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Homeowners Opting for 5-Year Fixed Deals for Remortgages

Homeowners who are remortgaging are responding to economic uncertainty by locking in interest rates for up to five years on their new loans.

In July, 50% of remortgage borrowers choose five-year fixed rate products, the highest percentage ever recorded and up 4% from June.

Overall, there were 52,869 remortgages arranged in July, the latest LMS monthly remortgage snapshot report revealed. Of these, the vast majority (96%) were fixed rate deals. Just 3% of remortgage borrowers choose tracker or variable rate mortgages.

Two-year fixed rate deals were the second most popular, the choice of 34% of remortgage borrowers.

Nick Chadbourne, LMS chief executive officer, said: “We’ve seen five year fixes grow in popularity for some time now. This month saw the highest number recorded, with half of borrowers choosing to fix for this length of term. In previous years, two year fixes were the norm, but now only a third of borrowers choose this length as they opt for longer terms.

“This is likely to be a reflection of wider market uncertainty and borrowers wanting to take control of their mortgage payments for a longer period of time,” he added.

42% of remortgage borrowers in July increased their loan size, while 34% kept their mortgage balance the same and 24% reduced the amount borrowed. 44% saw their monthly mortgage payments rise, and 42% will enjoy lower bills in the future.

The number of remortgages was down 1% between June and July, but as the wider housing market contracts, remortgages are the one area showing health.

Figures from UK Finance showed that remortgages were up 8% in June, compared to the previous year, even as home mover, buy to let, and first time buyer mortgages slumped.

Strength in the remortgaging market indicates that homeowners, wary of the expense of buying a new property and a potential Brexit-driven crash in prices, are making do with their current homes. They’re borrowing more to fund their renovation, rather than upsizing.

Source: Money Expert

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Average Buy to Let makes a return of just £2k a year pre-tax

The true cost of a being a landlord: Letting platform Howsy has revealed how the profitability of the buy-to-let sector is being squeezed due to the hidden costs of being a landlord, coupled with the financial penalties handed down from the Government via changes to stamp duty tax.

In recent times, the buy-to-let market has been considered a good investment for those with the financial means to operate within it, leading to a number of Government changes to dent this profitability through initiatives such as an increase in stamp duty tax.

Despite this, landlords are still considered to be ‘raking it in’, but Howsy has found that the average landlord is left with just £2,000 from an annual return of £13,000 once the hidden costs of being a landlord are paid for.

However, with the introduction section 24 mortgage interest relief restrictions and depending on the landlord’s tax status it is easily possible for this to be taxed into a loss!

The research shows that the initial start-up costs of Stamp Duty Tax (£6,663) and agency fees to find a tenant (£811) cost the average landlord £7,475 and that’s before the ongoing costs are considered.

According to a recent survey, the average landlord experiences 23.75 days of void periods a year during a tenancy, that’s an average of £535 a year.

What’s more, 73% of landlords buy with a mortgage and each and every year will see £6,921 paid out in interest as a result. Couple these costs with an additional £1,622 in agency management fees, an average annual maintenance and repair bill of £2,077 and you’re talking £11,147 per year.

In a worst-case scenario, UK landlords may also find themselves forced to stump up for additional unforeseen costs, such as the legal process to evict a tenant. While this doesn’t happen to everyone, there is a one in 500 chance that you will have to pay for bailiffs to evict a tenant from your property.  

What’s left?

Based on an average annual rental income of £8,112 divided by the average B2L property cost of £183,278, the average yield available is 4.4% – that’s an annual sum of £8,119.

Over the last decade, the capital appreciation of bricks and mortar has also averaged an increase of 2.85% a year, £5,223 in monetary terms. That means B2L landlords are seeing a return of £13,343 on their investment.

However, leaving start-up costs and unforeseen events out of the equation, once the average UK landlord has paid the ongoing costs associated with a buy-to-let property each year, they’re left with a profit of just £2,140.

