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Rising Yields Boosting Professional Buy To Let Investors

Rising yields are boosting professional buy to let investors, especially those considering adding to their portfolios.

Rents have hit a new record high at an average of £896 per calendar month, with growth accelerating to 1.3 per cent a year, according to the ninth edition of Kent Reliance for Intermediaries’ Buy to let Britain report.

As a result, rising yields have now hit a two-year high. The average yield now stands at 4.5 per cent, its highest since the first quarter of 2017.

In London, rents have only risen by 0.5 per cent. However, with property prices falling, yields in the capital have reached 4.1 per cent, their highest level since the end of 2015.

However, despite rising yields, growth of the private rental sector is subdued on the back of government intervention and the economic impact of Brexit uncertainty.

The value of the £1.3 trillion private rental sector grew by £6 billion in the last year, as the expansion of supply dwindled, and property prices weakened in several parts of the country. The value of the average rental property has risen by 0.3 per cent in the last year, with Brexit uncertainty gripping the wider housing market

As the costs of property investment rise, landlords are seeking to recoup these in higher rents to preserve their profitability and protect rising yields. Around a quarter (24 per cent) of landlords, already expect to raise rents in the next six months, nearly five times the number that expect to reduce them.

Improved finances among tenants is also allowing more leeway. Wages are currently rising at 3.4 per cent, up from 2.9 per cent a year ago and well in excess of inflation.

Professional landlords are not just seeking to recoup higher tax costs in the form of higher rents. Many now operate via limited companies to mitigate the impact of the changes to mortgage tax relief. Analysis of Kent Reliance for Intermediaries’ mortgage data shows that in the first quarter of 2019, 72 per cent of buy to let mortgage applications were made through a limited company, significantly higher than in 2016 (45 per cent).

Andy Golding, Chief Executive of OneSavings Bank, commented: ‘Landlords have rolled with the punches as best they can, but there is no escaping that growth is subdued in the private rented sector following four years of government intervention. Brexit uncertainty has only compounded this issue, having the obvious knock-on-effect on landlords’ confidence.

‘The positive news is that for those landlords looking to expand their portfolios, underlying market conditions seem to be changing. Yields are climbing as rents rise faster than house prices, providing further opportunities for committed investors.’

Source: Residential Landlord

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Professional landlords call for manual underwriting process

Over a third of property investors want buy-to-let lenders to apply a manual underwriting process for professional landlords, as they struggle to obtain buy-to-let mortgages off the high street, MT Finance’s has found.

The lender’s Property Investor Survey showed almost half (42%) of property investors said they had struggled to secure a mainstream buy-to-let mortgage in the last 12 months, with 54% citing affordability criteria as the primary barrier to mainstream funding.

Gareth Lewis, commercial director at MT Finance, said: “The results from our Q1 2019 Property Investor Survey reflects the impact of stricter affordability and stress testing from high-street lenders on professional property investors’ ability to obtain mainstream funding.

“The need for reliable, transparent, and quick access to funds is ever-critical and specialist finance- such as bridging loans, will continue to pick up when a more personalised approach to underwriting is required.

“With highly professional specialist lenders offering flexible products at competitive rates, bridging finance has become an attractive proposition to those property investors who are looking to expand their portfolio and need certainty when conducting their business and who often need to move swiftly to capitalise on an opportunity.”

This was followed by age restrictions at 32% and insufficient deposit capital at 14%.

Yet, 46% of those unable to obtain a buy-to-let mortgage filled the funding gap with other sources of liquidity, as 50% of those opted for bridging loans, 34% refinanced through a specialist buy-to-let lender, and 16% opted for a secured loan.

As a result, 58% of the 125 property investors surveyed did not think buy-to-let lenders are doing enough to support them.

When asked what mainstream buy-to-let lenders could do to better support them, 36% said applying a manual underwriting process for professional landlords would better support them, followed by increasing LTV thresholds at 32% and relaxing age restrictions at 26%.

By Michael Lloyd

Source: Mortgage Introducer

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Property investors defy Brexit scaremongering

UK property investors are planning to increase their property portfolios in the next 12 months, according to research provided exclusively to FTAdviser.

According to an independent survey commissioned by Experience Invest, 39 per cent of real estate investors in the UK are planning to add to their holdings, with just 11 per cent seeking to reduce their property portfolios.

A further 35 per cent said they would be maintaining their current number of properties, with 15 per cent planning to sell some assets to then reinvest in new properties.

The research dispels the myth that investors are turning their backs on bricks and mortar as an investment as a result of tighter tax regulations and ongoing Brexit uncertainty.

Of the 54 per cent that plan to invest in more properties during the year, Greater London is the most popular destination, followed by the North West and Midlands.

