Property Investment

Overseas money still piling into the UK property market

by International Commercial Investment on December 11, 2018

Source: Investors Chronicle

Potential housebuyers in the UK seem to be sitting on their hands right now, and you can guess any number of reasons why, from Brexit to interest rate worries or concerns over the health of the UK economy. Overseas buyers don’t quite see it that way, and this year a third of all homes bought in the UK for £1m or more were snapped up by foreign investors as second homes.

Forget about higher stamp duty and capital gains liabilities, investors from Russia, the Middle East and the Far East especially are homing in on the UK and London in particular. Some of the attraction comes from the fact that expensive homes have fallen in value, which for an overseas buyer comes on top of sterling weakness. So, it’s good news at the Treasury because in the past year the percentage of stamp duty income gathered from second home buyers in this price bracket has jumped from just under 30 per cent to 50 per cent. In fact, income generated through the additional 3 per cent stamp duty has risen by over 20 per cent in 2018 so far to over £4bn. And if you include houses in all price brackets, over 40 per cent of total receipts came from second home purchases.

London has always been seen as a handy place to park funds because it is relatively safe both politically and economically. But these funds are also being put to work because three-quarters of overseas purchases were made for buy-to-let. More than a quarter of second homes worth over £1m were bought in London, with the largest amount of stamp duty generated in Westminster at £594m.

Back in the real world, the number of existing homes coming on to the market is very close to an all-time low, with sales volume either flat or negative across 11 of the UK’s 12 regions. At the same time, tenant demand for rented properties is holding up well, but rents could be pushed higher because the number of landlord instructions has continued to fall, recording the 10th straight quarter of decline, the longest negative stretch since the series was created in 1999, according to the Royal Institution of Chartered Surveyors.

Looking a little further back, however, shows that real rents adjusted for inflation have fallen 2.2 per cent in the past 10 years, according to Countrywide (CWD) subsidiary Hamptons International. In that time, rents have risen by 22 per cent but inflation has climbed 24 per cent. That inflation outpaced rental growth to some extent reflects the fact that the start of the 10-year period covered the wake of the financial crash, which gave landlords little opportunity to push rents higher. The east of England and London are the only regions where rental growth has outpaced inflation, whereas in the Midlands real rents over the 10-year period fell by 7.8 per cent. However, rental growth on new-let properties reached 2 per cent in October this year, the highest level since February, as every region recorded a rise in rents. The biggest gain came in the east of England at 3.9 per cent. And even London chipped in with the second monthly gains in a row, giving a year-on-year increase of 1.4 per cent.

Given the current atmosphere of uncertainty, the gains may seem puzzling, but the reality could be that rents are climbing because supply is falling. As more small landlords exit the market following heavier taxation, the number of homes for rent is falling just at the same time as demand is increasing.

It may well be that the government is leaning towards bigger corporate landlords making up the shortfall, and steps have also been taken to stimulate more government-funded social housing. Major housebuilders are also getting in on the act, by forming partnerships with local authorities to build on council-owned land, while a number of private institutions are forging ahead with build-to-rent schemes through forward funding arrangements with housebuilders. The big question now is whether this will all be enough to fill the gap. With supply in continued decline, rents are forecast to rise by 15 per cent over the next five years, which is generally bad news for tenants. Especially so because since 1991 the number of homeowners between the ages of 16 and 34 has dropped from 51 per cent to just 24 per cent, while renters in the same age group have risen from 56 per cent to 73 per cent.

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International Commercial InvestmentOverseas money still piling into the UK property market

Growing young populations will influence UK property hotspots in 2019

by International Commercial Investment on December 11, 2018

Source: Buy Association

On a positive note, it identified that property investors in 2019 should look to key regional cities that will offer ‘Brexit-proof’ investment potential.  Underpinning these important metropolitan hotspots is a trend for inner city urban living and growing youthful populations which will provide an ongoing supply of would be homebuyers and tenants.

Surrenden Invest believes that the UK is as prepared as it can be to ensure that property investment continues as business as usual in the year head.

Jonathan Stephens, managing director at Surrenden, said, “Nobody can ever see what the future holds, that’s the case regardless of Brexit. As such, looking ahead to likely investment hotspots is a case of examining the underlying market fundamentals.

“For 2019, that means cities with youthful populations and strong trends for city centre living. The UK’s rental sector is still growing, so 2019’s hotspots will be those areas in which populations are expanding rapidly, and where employment prospects are sound.”