Cost HeadingsCost Amount (£)
One-Offs Costs:£7,474.54
Ongoing Costs:£11,147
Average Annual B2L Return:£13,287
Average Annual B2L Return – Ongoing Costs£2,140

Costs Explained…

Cost HeadingsCost Amount (£)Notes/Sources
One-Offs Costs:
SDLT£1,165.00Initial stamp duty owed – Gov.uk
SDLT second home penalty£5,498.34Additional 3% – Gov.uk
Agency fees (tenant find)£811.20The minimum tenant find fee according to Which?
Total£7,474.54
Ongoing Costs:
Void periods£52723.75 days a year on average according to GoodLord
Mortgage Interest£6,920.7373% of B2L landlords have a mortgage according to Which?
Agency fees (management)£1,622.40The average annual management fee according to Which?
Maintenance & Repairs£2,077.00Average cost according to Pennington
Total£11,147
Positives:
Basis:
Avg annual rent£8,112Monthly average rent of £676 multiplied by 12
Avg B2L mortgage amount£132,075According to UK Finance
Avg house price£183,278Average B2L price according to Money Supermarket
Avg LTV72.06%
Avg equity£51,203
Return:
Annual Yield %4.4%Average annual rent divided by average B2L house price
Annual Yield ££8,064Average B2L house price multiplied by 4.4%
Capital appreciation per annum %2.9%Based on average property price change per annum over the last decade
Capital appreciation per annum ££5,223Source: ONS
Average Annual Return£13,287
Ongoing Costs£11,147
Final Annual Return£2,140

Source: Property118

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Brexit weighing on UK housing market outlook – RICS

The outlook for the UK housing market darkened in August as uncertainty about Brexit takes its toll, according to the latest survey from the Royal Institution of Chartered Surveyors.

The net balance of surveyors reporting that house prices have risen over the last three months increased to -4 in August from -9 in July, coming in ahead of expectations for a reading of -10.

However, Brexit-related uncertainty dented the outlook, with the near-term sales expectations net balance falling to -23 from -4, while the near-term prices expectations net balance declined to -24 from -13.

RICS chief economist Simon Rubinsohn said: “It is hard to get away from the shadow being cast over the housing market by the seemingly never-ending Brexit saga. Indeed uncertainty is a theme that respondents continue to highlight as a negative influence on sentiment in survey after survey.”

Capital Economic economist Hansen Lu said: “In all, today’s data support our view that there will be no recovery in transactions or house price growth before the end of the year. We expect that to happen whatever the Brexit outcome, although a no-deal exit could lead to a sharp fall in housing transactions.”

By Michele Maatouk

Source: Sharecast

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Savills: Investment in Scottish real estate to reach record high

SCOTLAND has attracted more than £500 million of international capital in the first half of 2019, according to Savills.

The latest research by the international real estate advisor shows that 2019 is now on track to become the best ever recorded year for inward investment in commercial real estate in the country.

Some £575 million of international capital was invested in Scottish commercial property in the first half of 2019, accounting for 49% of all investment in the period and representing the largest share of inward capital since 2016.

Investors from Asia accounted for the largest proportion, channelling more than £240m into Scotland in 2019, surpassing the £180m invested in the whole of 2018. South Korean investors spent more than £200m, investing in some of the largest deals in Scotland. Leonardo Innovation Hub was sold to South Korean investors for £100m, with a 5.9% yield.

European investors also continued to spend heavily on Scottish commercial real estate, with almost £200m invested in the first half of 2019. The largest deal this year was to German investors, who bought 4-8 St Andrew’s Square in Edinburgh for £120m, representing a yield of 4.45%.

Head of Savills Scotland Nick Penny said the country’s attractiveness to investors is likely to increase further. “2019 is shaping up to be a record year for inward investment into Scotland,” he said. “Investors are attracted by the strong performance of the economy, record employment and more attractive yields on offer relative to other regional cities in the south east.”

