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UK house prices are stuck in the doldrums

UK house prices are set to tread water while incomes rise, making property more affordable, says Merryn Somerset Webb.

The numbers aren’t looking good for residential property investors. House price growth in the US fell to a mere 1% at the beginning of this year, according to the latest report from the Dallas Federal Reserve. Look at global data across the 18 largest economies in the world and things don’t look much more encouraging. This could be the year in which we see “global growth dip to its lowest pace in a decade”. Investment is slowing fast, says Oxford Economics.

The UK is no outlier here. The Nationwide index and the Rightmove Asking Prices index show prices and asking prices respectively to be all but flat. The Halifax House Price index shows a better annual number but suggests prices fell mildly in June. You can see the same trend in Hometrack data, which suggests that the falling prices we have seen in London are beginning to spread: over a third of homes are now in areas with annual price falls (the higher value the market the more likely this is), although the absolute levels of falls is small. So what next? Most analysts expect the market to tread water from here (at best) – although if a new PM were to pull a Brexit deal from the hat we could of course see a little London bounce.

A flat market…
This is probably correct. There is still some support for prices. Housing starts are falling slightly (so the supply of housing is not rising much). Interest rates are low and will go lower if Brexit goes horribly wrong. The banks’ wholesale funding costs have also edged down, and that should soon feed into mortgage rates. At the same time wages have jumped (year-on-year growth excluding bonuses hit an 11-year high in April) and household disposable incomes are also on the up.

That makes houses – even at today’s silly prices – seem more affordable. Prices, says Nationwide, are likely to be at least supported by “healthy labour market conditions and low borrowing costs.” That said, there isn’t much to push prices up either. They are still high relative to incomes. The tax and regulatory hit to buy-to-let is discouraging buyers in that market. An unwelcome (to big property owners, at least) overhaul of property taxation may be on the way. And the Help to Buy scheme (which has played a clear part in pushing prices up) is likely to be at least scaled back soon. Put all those factors into the mix and it is hard to see a rebound in prices in 2019 “or beyond” says Capital Economics.

… is good news
The key thing to bear in mind there is that this is not bad news – unless you very recently paid too much for a house. One thing we have all agreed on in the UK for decades now is that houses are too expensive relative to average earnings. That makes it tough to get on the ladder and tough to move up the ladder. Add today’s high levels of stamp duty to your cost of buying and it’s nasty out there.

But the fact that house prices are not really rising in nominal terms, combined with the small real rise in wages over the last two years, is beginning to change this situation. In 2007 Nationwide’s house price to earnings ratio for the UK was 5.42. At the end of 2016 it was 5.25. Today it is 5.03 times. That’s not ideal – but if this gentle drift down continues and we end up at more like four times, it will suddenly be an awful lot easier to buy (and sell) houses. That would be a very good thing.

Head for Hampshire
Nevertheless, for those of you determined to find the next hot location in the property market and make your fortunes the easy way, Anne Ashworth writing in The Times has an idea for you. She suggests checking out age profiles. Why? Because the younger the crowd, the higher the potential for growth. In areas with an older demographic, you can expect to see sales and downsizing (the cash from which then gets spread around children and grandchildren who won’t necessarily live in the area). In one with a younger demographic you can expect to see the opposite.

Look back over the last decade, says Lucian Cook of Savills and you will see this in action. Those areas with large concentrations of people in their 40s have seen much greater price appreciation (up 56%) than elsewhere. With that in mind, look at somewhere such as Aldershot in Hampshire. There 39% of households are headed by someone between 31 and 40. They won’t be downsizing any time soon.

By: Merryn Somerset Webb

Source: Money Week

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Landlords falling behind on latest legislative reforms

Property is a hugely popular asset class among investors in the UK. Indeed, there are an estimated 2.5 million landlords across the country, and many more who would not consider themselves “a landlord” by trade, but whom rent out a second property they own.

However, over the past 12 months it has become apparent that the increasing regularity with which new legislative reforms have been introduced is a source of significant stress for professional landlords.

Most will know well that the UK government has been making sweeping changes in the buy-to-let space. From hiking up stamp duty to new rules around housing standards, investors who let residential properties to tenants must now navigate a more challenging landscape if they are to profit from this market.

