As landlords in the rest of the country continue to see rental achievements go through the roof, landlords in London are being advised to be realistic about their charges as the property pendulum starts to swing the other way.
Throughout the last five years of continued growth in the private rental market property investors have been falling over themselves purchasing buy-to-let insurance on appropriate properties in Central London. Earlier this year rents were higher than they have ever been before and most residential landlords in the city were picking up double the average monthly UK rent for every property in their London portfolio. How things change!
Industry insiders report lots of landlords are offering extra-ordinary deals to would be tenants to avoid having an empty rental embarrassment over the festive period and experts say prices could come down as much as 20% as some landlords press the panic button. Lynn Hilton is a partner at residential specialists Coultons and has seen the market change very quickly.
She commented: “Affordability is now central to the performance of London’s rental market. Landlords cannot achieve the rents they were getting twelve months ago and must now be far more realistic with rent reductions of around 15-20 per cent in order to secure a let. Despite a small turn around in rents during the third quarter, our evidence shows that rents have begun retreating once more, highlighting the need for landlords to be realistic in their approach and expectations. Sensible landlords need to accept these reductions to minimise void periods. Greater choice across Central London is no doubt adding to tenants’ bargaining power.”
It is a surprising turnaround for the London market and landlords in the rest of the UK will hope it is not the first signs of the sector beginning to unravel. However, with the current level of mortgage lending staying as miserly as it has done for all of 2012, landlords have little reason to worry just yet.
As figures from a report by a group of lenders illustrates that buy-to-let investment is still expanding, a leading landlord organisation survey shows that the great majority of holders of landlord insurance policies regard their property as a pension plan.
The third quarter report from the Council of Mortgage Lenders (CML) shows that almost £12 billion of loans were directed in the way of buy-to-let investment during the first nine months of 2012. It is an amazing figure and up 19% on 2011 and it clearly shows the housing sector is reliant on homes being bought by property investors as the banks continue to shun first time buyers. Further proof of the demand in the private sector comes from yet another report, this time by LSL Property Services, that shows the average rent in England and Wales has hit yet another high of £741.
It is great news for landlords and a report by the National Landlords Association shows exactly why people are attracted to the business. The report revealed 80% of those questioned had invested in a rental property as the best way of securing a pension, with six out of ten saying their property portfolio would be their only source of finance in retirement. Furthermore approximately 40% said they would organise their retirement date to the state of the housing market.
David Whittaker Managing Director of Mortgages for Business was not surprised by forecasts from estate agents Savills who predict a rise in rental achievement by 18% in the next five years and said “The owner-occupier market is sinking deeper into the mire and dragging property prices down. It’s great news for buy-to-let investors, able to snap up cheaper property, usually at a higher loan to value ratio because lenders are willing to advance more when property prices are lower.”
With the average deposit for first time buyers having gone from £12,000 to £58, 000 in a few short years there seems little likelihood that buy-to-let investors will meet much opposition from owner occupiers in the near future when it comes to bidding on a property.
A well known charity that supports the homeless hopes the introduction of a new mobile phone app will reduce the disputes between landlords and their tenants. Housing charity, Shelter Scotland, has created the free Housemate app for the iPhone in a bid to help both prevent and resolve rows over tenancy deposits.
Shelter Director, Graeme Brown, has described the device as a simple but highly effective application. It is sponsored by the property services group Orchard and Shipman and all interested parties believe the app could play a big part in settling disputes before they get out of hand. The app will generate a full digital inventory of a property’s contents and condition, with high quality photographs. The creators of the app hope the inventories will be so comprehensive that there will be no grounds for argument between landlords and their tenant when the time comes to returning a deposit when a tenancy comes to an end.
Mr Brown said: “Too many tenants have all or part of their deposit withheld unfairly and their chances of arguing successfully for its return are often compromised by a lack of evidence. With Housemate, both tenant and landlord will have the proof they need. Not only does it create a full record of what a property contains and the condition it’s in, it also includes photographic evidence. The resulting inventory can then be shared via email. It’s simple but highly effective. We hope that for users of Housemate, arguments over deposits will become a thing of the past and landlords and tenants alike can enjoy a positive, mutually-beneficial relationship.”
Despite knowing where to find buy-to-let insurance, landlords are often unsure how to create an inventory. This new app will put an end to that worry over the inventory process. The great thing about the app is that it is easy to navigate and has an extensive catalogue making it easy to create a comprehensive photographic and written inventory. The app can be downloaded from the iPhone’s app store or from Shelter Scotland’s website.
The latest buy-to-let index from LSL Property Services shows the average national rent now stands at £725 per month. This figure is up slightly (1%) on June and has now surpassed the previous record high of £721 per month that was set in October 2011.