2019 property investment hotspots

By 2041, Birmingham’s population is set to rise by 14.5% reaching 1,313,300; it currently stands at 1,147,300.  Already boasting a 65,000-strong student talent pool across five university campuses; the city has the sixth highest graduate retention rate of any city in the UK.  As a result, Birmingham benefits from a vast pipeline of future workers and entrepreneurial talent.

In the last five years Birmingham has seen property prices rise by 29.46%.

As the city centre continues to expand the demand for quality new build homes and developments will continue to attract attention; exciting new scheme like Westminster Works in prime locations are and will be, in high demand.

Manchester is mirroring Birmingham’s growth

Manchester is in line to see the population rise by 14.1% increase between 2018 and 2041 with property prices up by over 30 % since 2013. It is already ranked (as part of the Manchester-Liverpool metropolitan region) in IBM’s list of top ten global destinations for foreign direct investment in 2017.

The city is second only to London in terms of its graduate returners running at 58%, as well as its influx of graduates with no prior connection to the city. Amazon chose Manchester as the site of its first Amazon Academy, running a series of programmes and events designed to help hundreds of small, local businesses.

Creative young professionals will be sure to look to future residential developments in the city centre such as Ancoats Gardens, to immerse themselves in Manchester’s community.

Over the next 25 years or so, London’s population is projected to increase by 15.4% which will push up demand for housing across the capital.

Over the past five years London property prices have risen by 32.36%. According to PWC, 60% of Londoners will rent their homes by 2025, with the city’s professionals renting in higher numbers.

Liverpool is on track to experience a population increase of 12.0% between now and 2041 seeing its current population of 495,300 grow to 554,500 in 2041.  The city’s booming service sector, healthcare sector and knowledge economy attracts talented young professionals;

42% of Liverpool’s population are under 30 compared with a UK average of 37%.

It is a city driven by youth and an entrepreneurial movement that has accelerated a major regeneration.  Centrally located developments such as The Tannery aim to provide contemporary housing within easy reach of Liverpool’s rich cultural scene.

According to Centre for Cities, Newcastle city centre enjoyed population growth of 112% between 2002 and 2015. It projected population in 2041 is 318,100 from 297,400 in 2018.

The massive spike in demand for city centre living is creating a hotbed of innovation within the housing sector, as developments compete to attract a younger generation, who work in the city and want prime housing in the heart of Newcastle.

Student numbers at Newcastle University have shot up by over 70% since 2000, while Northumbria University has seen student numbers expand by over 114% over the same period. With nearly 50,000 students in total, a full sixth of the city’s population is engaged in study with many choosing to remain living in the city after graduating.

Jonathan Stephens, Managing director at Surrenden Invest said:

“Each of these cities has its own distinctive culture, which is drawing in young people who will ultimately contribute to the future success of that city.

“Those working in the housing sector need to respond accordingly, delivering high quality homes in central areas, in order to meet the demand that these young people are driving.”

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International Commercial InvestmentGrowing young populations will influence UK property hotspots in 2019

Surge in London house building set to drive new UK homes to 11-year high

by International Commercial Investment on November 2, 2018

Source: City A.M

London is set to drive a surge in UK house building as the industry prepares for the number of new homes being built to hit an 11-year high.

Large-scale developments and private sector rental demand are set to drive the number of new house builds in the capital up by 141 per cent, according to data about new homes registered by UK builders in the three months to September.

This jump will underpin a 15 per cent rise in new homes across the UK, the National House Building Council (NHBC) said, with 43,578 properties set to be built – the largest number since before the financial crisis.

Steve Catt, senior regional director for England at NHBC, said: “The industry has enjoyed a good quarter, with the main growth for England driven by the strong numbers coming through in London and the south east.”

“There was also considerable growth for Yorkshire & Humberside and the south west when comparing registration numbers from the same period last year,” he added.

“Both the private and affordable sectors performed well and the signs are looking good for the final months of the year.”

The news comes as London’s property market has faced a recent slump, after house price growth slumped to a five-year low last month, according to Nationwide data.

Third quarter house prices in London fell 0.7 per cent year on year, while the average UK property price increased by 2.1 per cent.

At the top end of the market, Kensington and Chelsea has seen the biggest UK price fall of 4.9 per cent to an average £1.17m over the past year.

Estate agents have cited stamp duty changes and concerns over Brexit as reasons for the slowdown in demand.

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International Commercial InvestmentSurge in London house building set to drive new UK homes to 11-year high

UK house prices set to rise by almost 15% in 5 years

by International Commercial Investment on November 2, 2018

Source: Property Wire

UK house prices are set to rise broadly in line with incomes over the next five years, but the traditional North/South divide will turn on its head, according to new outlook forecasts.