“Recent plans set out by the Government to position Scotland as a forward-looking digital nation by embracing 5G has the potential to enhance Scotland’s global competitiveness and continue to drive inward investment. We are already experiencing a growth in the tech sector, particularly in Edinburgh, and with digital becoming more engrained in business processes and procedures, having a fast and reliable digital infrastructure will become increasingly vital for businesses.”

Overseas investors accounted for more than three quarters (79%) of investment, according to the latest data from Savills. The second quarter was particularly active as more than £400m of deals were completed, four times the amount in the first quarter.

Offices proved to be the most popular sector in the first half of the year with £494m transacted.

Overall, Edinburgh witnessed the highest level of investment in Scotland. A total of £316m in investment was generated through six deals, compared with five in the first half of 2018.

Glasgow and Aberdeen achieved £128m and £50m of office investment respectively. Key deals during H1 included 110 St Vincent Street, Glasgow. Savills sold the site for £48m, reflecting a 5.4% yield. Meanwhile, AB1 on Huntly Street, Aberdeen, was purchased for £13.5m, with an 8% yield, also advised by Savills.

Penny, concluded: “The fundamentals of the office market remain strong. Edinburgh is proving particularly popular due to the combination of a robust occupational market and restricted supply of high quality office space which has led to rental growth in the city. This environment is creating significant demand for office buildings with international investors that want to secure long-term income at attractive yields.”

Source: The National

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Further rule changes would damage BTL market

Regulation in the mortgage market is helpful but any more interference may create problems for brokers and their clients, delegates at the FTAdviser Financial Advice Forum in London were told.

In a panel session entitled “Buy-to-let: how professional landlords can overcome tax and legislative hurdles”, Andrew Montlake, director of Coreco, and Martin Stewart, director of London Money, said the current regulatory environment was generally positive for clients.

Mr Stewart said: “Regulation is nothing for people to be afraid of. A good broker with a good moral compass will always do a decent job for their clients. I don’t mind regulation per se.”

Mr Montlake agreed, saying: “Regulation has created an environment where good brokers can demonstrate their professionalism. This shows the public you are responsible and generally I think we are in a good position.”

But he cautioned: “I don’t want more regulation for the sake of it. If it does get rid of the amateur landlords, the charlatans, the so-called ‘dinner party property investors’, then I am all for regulation that helps make buy-to-let a more professional market.

“What I fear is there may be more changes ahead, that makes things more complicated and doesn’t really focus on what the client really wants and needs.”

Both men agreed there had been a change in the mortgage market, largely driven by government tinkering with stamp duty and tighter controls to weed out bad landlords.

This was visible in a slowdown in new buy-to-let enquiries for London Money and some delegates in the room.

Mr Stewart said he was pleased to see more “amateurs” leave the market and free up housing for first-time buyers but he felt regulation could do more to raise standards further.

However, while there has not so far been a glut of housing dumped back on the market by disgruntled buy-to-let investors, a “perfect storm” could be caused due to Brexit uncertainty, new governments and unknown elements that might see more of an exodus in 2021.

Most buy-to-let lenders are regulated by the Bank of England’s Prudential Regulation Authority (PRA).

In 2017, among other regulatory changes that endeavoured to take some of the heat out of the buy-to-let market, the PRA implemented rules on how much can be lent to potential buy-to-let investors, based on how much rent was being charged.

The rule is that when making a loan, the rent must cover at least 145 per cent of the mortgage payment when the interest rate is at least 5.5 per cent.

This followed the government’s reform of the rules governing BTL, which included a 3 per cent stamp duty surcharge for second homes and cuts to landlord tax relief.

As some delegates in the room commented, higher taxes and a lack of upward movement on rents – especially in London – have meant some landlords with smaller portfolios are not making enough of a profit to continue as a buy-to-let investor.

When asked what their clients are doing, some said their clients were selling, going outside of London, creating limited partnerships or getting their residential property exposure through property funds.

“We are certainly having to be much more holistic now as brokers”, said Mr Montlake. “Professionals can really add value to clients.”