The index also shows that rents rose in eight out of ten regions in England and Wales with rents in the South-East climbing the most at 2.2%. The West Midlands saw the next largest increase, rising by 1.8% with several regions showing similar increases. Some private landlords have even helped out tenants by dropping the rents by around half a per cent in both the South-West and the East of England. Rents in the capital have as expected hit a new high for the third consecutive month and now stand at a huge £1,057 per month. The report also pointed out that tenant finance deteriorated again last month, with total unpaid rent amounting to £295m, up from £289m in the previous month. With the economy still in recession, and rents climbing, the number of tenants experiencing difficulty is also steadily climbing. Landlords are still concerned that tenants will be leaving their properties that they protect by taking out buy to let insurance.
David Brown, commercial director of LSL Property Services, said “The backlog of frustrated first-time buyers in the private rented sector showed no sign of clearing in July – in fact, it is still growing. As lending to those without substantial deposits remains depressed, demand for rented accommodation can only go one way in the long-term – providing further upwards momentum for rents. The rental market is also entering its summer peak, as recent graduates and those with new jobs begin to look for new accommodation. With more tenants on the move, alongside long-term underlying demand, fierce competition for properties is enabling landlords to increase rental prices to new highs.”
Two separate reports have been carried out that point to private landlords making steady returns over the next 13 years. The good news is down to rising rents and a house price recovery that will boost the sector.
Rents have already gone up by 4.5% over the last year and they are likely to be driven up further by the scarcity of mortgages being handed out by lenders, along with a shortage of good quality properties. The RICS (Royal Institution of Chartered Surveyors) predict that rents will rise by 4% on average throughout the United Kingdom over the next 12 months. The RICS survey also found that in the three months to July, the number of properties coming on to the market changed only marginally. However, demand among tenants is continuing to grow.
RICS Global Residential Director, Peter Bolton King, said “While tenant interest is still riding high, what remains to be seen is whether many are willing to meet the increasing rents being demanded by landlords. However, it is clear we have seen rents grow steadily right across the UK for some time. This is partly down to the problem of the scarcity of mortgage finance and the large deposits required by lenders. These barriers to home-ownership need to be addressed alongside the shortage of new stock coming to the market.”
The second report by the Council of Mortgage Lenders has said lending increased by nearly a fifth in the space of a year. They predict those investing in property and taking out buy-to-let property insurance will make capital as well as rental returns in the long term. House price growth is estimated to average at least 2% a year in real terms between 2012 and 2025. A huge lack of available properties will also push up prices later in the decade and when rents are added into the equation, a private landlord with a buy-to-let property can expect an average real return of 3% a year before tax.
Buy-to-let landlords are cashing in after buying former council flats that have been bought at a huge discount under Right to Buy. The former council flats are in one of the most expensive areas of London and look set to be a goldmine for private landlords.
New figures have been released that show around 3,600 Westminster council flats that were sold under Right to Buy are now in the hands of private landlords who have protected their investment with buy-to-let insurance. The figures show that the council has sold 9,135 (40%) of its stock of 21,243 flats to tenants qualifying for the Right to Buy scheme, however, 3,603 (39%) are now owned by small and multiple private landlords. This means that in some parts of Westminster, there are now more private tenants on council estates than there are council tenants.
In Bayswater the 420 council tenants are outnumbered by 477 leaseholders, and in upmarket St John’s Wood there are 750 council tenants and 850 leaseholders. Local councillors claim that some of the ex-council flats in Westminster which are now owned by private landlords are being rented out at more than £2000 per month. This is over four times what a council tenant would be paying in a similar flat. What makes the situation even crazier is that many of these private landlords are getting their rent paid for by taxpayers, because the tenant is on housing benefit.
Councillor Paul Dimoldenberg, leader of Westminster Council’s Labour Group, said “Right-to-buy has transformed many council estates in Westminster into buy-to-let goldmines for private landlords. Rather than meeting housing need, some of Westminster’s council estates are now providing buy-to-let landlords with increasing financial returns as rents continue to escalate, often with the help of a huge government subsidy via housing benefit payments. Meanwhile, Westminster residents in overcrowded conditions have to wait even longer to get rehoused. We need a massive building programme of new homes at social rents right across London and an end to the current sell-off of more council property. Westminster’s housing stock of homes, for those on low incomes, has been almost halved over the last 30 years.”
A Cambridge University study has shown that there are millions of young families who are living in an era where renting is the norm. It also shows that there are a growing number of parents who are unable to buy their own property. Price increases are blocking home ownership and this trend is expected to last until at least 2022.
This is good news for property owners who have houses that they protect with buy-to-let property insurance. The future also looks bright for landlords because if the British economy remains stagnant, it means that only 27% will be in a “mortgaged home” by 2022, compared with 43% in 1994 and 35% this year. The research also found that it is not just young people who are being locked out of the property market and forced into the rental sector due to rising house prices, falling wages and banks who are just not willing to lend. The same difficulties are now affecting older people, many of whom are paying half or more of their income in rent and, as a result, have little left each month to save for a deposit to buy their own property.