The least popular areas for property investors, according to the research, were Northern Ireland, East Anglia, Wales and Scotland.

Jerald Solis, business development and acquisitions director at Experience Invest, said: “In light of tighter tax regulations on landlords and on-going Brexit uncertainty, there have been some doom and gloom predictions about the future of the UK property market. But this research shows that, as an investment asset, real estate is still hugely popular, with a significant number of property investors looking to grow their portfolio further in 2019.

“It is interesting to see that, while London remains the most popular location for property investment, other regions across the UK are very close behind. In particular, the North West has established itself as something of a ‘hotspot’ for buy-to-let investors, with cities like Liverpool and Manchester providing strong rental yields and healthy capital growth.”

Property investors are most attracted to houses, with 67 per cent looking here for their next purchase. This is closely followed by flats at 54 per cent and new builds at 39 per cent.

Other leading asset types within real estate were commercial and semi commercial properties.

Adrian Lowcock, head of personal investing at Willis Owen, said: “The results are not too surprising, property has been a very successful investment for many over the past couple of decades and, as such, there are a lot of investors who will reinvest into the asset class as they see it as the gift that keeps on giving.

“The recent falls in prices in some areas are nowhere near enough to convince property investors the bull market is over and they have also been supported by Governments who have looked to shore up the property market following the financial crisis.”

Mr Lowcock added: “I am not sure buy-to-let landlords would look at many other investments as a genuine alternative. They are often a different type investor and they are not necessarily the type of people who would invest in shares.

“Property is a physical tangible asset which they can work on, see and manage whilst owning shares is less visible and more often than not requires investors not to take any action – just to do some occasional background reading.

“Brexit is a huge risk to the property market and arguably some of the damage has already been done. An eleventh-hour agreement might help avoid big falls in the property market but it will take a while to see what damage has been done and how long it might take for the market to recover.

“Overseas investors might take a bit longer to come back as property investment requires a bigger financial commitment and is more illiquid than the stock market.”

The research was based on responses from more than 500 buy-to-let landlords and real estate investors from across the UK.

By Jenny Turton

Source: FT Adviser

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Refurbishment loans: the three key factors for clients to consider

The reduction in demand and values in the London residential property market have been well documented over 2018. With changes in taxation, stamp duty and Brexit uncertainty putting off buyers, some areas in the City of London fell by 13.4% in the 12 months to October 2018.

In response to these pressures, property investors are using refurbishment more and more, as a way of adding value and increasing rental yields. There are huge opportunities here, but investors must also keep in mind the wider market dynamics.

Keep an eye on GDV and purchase price

With Brexit looming there is likely to be further falls in property prices over the coming months, therefore investors should be aware that their perceived gross development value (GDV) on purchase today, may not be as high once a refurbishment is finished.

This also means properties need to be bought at the right price up front. Negotiation will come into play here, with investors ensuring they have enough headroom in the deal to make a healthy profit.

It’s fair to say buyers markets have been rare in London for almost two decades and investors should now look at this period as a good opportunity to secure a competitive purchase.

Following Brexit, a likely revival in overseas interest and economic stability should help the market recover slightly, with us seeing a modest return to growth Q4 2019 and onwards.

Planning gain and enhancement

With some investors finding the planning process cumbersome and confusing, planning gain and enhancement is where our borrowers are seeing the biggest opportunity. That said, there is an overarching feeling that some local councils could be doing more to make the planning process simpler and faster.

Converting commercial to residential

Octopus Property has also seen an increase in borrowers seeking planning for converting commercial property to residential and subsequently renting them as a house of multiple occupation (HMOs) or a holiday let.

The expected increase in rental yield for HMOs and holiday lets following a refurbishment, is particularly attractive to developers looking re-gear and retain their property as part of a portfolio.

In November, Octopus overhauled its refurbishment loans to support the increase in demand. To help borrowers increase their leverage and reduce the need for third party investment or high interest debt, it increased its max loan-to-cost to 90%.

It also updated its pricing, loan size and works limit and support underserved areas of the market such as foreign nationals, complex company structures and expats.

These changes have resulted in a strong year end with our highest level of enquiries and applications coming in November and December, an increase of 130% in comparison to the prior two months.

Despite the pressures on house prices and wider market uncertainty, refurbishment provides plenty of opportunities for investors.

Source: Mortgage Introducer

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Renting property will “continue to be the norm” for young people in the UK

New research shows the important role the UK’s rental sector will continue to play in 2019 and beyond, underlining the opportunity for property investors in Britain.