To delve further into this topic, in June 2019 MFS commissioned an independent survey of more than 400 UK landlords. We asked them about how aware they are of the new legislative and regulatory reforms that have been introduced in the past year, and whether they have taken action to account for these changes.

The findings were illuminating. For one, we found that 30% do not understand the changes to House in Multiple Occupation (HMO) licensing, which came into effect in October 2018 to stipulate on the minimum sizes of rooms.

Furthermore, almost one in three (28%) landlords admitted to not fully knowing what the abolition of Section 21 means. The reform, which was implemented in June 2019, aims to prevent unfair tenant evictions.

A similar number (27%) said they do not understand the tenant fees ban (June 2019) or how it may affect them.

MFS’ research uncovered a similar lack of knowledge when it comes to tax reforms that are likely to impact UK landlords. A quarter (25%) said they are not up-to-date with the latest changes to reduce tax relief on buy-to-let mortgage repayments, while even more (28%) do not understand the reforms to inheritance tax with regards to passing down properties.

The legislation and regulation governing the UK’s rental market is constantly evolving, and landlords are quite clearly struggling to keep pace with the change. From HMO regulations to the abolition of Section 21, these are significant reforms that, for the most part, are rightly designed to protect tenants, create more transparent processes and promote better practices.

Our research shows a clear need for the government to do more to educate landlords around the reforms it introduces. Landlords, too, must be more proactive in seeking out information to ensure they abide by the new rules.

What’s more, the study highlights just how important it is for property investors and their brokers to work with service providers who have strong knowledge of the everchanging legal framework. Doing so ensures landlords will not be caught out by changes that could bring about significant financial repercussions if ignored or not properly adhered to.

By Paresh Raja

Source: Mortgage Introducer

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Housing market could take hit in Labour IHT reform

The housing market could take a hit if inheritance tax is reformed the way the Labour party intends, experts have warned.

Last month the Labour Party’s independent report on cutting inequalities in land ownership had called for the abolition of inheritance tax in a bid to stabilise house prices.

Under the plans, inheritance tax would be replaced with a lifetime gifts tax levied on the recipient on the gifts received above an allowance of £125,000. When this lifetime limit is reached, any income from gifts would be taxed annually at the same rate as income.

Since then the Office of Tax Simplification’s review of the IHT rules — which currently levies a 40 per cent charge on estates over £325,000 — has been published, calling for a reform of the seven-year gifting rule, alongside a new allowance and abolishing the tapered rate of Inheritance Tax.

Experts warned the ‘bank of mum and dad’ — which currently acts as the eleventh biggest UK lender in terms of buying property — would be scuppered by Labour’s £125,000 limit.

According to data from L&G, parents and grandparents will help buyers purchase a total of nearly £70bn of property wealth this year, much of which could be taken away by the taxman under the plans.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said a reform of IHT rules like the one Labour is suggesting would “fill parents with horror”.

She said: “Inheritance tax is already Britain’s most hated tax, but at least at the moment they can take steps to avoid it.

“They can pass as much of their wealth to younger members of their family throughout their lifetime as they want and as long as they live for seven years after making the gift, it’s not counted as part of their estate for inheritance tax purposes.”

The Labour report estimated that taxing gifts through the new system would raise £15bn in the 2020-21 tax year — £9.2bn more than under the current IHT system and in a ‘more progressive way’.

Last month (June 30) shadow chancellor John McDonnell confirmed the Labour Party was looking at the reforms in the report as a range of ways to distribute wealth more equally in the UK.

Ms Coles said the current rules on lifetime giving had helped encourage people to share their wealth within their family before their death and the earlier they make these gifts, the better from a tax perspective.

This means younger people benefit from payments when they need them most and the new rules would remove this incentive, she added.

Dan White, of White Financial Services, said there was “no doubt” that IHT could have an impact on potential buyers.

He added: “That said, if property prices drop then any potential ‘gift’ monies could be less relied on and may not require such large ‘gifts’ to help towards deposit funds.”