Shelter’s Chief Executive, Campbell Robb, said “This report shows what is fast becoming the new reality of our housing market in the current economic climate: home ownership continuing to fall while renting becomes a way of life for British families. Yet despite the growing pressure on the rental market, the government’s recent housing strategy virtually ignored the sector and did little to address the issues of affordability, stability and quality that so many renters face. It’s time government woke up to the fact that ‘rental Britain’ is here to stay.”
The study shows that the coalition must acknowledge renting is fast becoming a way of life for the majority of the UK. Many experts want them to do far more to encourage investment in the private sector and to protect the rights of those who are unable to buy. Many in the industry also believe the United Kingdom should move to a regime more like Germany, where the tenant has extensive rights including security of tenure and assured rental rates.
Bosses at Chorley Community Housing (CCH) say they are about to take a much stronger approach to collecting rent. The organisation that manages the town’s former council houses have just announced it is owed over £400,000 in rent arrears.
Housing chiefs have released data which shows that around half of the 1,500 tenants who live in their properties which are protected with buy to let insurance are now in arrears. A Rent Collection and Arrears Recovery Team has been set up and their remit will be to encourage tenants who are in arrears to address the situation promptly. The team will notify customers as soon as they fall into arrears but they will not be taking a hard approach to begin with as they plan to provide financial advice and only take legal action if all other attempts fail. It is this action that may see tenants evicted from their home.
Elaine Jackson, Group Arrears Recovery Manager, said: “We are having a robust crackdown on rent arrears. We will take action if tenants fail to engage with us, but we are here to give advice and assistance. We understand that some people fall into arrears, and we are here to help them – but they must take a responsibility as well. Tenants should be paying in advance, and it gives us time to get in and help them if they need it.”
Chorley Community Housing tenants will also be given the opportunity to take advantage of two rent free weeks commencing on April 2nd and April 9th. During the weeks, those in rent arrears must still pay and this will allow them to either reduce or clear their debt. Chorley Community Housing are part of Adactus Housing Group who since April 2011 has helped almost four-hundred tenants who have been struggling, to manage their finances, through a free ‘Money Advice’ service. This service has resulted in an additional income of £250,000 for CCH and at the same time helped tenants manage their finances more successfully.
Local property investor Philip Oram has won permission to build a multi-million pound seven storey building opposite Bournemouth’s BIC (Bournemouth International Centre). The Dakota Building will have forty-five one bedroom flats and forty-five holidays lets.
The development will be built on the site of a former church which will soon be demolished to make room. Work is due to start before the end of the year and Mr Oram is confident that it will be completed by the end of 2013. The project is just part of the council’s Town Centre Master Vision plan which aims to bring a new vitality to the Dorset seaside resort. Mr Oram’s previous application for a 110-bed hotel was refused but his new plans were dealt with under delegated powers, rather than at the planning board, due to the fact that so few objections were received. The building is expected to be a huge success purely just because of its location.
Rex Craven is director of Goadsby who will be in charge of letting the properties. He said: “They will very much be in demand. They will sell well as buy-to-lets, as second homes and to first time buyers. This is probably one of the most important sites in Bournemouth, directly opposite the BIC and on a main artery road. There is no doubt any apartments in this location would be in demand.”
The mix of residential and tourist flats is expected to bring an increased vibrancy to the area. Landlords are already showing a keen interest in adding a property to their portfolio of homes which they will protect with buy to let insurance. The developer will also pay the council £192,000 for improvements to the road network. Mr Oram’s last development saw him convert an old nightclub into twelve flats which sold in just two weeks.
Landlords across the UK are being urged to take part in the United Kingdom’s largest digital campaign. The Government have backed the ‘Spring Online with Silver Surfers’ Day’ which hopes to give older and less confident people a taste of computers and the internet and how they can make life easier.
It is thought that over seven million older people in the United Kingdom have never even used the internet. The campaign has been going a number of years and has so far helped around 150,000 older people get more out of life online. Social housing providers, and private landlords who between them have hundreds of thousands of properties that they protect with buy to let insurance, have been urged to play their part to help tenants get a taste of the internet during next month’s campaign.
Emma Solomon, Managing Director of Digital Unite, says: “Access to computers and the internet can enhance people’s health and well-being and open up whole new worlds. If you know your way round a computer, why not volunteer to show someone else how to do it. Often, all people need is someone to get them started, show them the basics and make it fun. A lot of older people are scared of the internet. Attending a Spring Online session can really help to show there is nothing to be scared of.”
There are still a staggering 8.2 million people in the United Kingdom who are yet to experience how good the internet really is. Saving money, keeping in touch with others which will reduce their feelings of isolation are just two examples of how the World Wide Web could make the life of an older person better. Initiatives like Spring Online will highlight these benefits and hopefully go another step toward achieving the ambition of creating a truly networked United Kingdom.