  • Changing lifestyles and high costs means young workers in the UK are set to continue their reliance on the country’s private rented property sector
  • Less than one in five young families in some of the UK’s core cities own their homes
  • 34% of young families now rent, compared with just 9% in the late 1980s

For the first time in 30 years, there has been a rise in the number of young families becoming homeowners in the UK.

But more people are expected to continue renting their homes in 2019 and beyond.

New research from the Resolution Foundation shows that there’s been a 3% uplift in young families becoming homeowners since 2016, when levels reached a new record low.

However, with more young people favouring the flexibility of renting, coupled with the increased costs of owning, the analysis was also quick to stress the ongoing importance of the UK’s private rented sector, with renting set to “continue to be the norm” for many young Britons.

The demand for rental homes is particularly pronounced in the UK’s core cities. Fewer than one in five young families in London, Manchester, Liverpool, Brighton and Birmingham own their homes.

On a national basis, the report found that 34% of young families in the UK now live in the private rented sector; in the late 1980s, this share stood at just 9%.

But while demand for rental homes is likely to rise further still, supply is likely to be unable to keep pace. Published in August 2018, the latest report from the Ministry of Housing highlighted how there was a 46,000 fall in the number of available rental properties on the market in 2017.

It underlines the opportunity for property investors to help support the development of the sector, in addition to achieving strong growth in a significantly undersupplied sector of the UK property market.

Source: Select Property

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Overseas Property Investor Numbers Fall

The number of UK buy to let property investments let out by investors based overseas has more than halved in the last eight years.

The latest data released by Hamptons International has revealed that the percentage of overseas based landlords letting buy to let properties in the UK fell from 14.4 per cent in 2010 to just 5.8 per cent in the first 11 months of 2018 – the lowest level on record.

Every region in the UK has seen a fall in the proportion of homes let by an overseas landlord since 2010.

The largest drop has been seen in London which has gone from one in four (26 per cent) of homes let in London owned by an overseas based landlord in 2010, to just 10.5 per cent this year. A fall of 15.5 per cent.

In other parts of the UK, the proportion of overseas based landlords has fallen by 10 per cent in the South East since 2010, followed by the North East and East Midlands, both experiencing a drop of 6 per cent.

Outside the capital, Yorkshire & the Humber has the highest proportion of homes let by an overseas based landlord (6.7 per cent), but this region has only seen a 4 per cent fall in overseas based landlords since 2010.

Western Europeans make up the biggest group of overseas based landlords at 34 per cent, followed by Asian (20 per cent) and North American (13 per cent).

However, since 2010 the proportion of Western European based landlords has fallen by 2.1 per cent, compensated for by a pickup in Asian landlords (+2.1 per cent). Middle Eastern based landlords have also risen by 1.4 per cent since 2010 and now account for 11 per cent of overseas based landlords.

Head of Research at Hamptons International, Aneisha Beveridge, said: ‘The proportion of homes let by an overseas based landlord has more than halved since 2010. Sterling’s depreciation since 2016 undoubtedly makes it cheaper for international buyers to purchase property in Great Britain. However, the conversion of pounds back into local currency means additional costs which cut into an overseas landlords’ monthly income. This combined with a harsher tax regime for overseas investors is dissuading some international investors from entering the rental market.

‘Throughout this year rental growth has been sluggish averaging 1.5 per cent and only passing 2.0 per cent on two occasions. Affordability is not just an issue for those looking to buy a home, but impacts tenants paying rent too. And these affordability barriers will continue to keep a cap on rental growth in the future.’

Source: Residential Landlord

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Property investment has a bright future despite Brexit uncertainty, panel says

A panel of industry experts has agreed that the outlook for property investment in the UK remains positive, despite the uncertainty around continued Brexit negotiations.

Paresh Raja, chief executive of Market Financial Solutions, said that although there’s much certainty, the ambiguity has not dampened the spirits of prospective homebuyers and property investors.

He said: “Historically, real estate has proven itself to be a safe and secure asset by offering stable, long-term returns.

“As a result, demand for property remains high. Recent figures revealed that the average house price in the UK rose by 3% in the 12 months to June 2018 and this positive trend has been met with enthusiasm from landlords, with new research saying that more than half feel positive about the current state of the market.

“Inspiring confidence throughout the sector, this development signifies a positive outlook for the future of the property market over the coming year, particularly in light of the fast approaching Brexit deadline.”

Mario Berti, chief executive of Octopus Property, agreed, adding despite wider market uncertainty, the returns available from owning, investing in and developing the right type of real estate continue to be favourable versus other asset classes, something that we expect to continue moving forward.

“This is for a number of reasons including: the supply/demand imbalance (not enough houses being built), the continued availability of cheap credit and a healthy economy. Let’s not forget the fact that the UK remains a great place to do business.”