Ruth Whitehead, of Ruth Whitehead Associates, said: “The housing market could definitely take a hit as it would definitely impact on middle class families in the south of England trying to support their first time buyer offspring to buy in a very expensive market.

“But, Labour are only ‘looking at’ lowering the inheritance tax allowances. This would only come to pass if Jeremy Corbyn won a general election and became prime minister.

“Which isn’t going to happen any time soon, if at all. So I don’t feel that is, as yet, a matter of concern.”

By Imogen Tew

Source: FT Adviser

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Property investors call for more government support

The majority of UK property investors (97%) feel the government is not doing enough to support the UK property market.

Meanwhile, 33% of property investors called for a reversal on the changes to tax relief on buy-to-let mortgages and 17% believed introducing a tiered tax system on buy-to-let property would better support the UK property market.

Gareth Lewis, commercial director at MT Finance, said: “It is interesting that the stamp duty surcharge and removing it is more important to property investors than mortgage interest tax relief – it suggests this group of investors are the ones who are most likely to expand their portfolios.

“The government has introduced a series of changes to slow down an overheated property market and reduce the number of buy-to-let investors over the years.

“Property investors have been dealt some serious setbacks, impacted by changes to stamp duty and changes to tax relief but despite the changes, many remain resilient and still see property investment as a key tool for retirement planning, and a good home for their monies whilst interest rates are low.”

When asked who they would vote for if a general election were called today, half revealed they would back the Conservative Party, 18% said the Liberal Democrats, followed by the Brexit Party at 16%. Only 3% of property investors revealed they would back the Labour Party in a general election.

By Michael Lloyd

Source: Mortgage Introducer

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Action plan to solve the housing crisis

Major but pragmatic changes are needed to combat the UK’s housing crisis according to an economist, broadcaster and author.

Liam Halligan was guest speaker at a talk arranged by Lupton Fawcett law firm at DoubleTree Hilton Hotel, Leeds.

He has written a book called Home Truths, about why the UK faces such a chronic housing shortage and what can be done to address it.

Halligan stressed the importance of ensuring local authorities benefit from “Planning gain uplift”, so when new housing developments are approved they have cash to fund the infrastructure needed to support the additional properties.

He explained: “It means that if you sell land, you sell it either at its existing use or the state compulsorily purchases it and the gain from when planning permission is awarded is shared between the landowner and the state at the local level.

“So the local authority awarding the planning permission shares in the planning uplift, which can amount to millions of pounds.

“This money is ring-fenced to go into building the infrastructure that makes those new homes into a place where people will want to live.

“If you share the gain and the local authority is legally obliged to use that money to build new amenities, there will be far more willingness among elected officials to grant planning permission.

“We also need to provide more land more cheaply so small to medium sized businesses can build houses. SMEs don’t just sit on housing permissions because they can’t afford to.

“The Government has to get real about selling off its own land for housing.

“The NHS has a lot of central city sites which it will never use. But this land is not being sold because the Treasury says you have to get ‘best value’ for it, and no one can agree what the best value is.”

Halligan warned failure to solve housing shortages would cause social and political upheaval.

“Generation rent is getting older and angrier,” he said. “They are less likely to follow their parents’ generation in terms of voting Tory once they own their own home – because they are not being able to own.

“We’re no longer a nation of home owners in the way we once were. You can’t support capitalism if you don’t have any capital.

“Unless we solve this, popular consent for liberal capitalism is going to be severely dented.

“We built 2.8m homes in the 1950s, 1.8m in the ’80s, 1.5m in the 2000s and and 1m in the eight years since 2010. We have a backlog shortage of 3.4m-3.8m homes since the late 1960s and early 1970s.

“The average home is now worth eight times the average wage. ‘Beds in sheds’ has become a national problem, not just in London. These are slums – that’s the situation we’re now in.”

Halligan said: “My own parents were working class people who were able to buy their own home by working hard. That revolutionised their attitude to the UK and to England.

“Now however, we have the sons and daughters of immigrant communities who can’t buy, so they have no stake and no incentive to maintain order. Home ownership is a bulwark against populism.

“We are losing the social progress and societal cohesion that comes with home ownership. There’s a lot of tension at the moment. It feels like 1981 again.”

