have tended to lead to rising rental values”;
• Our extended post entitled “Section 24 “Landlord Tax” – Expert Insights on Phase 2” collates a wide range of invaluable commentary from professional accountants and tax advisors actively working in the buy-to-let industry. The contributions have delved into the specifics of the legislation itself, incorporation/restructuring existing property holdings, reducing debt exposure, tax-efficient exit strategies, amongst several other relevant topics. Further down the post, prominent mortgage brokers and finance specialists also discuss how the buy-to-let lending landscape is responding to Section 24 and how the Prudential Regulation Authority (PRA) criteria is affecting the sector as a whole;
• According to the British Property Federation’s Build to Rent Q1 2018 report (data sourced by Savills), the number of purpose-built private rented sector units either complete, under construction or in the planning process has increased by 30% since the same period in 2017. London is still leading in terms of the total stock levels (56%) – however, the gap is narrowing with regions such as Manchester, Birmingham, Nottingham, Sheffield and Leeds all seeing a growing pipeline of notably-sized projects (see the BPF’s Build to Rent Map here).

Buy-to-Let Investing / Financing Conditions

• The 3-Month London Interbank Offered Rate (LIBOR) continued to rise from 0.61432 on 19th March to 0.78607 on 17th April;
• The 1-year SWAP rate rose from 0.845 on 19th March to 0.952 on 17th April;
• The 5-year SWAP rate rose from 1.356 on 19th March to 1.425 on 17th April;
• According to Countrywide data, out of the 171,171 remortgaging landlords, 9,523 refinanced release funds to spend on their existing holdings.  Johnny Morris, research director at Countrywide: “The additional transaction costs incurred from the stamp duty changes for second-homeowners means more landlords are choosing to invest in their properties, refurbishing and improving them and holding on to them for longer to maximise gains”;
• In spite of the Section 24 changes, lenders are reportedly competing amongst themselves to attract experienced landlords – i.e those that have shown commitment to the sector.  The Mortgage Works, for example, recently removed its age limit for experienced landlords.  According to Paul Wootton, director of specialist lending: “The group of experienced landlords is growing, and growing older, and market options are more limited for retirees wanting to retain their buy-to-let properties to supplement their pension. By removing the maximum age when applying, we are supporting the increasing market demand in this area.”
• Other SPV mortgage rates featured in this month’s property investor’s factfile include a Barclays fixed 2.69% pay rate until the end of January 2023 with a £1,950 arrangement fee (a similar product is available without the arrangement fee but with a higher pay rate of 3.09%).  The State Bank of India continues to offer a 5-year SPV mortgage with a 3.24% tracker pay rate and a £937 loan fee.  For more information and to discuss your specific borrowing circumstances please get in touch with [email protected] or direct on 01133 203240.  Also check out Paul Lowcock’s commentary on the impacts of Section 24 on the mortgage lending landscape;
• We would also encourage read individual commentary on the second phase of the Section 24 legislation from thought-leaders in the buy-to-let finance space, namely:  Hiten Ganatra from Visionary Finance; Wesley Davidson from Fox Davidson Mortgage Brokers; Ying Tan from The Buy to Let Business; Andrew Montlake from Coreco; David Whittaker from Mortgages for Business; Matthew Rowne from The Buy to Let Broker; Kevin Wright from Positive Property Finance and the Ninja Investment Programme; ; Simon Allen from Searchlight Finance; David Hollingworth from L&C Mortgages; Chris Lloyd from Enness (High Net Worth Property Finance) and Scott Farrell from Rite Money;
• The BM Solutions’ full rental income calculator checks the eligibility for buy-to-let loans prior to submitting a case.  To see the results, enter the number of applicants, type, income, product rate, term length, maximum loan to value, property value, loan required and anticipated monthly rental income.  Note the disclaimer that the calculations are for illustrative purposes only and do not represent a full mortgage offer;
• Please also see our recent post on mortgage underwriting (within the buy-to-let sector) for some insights into the key influences of buy-to-let mortgage pay rates.

Housebuilding, Help to Buy  and Affordable Housing

• Concerns remain regarding the financial implications of property owners who have accessed the Help to Buy equity loan. According to Helen Pierson of the Mortgage Bureau (speaking to The Times): “There are 23 lenders offering mortgages to buy a property with Help to Buy equity loans, but only 9 of them offer remortgage products. That’s a big difference. It’s really frustrating.” Reports are also emerging of Help to Buy remortgage approval delays of up to 8 weeks;
• An interesting piece in the FT – “Planning tweaks won’t tackle UK housing crisis” – called for wider changes to how the land market is incentivised and, unless the challenge is “gripped”, prices will stay high and the evident public demand will not be met;
• A report by the Resolution Foundation has stated that one in three British millennials will never own their own property.  According to the think tank: “While insecurity in the private rented sector is often seen as an acceptable risk when childless, the disruption it can cause to schooling, friendship groups and support networks once young people have a family is clearly less than ideal.”

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