Landlords profit from the housing price boom

Near record rental values coupled with the rise in house prices will generate average returns of 13% in the next twelve months, more than £22,000 per property, a report found.
It also revealed rents are within £1 of their all-time high at £743 a month in England and Wales. August’s figure marks a 0.7 per cent increase on July and is up 1.3 per cent on August last year.
David Newnes, of lettings giant LSL Property Services, which released the report, said if rental property prices continue to rise at the same pace as over the last three months the average buy-to-let investor should make a total annual return of 13.1 per cent over the next 12 months – equivalent to £22,065 per property.
London is driving the rise in rents in the capital rising three-and-half times faster than England and Wales over the last 12 months.
They are now averaging £1,126 in London, 4.8 per cent higher than last year. Official figures also showed that house prices in London are up by nearly 10% year-on-year, indicating the strength of demand for homes in the capital.

Wales saw the second biggest annual increase in rents, with a 2.3 per cent uplift taking average rents to £561. The South East recorded the strongest month-on-month growth, with a 2% rise pushing monthly rents to £762.
The North East saw the biggest month-on-month drop in rents, with a 0.8 per cent fall taking average rents to £523.
LSL’s findings are based on rents achieved on around 20,000 properties and its records go back to January 2008.
The findings will spark fresh concerns that Government cheap credit schemes designed to kick-start the housing market are helping wealthier investors rather than first time buyers struggling to get onto the property ladder.
Figures earlier this month revealed that mortgage lending rose by the fastest pace since before the credit crisis between April and July, with £5 billion going to landlords, up £1.1 billion on 12 months ago. Landlords are accounting for one in ten mortgages.
Across the country, rental inflation had been cooling off for much of this year in the immediate aftermath of the Government schemes to give people with low deposits a helping hand onto the property ladder asfirst time buyer numbers rose.
But Mr Newnes said that weak income growth, which has an impact on households’ ability to borrow, and a lack of housing supply means that the private rental sector is continuing to see strong demand from new tenants.
He said the upward pressure on rents is also coming from an uplift in student renters returning to the market as the new academic year begins.
Mr Newnes said: “Better availability of finance has allowed some households to leave the rental market. And rents certainly felt the short-term impact of that.
“But releasing a blast of pent-up pressure to buy a home is unlikely to change the long-term trend in renting.
“Although Government schemes are helping, buying a first home is still extremely hard on the back of low salary growth.”
Business secretary Vince Cable voiced fears of another housing bubble earlier thjis week but was slapped down by Chancellor George Osborne.
Housebuilders claim the real reason for rising propertuy prices and rental values is the sheer lack of available property nad new homes being built.
The sudden and dramatic upturn in activity has led to a 20 per cent surge in bricklayers salaries in the past six months. And there are shortages of bricks and blocks in “hotspots” across the UK, with brick prices tipped to rise 10 per cent.