By Simoney Kyriakou

Source: FT Adviser

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No-deal Brexit to accelerate London house price drop

London house prices could sink up to seven per cent next year if no Brexit deal is reached by the 31 October deadline date, according to the latest research.

If the UK exits the European Union with a deal London house prices will fall by a smaller 4.7 per cent, continuing the trend of declining property prices in the capital.

Research by accountancy firm KPMG published this morning shows that the average property in the capital would cost £453,000 in 2020 following a smooth exit. However, after a no-deal Brexit the average London house price would drop to £422,000.

A no-deal Brexit would trigger a drop in house prices in every region of the UK, with the sharpest fall of 7.5 per cent seen in Northern Ireland.

The latest research shows that a drop of 10 to 20 per cent is “not out of the question” if markets react “stronger than anticipated”.

KPMG chief economist Yael Selfin said: “The housing market has been stuck in the slow lane since 2016 – with the changes to stamp duty and the uncertainties of Brexit putting the market on the back foot.

“As our forecasts show, a no-deal Brexit will see house prices decline significantly across the UK in 2020 by an average of 6.2 per cent, with more severe falls of around 10 to 20 per cent also possible if we look at historic precedents.”

Last month the Bank of England’s monetary policy committee (MPC) said that if the UK’s departure from the EU is smooth and some recovery in global growth is seen it could raise interest rates “at a gradual pace and to a limited extent, as it unanimously chose to hold the main interest rate at 0.75 per cent, where it has stood since August last year.

The committee said under no deal, the “interest rate decision would need to balance the upward pressure on inflation, from the likely fall in sterling and any reduction in supply capacity, with the downward pressure from any reduction in demand”.

In July, MPC member Gertjan Vlieghe said the bank might have to slash interest rates to nearly zero in the event of a no-deal Brexit.

By Jessica Clark

Source: City AM

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Brexit prep has cut productivity of UK business, says Bank of England

The Brexit process has cut the productivity of UK companies by between two and five per cent, research by the Bank of England has found.

Much of this drop since the vote to leave the European Union in 2016 is due to falls in businesses’ productivity as managers dedicate several hours per week to Brexit planning, researchers said.

“But we also find evidence for a smaller negative between-firm effect too as more productive internationally exposed firms have shrunk relative to less productive domestic firms,” they added.

The anticipation of Brexit has also “gradually reduced” investment by 11 per cent since the referendum, with the vote generating “a large, broad and long-lasting increase in uncertainty.”

This fall investment was gradual, taking three years to materialise, researchers said. This slow fall contrasted with predictions that it would “fall sharply” in the year after the referendum “and then recover”.

“This delay suggests firms may not respond as rapidly to large shocks that cause persistent uncertainty rather than short-term uncertainty, possibly because uncertainty leads firms to act cautiously,” the researchers said.

The scale and duration of the uncertainty generated by the decision to leave the EU marked it out as unique, the report said.

“Compared to previous uncertainty shocks Brexit is notable for its persistently high level of uncertainty, which sets it apart from other measures of uncertainty which capture immediate responses to shocks that quickly die away.”

By Anna Menin

Source: City AM

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UK mortgage approvals hit two-year high in July as market stabilises – BoE

British lenders approved the greatest number of mortgages in two years during July, adding to signs the housing market has stabilised from its pre-Brexit slowdown, official data showed on Friday.

The Bank of England said lenders approved 67,306 mortgages, up from 66,506 in June and more than any economist predicted in a Reuters poll that had pointed to 66,167 approvals for July.

Britain’s housing market has sagged since the 2016 Brexit referendum – especially in London and neighbouring areas – but has shown signs of a tentative recovery in recent months.

Earlier on Friday mortgage lender Nationwide said house price growth in annual terms inched up to a three-month high in August, although remained weak by recent standards.

The BoE said net mortgage lending rose by 4.611 billion pounds in July, the biggest increase since March 2016, while consumer lending increased by 0.897 billion pounds compared with a forecast rise of 1.0 billion pounds on the month.