Halligan said big house building companies had far too much power.

Citing the 2008 breakdown of private housing supply, he noted that back then small companies building 1 to 100 units per year, constructed 28% of homes, medium sized companies building 101 to 2,000 units per year, constructed 40%, while big companies developing 2,000 or more units per year, were responsible for 32%.

He compared this to the figures for 2015 which saw the proportion of homes made by big housing companies leap from 32% to 60%, while the equivalent figure for small firms slumped from 28% to 12% and medium sized firms fell from 40% to 29%.

“One in three planning permissions that are granted lapse,” he said. “In London it is one in two. That is crazy.

“I think planning permissions should be planning contracts. If you don’t deliver you get fined.

“We’re in a logjam. Large volume house builders admit they don’t always want to build at once, in order to maximise local prices.

“The eight big house builders who build 60% of homes are so powerful in local areas they can drip-feed the market.”

By Miran Rahman

Source: The Business Desk

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Investors swoop on British build-to-rent sector

Property firms are turning to Britain’s budding build-to-rent sector, which caters to students and city dwellers seeking affordable accommodation, as traditional home building and selling falters on weak consumer confidence.

U.S. real estate firm CBRE Group Inc (CBRE.N) said it had agreed to buy British property developer Telford Homes (TELF.L) for about 267 million pounds, in a deal representing a premium of about 11% to Telford’s closing price.

In a separate deal announced on Wednesday, student housing provider Unite (UTG.L) said it would buy rival Liberty Living Group for 1.4 billion pounds.

Established in 2000, Telford has focussed on London, building housing blocks in up-and-coming outer areas of the capital such as Stratford, Bow or Finsbury Park.

“The UK is in the early stages of a secular shift towards institutionally-owned urban rental housing, similar to what we have seen in the US over the last two decades,” CBRE Chief Executive Bob Sulentie said in a statement.

Traditional UK house builders and developers have been struggling due to a slowdown in European growth and home buyers holding out for further falls in house prices as the country faces uncertainty over plans to leave the European Union.

At the same time, demand for rental property is rising, according to Britain’s Royal Institution of Chartered Surveyors (Rics), as the amount of rental stock falls, with tax and legislation changes deterring would-be landlords and prompting small-scale landlords to sell up.

This has left room in the market for large players looking to capitalise on rising rents.

Schroders, which has a 2.88% stake in Telford according to Refinitiv data, said in a report last month that investors were being pushed to consider investment opportunities in alternative, non-mainstream sectors.

But the asset management firm’s head of real estate capital, Robin Hubbard, cautioned that segments like student accommodation and build-to-rent residential had already seen significant interest from institutional investors and yields had compressed as they had become mainstream.

REDUCING RISK
Telford in May reported a nearly 13% drop in annual profit for its fiscal 2019 as it sought to navigate a Brexit-dampened London housing market with an increased focus on low-risk build-to-rent properties.

“The difficult properties to sell have been the very expensive ones. I think a bit of the bottom is falling out of that market. A lot of their buyers were from overseas and with Brexit that’s creating a little bit of uncertainty,” said Paul Mumford, fund manager at Cavendish Investment Management and the 9th biggest shareholder in Telford Homes.

“Telford have decided they would prefer to do a less risky business than the business of building blocks to sell, and they’ve gone into partnerships in order to build to rent.”

CBRE has said its offer price is final, but that it reserves the right to raise it if another offer is made for Telford. Telford’s directors have recommended the offer.

Cavendish’s Mumford said: “At the moment we’re undecided what to do but it looks as though possibly one should be waiting to see whether there is a higher offer.”

Analyst Aynsley Lammin, an analyst at Canaccord Genuity,

said: “I don’t think any of the other UK house builders will be coming in to make a bid.”

“It’s quite a specific area of the market and so would require somebody who is already involved in the build-to-rent market and has the equity and skill base to manage these properties as well as develop them.”

Telford shares rose 12.4% to 354.25 pence by 1330 GMT – slightly above the offer price of 350 pence per share – indicating some hope among investors of a higher bid.

LUCRATIVE STUDENTS
Founded in 2000, Liberty Living has a portfolio of 24,021 beds which was independently valued at 2.2 billion pounds as of May 31.