While overall prices are predicted to rise by 14.8% in the UK from 2019 to 2023, the Midlands, the North and Scotland are expected to see the strongest increases, according to the analysis from international real estate adviser Savills.

But Brexit will continue to impact sentiment over the short term, particularly in London and its commuter belt, but local market affordability is expected to determine the pattern of price growth over the longer term, the firm says.

The forecast also suggests that the range of growth could be from 21.6% in the North West to single digit growth in London and the South, But values in the capital’s prime market will perform much more strongly, given price adjustments already seen in those market since 2014, the firm says.

Other regions have been much slower to recover since the global economic downturn and some have only recently returned to peak values so house prices are therefore more affordable, with greater capacity for loan to income ratios to increase, it also points out.

‘Brexit angst is a major factor for market sentiment right now, particularly in London, but it’s the legacy of the global financial crisis, with mortgage regulation in particular, combined with gradually rising interest rates that will really shape the market over the longer term. That legacy will limit house price growth, but it should also protect the market from a correction,’ said Lucian Cook, Savills head of residential research.

A breakdown of the figures show that over the five years the strongest price growth is likely to be 21.6% in the North West, followed by 20.5% in Yorkshire and Humberside, and 19.3% in the East Midlands, the West Midlands and Wales.

It also predicts five year growth of 18.2% in Scotland, 17.6% in the North East, 12.6% in the South West, 9.3% in both the South East and the East of England, and 4.5% in London.

The report points out that sales, rather than house prices, are often seen as the ultimate measure of market strength and transactions have fallen only 6.9% since the Brexit vote to 1.145 million, demonstrating the resilience of the UK housing market.

The firm expects this figure to decrease by just 1% over the next five years but a continued rebalancing of the composition of the market is expected, with mortgaged buy to let investor purchases falling by 23%. Savills says that this will add to upwards pressure on rents, particularly in London, as investors look to lower value, higher yielding markets.

The analysis also reveals that London house prices have risen by 72% over the past 10 years, well ahead of any other region. The average home buyer with a mortgage now pays just under £429,000 and has a household income of almost £76,000, some 58% higher than the UK average. But even with borrowing at over four times that income, these households still need a deposit of £123,000.

However, the prime London markets are less dependent on mortgage borrowing and will outperform the mainstream and the capital is expected to remain an attractive place to live, work and own residential assets, supporting a 12.4% price growth in prime central London by the end of 2023.

The Midlands, the North of England, Yorkshire and Humberside, Scotland and Wales all have the capacity for borrowing to increase relative to incomes, even allowing for higher interest rates, and this will support price growth ranging from 17.6% to 21.6% across these regions.

Key regional economies, most notably the metros of Manchester and Birmingham, have the capacity to outperform their regions attracting both local and investor buyers, the report says while Wales is expected to perform in line with the Midlands as it has done in previous cycles, but it is a hugely diverse market. There may be increased housing demand crossing over from Bristol once the Severn bridge tolls are abolished.

Scotland, which has only recently returned to pre credit crunch peak, is performing strongly, particularly Edinburgh and Glasgow, which have seen prices rise 8.9% and 7% over the past year, respectively.

Rental growth is expected to track house price growth, averaging 13.7% over the next five years and the report says that tightening access to mortgage finance and limited social housing supply is driving demand for privately rented homes at all price points. This is particularly true in London, where rents will rise by 15.9%.

‘Until the market sees a significant injection of build to rent stock, rental demand will outstrip supply and rents will rise. Investor buyers requiring borrowing are expected to focus on higher yielding markets and this will put further upwards pressure on rents in some of the most expensive rental locations,’ Cook added.

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International Commercial InvestmentUK house prices set to rise by almost 15% in 5 years

Number of new UK homes at ‘highest levels for over a decade

by International Commercial Investment on November 2, 2018

Source: The Guardian

New home registrations in Britain have reached their highest level in more than a decade, boosted by a number of large developments in London, according to an industry body.

But the National House Building Council (NHBC), which released the figures, also warned of caution in the industry until the economic impact of Brexit becomes clearer.

The NHBC said 43,578 new homes were registered between July and September, up 15% from the same period a year earlier. It is the highest total since the third quarter of 2007, when 49,520 new homes were registered just before the start of the global financial crisis.

The figures are taken from builders responsible for around 80% of homes constructed in the UK. Builders are required to register houses with the NHBC, the main warranty and insurance provider in the UK, before starting work.

The private sector accounted for 33,520 new homes, up 16%, with another 10,058 homes in the affordable sector, up 12%.