Lending to businesses fell by 4.218 billion pounds last month, the sharpest fall since August 2017. While the series is volatile, the severity of the fall could be another sign of nerves in British companies as the Brexit crisis escalates.

Earlier on Friday Lloyds Bank said business confidence fell in August to its lowest level since late 2011.

Source: UK Reuters

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UK house price growth ground to a halt in August

House price growth ground to a halt in August across the UK amid signs of a “slowdown” in activity in the property market, according to the latest figures from Nationwide.

Average prices were unchanged between July and August when analysts factored out seasonal variation in the latest house price index from the building society.

The average home in Britain sold for just over £216,000 ($263,000) in August, no higher than a month earlier but up 0.6% on a year earlier.

It marks the ninth month in a row of muted price growth below 1% or even declines on an annual basis.

Marc von Grundherr, director of London estate agent Benham & Reeves, said prices were “climbing at a snail’s pace.”

“While the UK property market may have ground to a halt on a month on month basis, it is an admirable show of defiance to at least register some annual growth, given the seasonalities at play and the addition of political turbulence that continues to plague home seller sentiment,” said von Grundherr.

He said price growth could continue to stall over the next few months as prime minister Boris Johnson takes Britain closer to a no-deal Brexit, but predicted a “consistent and strong uplift” later this year or next.

Robert Gardner, Nationwide’s chief economist, said: “Surveyors report that new buyer enquiries have increased a little, though key consumer confidence indicators remain subdued.

“Data on the number of property transactions points to a slowdown in activity, though the number of mortgages approved for house purchase has remained broadly stable.

“Housing market trends will remain heavily dependent on developments in the broader economy. In the near term, healthy labour market conditions and low borrowing costs will provide underlying support, though uncertainty is likely to continue to exert a drag on sentiment and activity.”

By Tom Belger

Source: Yahoo Finance UK

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Londoners pay highest UK house price premium to live closer to a station

London home buyers are willing to pay almost 10 per cent more on a house in order to live closer to a station, according to Nationwide.

The building society found Londoners are willing to pay a whopping 9.4 per cent premium for a house located 500 metres away from a station.

That amounts to approximately £42,900 based on averages London house prices.

Data shows that – naturally – this premium falls the further away from a station a house is located.

A property located 1,250 metres away commands only a 1.9 per cent premium. At 1,000 metres this increases to 4.1 per cent and at 750 metres the premium rises again to 6.6 per cent.

London homebuyers are willing to pay much more to live closer to their nearest train station – particularly in comparison with inhabitants of Greater Manchester and Glasgow.

Nationwide suggests that “this probably reflects the greater reliance on public transport in the capital, with residents less likely to drive”.

In comparison to London’s 9.4 per cent, a premium for a property 500 metres from a station in Manchester stands at 7.8 per cent, or £12,600.

This falls to 3.8 per cent, or £5,700, for properties 500 metres from a station in Glasgow.

Average London house prices on every Tube line

While Londoners are willing to pay a premium on a home closer to a station, their average house price differs greatly depending on what Tube line they use.

Average house prices in London are most expensive where the nearest station is the Circle line, where the average cost of house is £801,000.

TfL rail serves the least costly homes, at an average cost price of £359,000.

Of the London Underground lines, average house prices are least expensive where the nearest station is on the Metropolitan line, at a £439,000 average.

Nationwide suggests that “this probably reflects that the line stretches towards the outer suburbs, with only a short section in central London.”

London house prices on every Tube line:

LineAverage House Price
Circle£801,000
Bakerloo£624,000
Victoria£573,000
Northern£563,000
Jubilee£553,000
Hammersmith and City£524,000
Docklands Light Railway£505,000
Overground£490,000
Piccadilly£485,000
District£478,000
Central£450,000
Metropolitan£439,000
TfL Rail£359,000

By Emma Tyrrell

Source: City AM