“By combining two highly complementary portfolios, the enlarged group will be well positioned to meet the growing need for affordable, high quality student accommodation in university towns and cities where demand is strong,” Unite’s CEO Richard Smith said.

In 2015-16 there were 2.3 million students at British higher education institutions, roughly the same figure as a decade before, according to the universities’ representative body Universities UK, although the proportion of international students had risen from 14% to 19% over the same period.

Liberty Living posted turnover of 155.7 million pounds in 2018, an increase of 15%. Unite posted a 7% rise in profit before tax in 2018 to 246 million pounds.

Writing by Alexandra Hudson; Editing by Arun Koyyur, Deepa Babington, Georgina Prodhan

Source: UK Reuters

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Plummeting London sales and flat house prices fail to deter foreign buyers

Foreign buyers are returning to London property despite the subdued state of the housing market, according to new figures.

Property prices are still falling in Greater London, with the latest LSL/Acadata house price index showing a 0.2% annual drop in April.

Sales have also plummeted in and around the capital, down 12% in the three months to April compared to the same period in 2017.

But foreign buyers “have returned in numbers” to the London market, according to a report by Peter Williams, Acadata’s chair, and John Tindale, its housing analyst.

International investors are taking advantage of lower prices and favourable exchange rates as they bet on future growth, “taking the view that this is a good long-term investment.”

The market is also picking up among British buyers and sellers, particularly “those prepared to take a risk or who must move,” according to the report, released on Monday.

With Britain’s scheduled exit from the EU delayed from March of this year to October, and no end in sight to the political crisis, people are “taking the plunge” to buy or sell.

“With seemingly no immediate end in sight to the political situation in Westminster, there is some evidence that pent-up demand held back by events of the last few months is breaking through,” the report said.

Record levels of employment and recent wage growth will also give some households more buying power, amid strong competition in the mortgage market and low interest rates, according to the report. But it notes many would-be buyers are still struggling to get a mortgage.

The rate of decline in property prices in London has narrowed significantly as demand has risen over the past few months.

In February, prices were 3% down on a year earlier, but by April this year the decline had dropped to just 0.2% on April last year.

Sales volumes are also down across England and Wales compared to 2017, but up 3% on 2018.

English and Welsh figures for house prices show prices ticking upwards 0.3% over the year, a rise of around £1,000.

By Tom Belger

Source: Yahoo Finance UK

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Removing Brexit uncertainty won’t resolve housing market issues

Released today, the BSA’s quarterly Property Tracker survey reveals that house prices are of greater importance than Brexit when it comes to housing market sentiment.

Respondents who disagreed that ‘now is a good time to buy’ were asked what would change their mind: over a third (34%) said a correction in house prices.

Comparatively, 27% said ‘the UK reaching an agreement with the EU’ would make them more positive, and just 11% said a ‘no deal’ scenario would make them more positive.

Sentiment towards the housing market has been negative for over two-years, but improved in June.

When asked ‘is now a good time to buy a property in the UK’, those who disagree has outnumbered those who agree in every quarter since June 2017.

Today’s results show that 23% agreed that now is a good time to buy, 28% disagreed. This is slightly less negative than in March when a third (33%) disagreed.

Almost a third (31%) of people expect house prices to increase in the next year. Less than a quarter (24%) think prices will fall. This could be due to fewer properties coming onto the market following the EU referendum, adding support to prices.

Higher property prices will make saving for a deposit even more difficult for aspiring first-time buyers. ‘Raising a deposit’ has been the single biggest barrier to home ownership for nearly a decade. In today’s results 64% of people said raising a deposit was the biggest barrier.

Paul Broadhead, Head of Mortgages and Housing Policy at the BSA comments:

“It’s no surprise that the UK views the housing market in a negative light. We are in the midst of a housing crisis and the political landscape is in undoubtable turmoil. Naturally, these combined forces are unsettling homeowners and making them less likely to want to move. Fewer homes on the market means intensified competition, which consequentially push house prices up. Unfortunately, this has a knock-on effect on first-time buyers, who are already struggling to pull together a deposit.