615,000 new private rented homes needed by 2016

More than 600,000 households will be created in the private rented sector (PRS) between 2014 and 2016, according to new research revealed at RESI 13 today.
With mortgage lending at higher loan to values still only a third of pre-2007 levels, this demand could create more than £150 billion worth of stock in the sector over the next three years alone.
Transactions of residential investment property portfolios exceeded just £2 billion in the 12 months to June 2013.
The statistics underline why major funds like APG, M&G, Macquarie and M3 – all seeking to take advantage of the huge opportunities afoot – have already begun investing in build to let.
Despite the government’s Help to Buy and mortgage guarantees, Britain’s housing squeeze is continuing to drive more and more people to rent.
At its RESI 13 keynote presentation, Savills will reveal that housing transaction levels remain 46%(6) below their pre-crash levels, stifled by house price growth and mortgage affordability issues.
High mortgage deposit requirements(3) continue to limit affordability, especially for under-35s.
Levels of gross mortgage lending in the first quarter of 2013 remain just 33% of their Q3 2007 levels (when looking at 75-90% LTV mortgages).
Alongside this, house price growth since the start of the year(5) is making homes less affordable for many. Reduced transaction levels mean that housebuilders are not building more homes, and this is pushing more households towards to the PRS.
Over the next 8 years, the UK’s increasing population will pile on further pressure, with the DCLG predicting there to be 221,000(6) new households created in the UK each year to 2021.
Levels of owner occupation for under 35s have already fallen by a third over the 10 years to 2012, and the average age of a first time buyer is now 37 – leading to enormous growth in demand for rented stock.
As a result of this, the number of UK households privately renting has grown by over 91% in the ten years to 2011 – from 2,430,000 in 2001 to 4,712,000 in 2011(1), while the value of the PRS has almost tripled, from £350 million to £890 million according to Savills.
The PRS now accounts for 17% of the UK’s roughly £5 trillion housing market, and its share of the market has now overtaken social housing.
According to IPD, total returns for commercially-let private rented stock have outperformed those of commercial property for the last three, five and 10 years – with residential delivering 10.2%, 4.6% and 8.5% over the respective periods. (2)
Lucian Cook, director of residential research at Savills said:
“The importance of transaction levels tends to be forgotten in the UK. By acting as a constraint on the supply of new homes, they accelerate PRS growth – and this means there is going to be continuing demand for years to come for a professionally developed and managed rented sector.
”While there are still obstacles to entry, not least low income yields – such high future demand will lead to considerably higher rental growth, which in turn will attract more institutions.”
Craig McWilliam, executive director at Grosvenor Developments, said:
“Increasingly the PRS has a chance to step in and address the UK’s housing shortage – but part of the challenge will be in changing tenant’s and local authorities perception of the PRS.

‘This is not a short term fix, but a genuine long term solution to invest in neighbourhoods and place making schemes, to provide good quality, well managed rental homes, ideally alongside community facilities, for the increasing number of people entering the UK rental market.”
Brian Ham, chief executive of the Dolphin Square Foundation, said:
“As more rent, more types of accommodation needs to available, because the 4.7 million renters in the UK are clearly not one homogenous group.
“This means there are opportunities to deliver all forms of rental accommodation – from prime to social and intermediate -that are suited to a variety of different investment strategies. Key for developers, and institutional backers, is recognizing where this demand is coming from and how their model fits into the UK PRS.”

UK house prices up for seventh month in a row, latest data shows

House prices in the UK in the three months to the end of August were 2.1% higher than the previous quarter, the same rate of increase as in both June and July, according to the latest property index.

The figures from the Halifax, also shows that on an annual basis prices in the three months to August were 5.4% higher than in the same three months a year earlier, the highest annual rate since June 2010 when it was 6.3%. It was also higher than July’s 4.6% increase and the annual rate has picked up from 1.1% in March 2013.

On a monthly basis prices were up 0.4% in August, the seventh consecutive monthly increase, taking the average price of a home to £170,231.

‘Housing market activity is also on an upward trend with the number of mortgage approvals for house purchases, a leading indicator of completed house sales, 10% higher in the three months to July compared with the previous quarter after allowing for seasonal influences,’ said Martin Ellis, housing economist at the Halifax.

‘Economic improvement and low interest rates, supported by official schemes such as Funding for Lending and Help to Buy, appear to have boosted housing demand in recent months. Nonetheless, relatively modest economic growth and below inflation rises in earnings are likely to act as a brake on the market,’ he explained.

But he did add that overall, house prices are expected to rise gradually over the remainder of the year as activity has risen as well. For example, the number of mortgage approvals for house purchases, a leading indicator of completed house sales, increased by 4% between June and July, to 60,600, the first time that approvals have exceeded 60,000 since early 2008.

Approvals in the three months to July were 10% higher than in the preceding three months and the relatively low level of mortgage payments in relation to income is supporting housing demand. Typical mortgage payments for a new borrower, both first time buyers and home movers, at the long term average loan to value ratio, accounted for 27% of disposable earnings in the second quarter of 2013, its lowest proportion since the second quarter of 1999 and comfortably below the average of 36% over the past 30 years.

Ellis also pointed out that more properties are coming on to the market. Whilst demand has increased more quickly than supply, surveyors have reported a rise in the number of home owners providing instructions in each of the last six months