New home registrations in London increased 141% to 6,007 from 2,492 a year earlier, an unusually low number following the Grenfell Tower fire in June 2017.

Housing associations are involved in a number of big London developments, including Swan Housing Association’s £300m project in Poplar with 1,500 planned homes, half of which are slated as affordable.

Developer Countryside Properties and London & Quadrant (L&Q) Housing Trust have teamed up to redevelop the former Ford factory site in Dagenham with up to 3,000 homes, half of them affordable. Housing associations also play a big part in the north-west of England, where L&Q has gone into partnership with Trafford Housing Trust in Manchester.

There was a further boost from build-to-rent projects, including Delancey’s Elephant & Castle revamp with 374 rental flats.

Seven of the UK’s 12 regions recorded growth, led by London, Yorkshire and the Humber up 39%, the south-west up 34% and Scotland up 20%.

Housebuilding has recovered since the lows during the financial crisis to more than 217,000 homes in England in the 2016-17 financial year, according to official figures.

The government’s target is 300,000 new homes a year by 2022, but the majority of housebuilders think it will be missed by at least 50,000, a Knight Frank survey has shown.

Steve Wood, NHBC’s chief executive, said: “The upturn in registrations over recent months is good news for the industry and shows that there remains a strong demand for high quality new homes in many parts of the UK.”

But he added: “The industry remains cautious in the short-run until the economic impact of Brexit is clearer.”

The property firm Jones Lang LaSalle predicted a swift recovery in house prices from the second half of next year.

Despite the deadlocked negotiations between London and Brussels, JLL believes there is a 90% chance of a Brexit deal being reached, and that prices will rise quickly thereafter, starting in London and southern England, where some areas have recorded sharp declines in recent months.

The firm predicts 11.4% growth in house prices across the UK over the next five years. In prime central London areas, prices are forecast to grow 15% between 2019 and 2023.

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International Commercial InvestmentNumber of new UK homes at ‘highest levels for over a decade

New home building not increasing at rate needed in England

by International Commercial Investment on October 1, 2018

Source: Property Wire
More needs to be done to boost house building in the UK, according to the industry, with the latest official figures showing that the number of new build starts has fallen.

In the second quarter of 2018 new build starts in England fell by 4% quarter on quarter and were also down 4% compared with the same period in 2017, the data published by the Ministry of Housing, Communities and Local Government (MHCLG) shows.

However, completions are increasing, up by 7% in the second quarter of 2018 compared with the same quarter in 2017 and were 1% higher than a year ago.

The figures also reveal that year on year new building starts fell by 3% in the 12 months to June 2018 compared with the year to June 2017, but completions increased by 5%.

The data shows that in terms of the wider picture, starts are now 126% above the trough in the first quarter of 2009 but 21% below the peak in the first quarter of 2007 while completions are 62% above the trough in the first quarter of 2013 and 16% below the peak of the first quarter of 2007.

The figures show that currently there is no boost to home building, despite Government targets being set, according to Shaun Church, director at Private Finance. ‘The figures shows these ambitions are falling flat. While completions may be up, new build starts are down on both a quarterly and annual basis, suggesting the momentum to build more homes and tackle the UK’s supply crisis is waning,’ he said.

‘Despite being the typical home for a first time buyer, flats now account for just 20% of all new builds, compared to 50% 10 years ago. While lack of supply is the most dominant force pushing house prices to beyond affordable limits, we also need to ensure we’re building the right types of home to match the demands of the market,’ he pointed out.

‘Although first time buyers are benefiting from stamp duty exemptions and mortgage rates at incredibly affordable levels, if we fail to address the UK’s chronic housing supply issues, affordability concerns will continue to prevent many from joining the housing ladder,’ he added.

Kate Davies, executive director of the Intermediary Mortgage Lenders Association (IMLA), believes there could be problems ahead for first time buyers when the Government’s flagship Help to Buy scheme comes to an end in 2021.

‘The market has clearly been influenced by the Government’s Help to Buy equity loan scheme, which has helped over 170,000 households into home ownership to date. Whilst Help to Buy may not have been intended to become a permanent fixture to the UK housing market, it has become a very important element of business for builders, lenders and prospective home owners,’ she said.

‘It is therefore very important that the Government clarifies what it intends do when the scheduled funding of Help to Buy ceases in 2021, in order to avoid the risk of market disruption,’ she pointed out.

‘If the scheme is to be maintained but in an amended form, participants will need maximum notice of this in order to plan ahead so that construction and lending can continue smoothly. If the scheme is not to be continued, the Government will presumably announce alternative measures to address the housing shortage, as promised in its February 2017 White Paper,’ she explained.