“This cocktail of existing homeowners staying put, and would-be first-time buyers failing to get on the ladder at all, means we risk stagnating the housing market further. To aid this, financial service providers could help educate people of the benefits of saving little and often.

“Consumers are encouraged to take advantage of Government initiatives such as the Help to Buy ISA and the Lifetime ISA, which are designed to maximise savings for a house deposit. The former is closing to new accounts at the end of November.”

Source: Politics Home

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Average Property Values Continue To Rise In May

Average property values rose by 5.2 per cent over the past year, according to the latest May Halifax Property Price Index – a dramatic jump in property values by recent standards.

The increase represents the biggest annual rise since the start of 2017, and brings average property values to £237,837

However, the lender stated that the overall message was one of ‘stability’ and that May’s sharp rise in prices was against a backdrop of ‘particularly low’ growth in the same period last year.

On a monthly basis, property values rose by 0.5 per cent, down from a 1.2 per cent rise the previous month, while in the quarter to the end of May prices were 2.5 per cent higher, compared to 4.2 per cent growth in the previous quarter.

Britain’s housing market has slowed since 2016’s Brexit referendum, driven by price falls in London and neighbouring areas, exacerbated by higher purchase taxes on homes costing over 1 million pounds and on second homes and small landlords.

The figures stated by Halifax are in contrast to the latest data released by Nationwide, which reported a much lower annual growth rate in property values of just 0.9 per cent, and a monthly growth rate of 0.6 per cent.

Managing director at Halifax, Russell Galley, said: ‘We saw a slight increase in house prices between April and May, but the overall message is one of stability.

‘Despite the ongoing political and economic uncertainty, underlying conditions in the broader economy continue to underpin the housing market, particularly the twin factors of high employment and low interest rates.’

Mr Galley said that this was supported by industry-wide figures, which suggest ‘no real change’ in the number of homes sold each month, while Bank of England data show the number of mortgages being approved rose by almost 6 per cent in April, reversing the softness seen in the previous month.

He concluded: ‘We expect the current trend of stability to persist over the coming months, though clearly any downturn in the wider economy would be keenly felt in the housing market.’

Source: Residential Landlord

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Housing plans risk accessible homes crisis

Housing experts have today warned of an “accessible homes crisis” in England after new research revealed that less than a quarter of homes built outside London by 2030 will be suitable for older and disabled people.

Habinteg Housing Association is calling on the UK Government to change national policy so that all new homes are built to be more accessible and adaptable, as they are in London.

Habinteg’s new Insight Report: A Forecast for Accessible Homes analyses English local plans which set policies for what types of homes are to be built by 2030 and where.

There are 13.9 million disabled people in the UK yet just 7% of English homes currently provide even the most basic accessibility features. Unless new homes are suitable, older and disabled people will be excluded from aspects of daily life, placing increasing demand on public services.
Habinteg’s nationwide analysis of 322 local planning policies reveals an imminent crisis in the supply of all types of accessible homes:

  • Outside London under a quarter (23%) of new homes due to be built by 2030 are planned to be accessible, negatively impacting on the health and independence of older and disabled people.
  • Just 1% of homes outside London are set to be suitable for wheelchair users despite 1.2 million wheelchair users in the UK and a rapidly ageing population.
  • There is a postcode lottery in the supply of new accessible and adaptable homes
    By 2030 there will only be one accessible new home built for every 270 people in the West Midlands, one accessible new home for every 52 people in the East of England, and one accessible new home for every 24 people in London.
  • London bolsters the national forecast as the Greater London Authority require 90% of new homes to be built to accessible and adaptable standards (known as building regulations M4 category 2*) and 10% to wheelchair accessible standards (known as building regulations M4 category 3**).

Habinteg’s chief executive, Sheron Carter, said: “We would encourage national government to take a more strategic approach to accessible homes delivery. The optional approach is not only putting older and disabled people’s health and independence at risk but creating costly housing problems for the future.

“While the government has stated their ambition for getting more disabled people into work, our research shows that this will fail unless the housing crisis for disabled people is urgently tackled. We strongly urge the government to raise the mandatory baseline standard for accessible homes.”

Source: Scottish Housing News