‘With the Autumn Budget on the horizon, the IMLA would welcome confirmation that the Government will continue to its support of first time buyers post-2021 and also ensure that the whole housing market, public and private sectors, continues to be supported,’ she added.

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International Commercial InvestmentNew home building not increasing at rate needed in England

Private sector rents in the UK reached a record high for August

by International Commercial Investment on September 28, 2018

Source: Property Wire

Rents in the UK’s private rented sector have reached a record high for the month of August with 40% of tenants seeing an increase, the latest monthly report shows.

This was up from 31% seeing a rise in rents in July, according to the data from the Association of Residential Letting Agents (ARLA), the highest figure since records began in January 2015.

The figures also show that year on year this has increased from 35% in August 2017 and 27% up from August 2016.

The ARLA report also reveals that demand from prospective tenants fell significantly, with the number of house hunters registered per member branch dropping by 19% month on month.

Overall, year on year, demand is down 11% with 72 prospective tenants registered per letting agent branch in August 2017.

Meanwhile, the supply of available properties rose to 197 in August, from 184 last month, the highest figure seen since December 2017, when supply stood at 200. Year on year, this figure is up 4% from 189 in August 2017.

‘As we’ve highlighted before, the impact of recent and ongoing tax changes continues to have a material impact on the buy to let market. Four in 10 tenants saw their rents rise in August, the highest level we’ve seen since records began,’ said David Cox, ARLA chief executive.

‘Although it’s encouraging to see the number of properties available to rent rising, supply still isn’t anywhere near high enough to slow down the pace of rent rises. We need more homes to rent, and for Government to change its narrative and recognise the very valid role buy to let plays in the housing mix. Driving small landlords out of the market ultimately impacts tenants most,’ he added.

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International Commercial InvestmentPrivate sector rents in the UK reached a record high for August

UK house prices rising faster than wage increases, Halifax says

by International Commercial Investment on August 12, 2018

Source: The Guardian

A surprise spike in UK house prices in July has increased the annual rate of property inflation to 3.3%, pushing the cost of buying a home to a record high.

Halifax said house prices rose 1.4% in July alone, taking the average house price to a new record of £230,280. The annual growth rate jumped from 1.8% in June to 3.3% in July, the largest increase since last November.

The increase pushed house price inflation back above wage growth, which is currently at about 2.5% a year, and comes just days after the Bank of England raised interest rates.

Halifax said house prices are being supported by the underlying strength in the jobs market, with employment rising by 137,000 in the three months before May. Pressure on household finances is easing as wages have begun to outstrip inflation.

Although a rebound in prices will dismay those struggling to save money to buy their first home, some estate agents greeted the figures enthusiastically.

“Annual growth just exploded to a level not seen since the autumn,” said the London agents James Pendleton.

“With two negative quarters behind us, many were hoping the usually busy summer period would produce a bit of a bounce, and this is a promising start.”

But Halifax said that transaction activity “remains soft” and that it expected the number of mortgage approvals to be broadly flat during 2018.

Economists said the July figures from Halifax should be treated cautiously. Howard Archer, the chief economic adviser to the EY Item Club, said: “We remain doubtful the UK housing market is stepping up a gear. Activity is still relatively lacklustre despite coming modestly off 2018 lows, with consumer conditions challenging.”

The Halifax figures for July are significantly higher than those reported by its rival lender Nationwide. It recorded a rise of 0.6% in July compared with Halifax’s 1.4% figure. Its figure for annual house price inflation is 2.5%.

Next month’s figures will be the first to reflect the impact of the rise in Bank of England base rate to 0.75%, although few property experts are expecting a significant impact given that most households are on fixed rates.

TSB has followed Nationwide by raising its base mortgage rate by 0.25%, but giving most of its savers an uplift of just 0.1% in interest paid.

Jonathan Harris of the mortgage broker Anderson Harris said: “We don’t expect this month’s interest rate rise on its own to have too much of an impact. However, it may cause some nervousness going forward as buyers worry about the possibility of future rate rises. It is no surprise then that fixed-rate mortgages continue to be by far the most popular product as borrowers look to protect themselves against future uncertainty.”

Brexit uncertainty is likely to keep house price rises restrained, said Jonathan Hopper, managing director of Garrington Property Finders. “The future course of the market is delicately balanced. With even cabinet ministers now warning that a no-deal Brexit is more likely than an orderly exit from the EU, investment buyers are dialling up their caution.”

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International Commercial InvestmentUK house prices rising faster than wage increases, Halifax says