And this positive sentiment is reflected by James Bloom, managing director of short term lending at Masthaven. He said that while the UK has suffered a housing slowdown, with many investors choosing to hold until market conditions become clearer after Brexit, the market continues to be upbeat.

Bloom added: “The short-term sector has remained buoyant and continues to perform well. We are seeing more new entrants coming into the market which is increasing competition and providing customers with an even wider choice of products.

“This has led to even more product innovation as lenders compete in this increasingly popular market. We have exciting updates as we further enhance our product range and look forward to sharing the news with the market in due course.”

Intermediaries can learn more about upcoming developments and the future of the market after March 2019 at The Finance Professional Show, which takes place at Olympia London on 7 November.

The show features a CPD-certified multi-format conference programme, with an opportunity to quiz industry experts on their view foe the market, and almost 100 lenders and providers, including Market Financial Solutions, Octopus Property and Masthaven.

Bloom said: “We have a long-standing relationship with The Finance Professional Show and are confident that the show this year will be another great success – it’s a great opportunity to have such a large part of the broker community all under one roof.”

This year’s show takes from 9.30am to 4.30pm and is sponsored by 365 Business Finance, Market Financial Solutions, Octopus Property, Kuflink Bridging, Just Cash Flow and Nucleus Commercial Finance.

Source: Mortgage Introducer

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Women Own Nearly Half UK Buy To Let Investments

Buy to let property investment is far more evenly split between men and women than other forms of investment, according to Ludlowthompson, a London estate agent.

Women comprise 46 per cent of the UK’s buy to let property investors, or 1.1 million of the 2.4 million in the sector. This comes from an analysis of Government data from ludlowthompson.

They also generate 43 per cent or £13.8 billion of the total £32.3 billion generated in rental income by the UK’s buy to let property investors. In contrast, in other types of savings such as pensions there is a far larger gap in ownership between the two genders. For example, women receive just 37 per cent of the income from pensions, equating to £46.5 billion. In contrast, men receive £79.3 billion of income from pensions.

The buy to let sector may have proved itself to be more progressive than expected, with a more even distribution of asserts marking an important step towards gender equality.

Ludlowthompson has suggested that one reason why women might have been active investors in buy to let is due to the fact that residential property is a relatively stable asset and not likely to drastically decline in share value. Research that looks into different investment strategies favoured by the two sexes found that women tend to be less keen on speculative investment types than males.

Stephen Ludlow commented: ‘Whilst a lot of men get entranced by get-rich-quick investments like CFDs and cryptocurrencies – women are said to much more grounded and prefer lower risk investments like real estate. When we started our business 25 years ago we noticed that it was an investment that seemed to be favoured by women over men. That’s been great news for those early pioneers as residential property investment has easily beaten other outperformed other asset classes like shares, bonds and cash.’

He continued: ‘Women who have built up substantial buy to let portfolios deserve a bit of recognition as they have done this in the face of constant criticism that buy-to-let property is risky. The reality is that assets like shares have proved to be far riskier.’

Source: Residential Landlord

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Property investors – stick around and watch your investment grow…

The country’s housing market has long been subject to debate.

Since the crash, there’s been an undeniable struggle to cope with growing buyer demand and numerous government schemes have come and gone in recent times as they try to solve what’s been dubbed as a housing crisis.

And whilst investors may well be hesitant in this uncertain time, those who intend on staying around rather than coming out of the market are likely to see their profits grow.

This is according to the property investment platform, British Pearl, and their research which states that, over the last 50 years, property investments have made a profit 82.6% of the time.

There have only ever been five periods of time where house prices have dropped over those 50 years, showing a success rate of 89.1%, adjusted down to 82.6% after stamp duty, legal fees and interest rates were taken into account for property investors.

This all falls in favour of investors in the UK.

No matter how unstable you might think that the housing market is, the UK has a proven track record of returns, and the ongoing demand for housing means, when paired with careful property selection, the housing sector remains one of the most attractive investment markets.

The government is doing what it can to get buyers onto the property ladder, with the introduction of Help to Buy in 2013 and the tax changes to the buy-to-let market which has, unfortunately, made it harder for landlords to make a profit.

So, the news that playing the long game will benefit you if you’re an investor should come as good news. Especially at a time when stricter mortgage lending, rising interest rates and Brexit seem to have stunted house price growth.

To put it into context, if you were an investor in the pre-crash market circa 2007 and decided to exit following the recession, you wouldn’t have reaped the benefits of the current property price growth which has now comfortably exceeded the levels reached before the crash.

The housing market is renowned for rewarding those who ‘stick around’ in hard times, build upon their portfolios and do thorough research. As long as you have faith in the market and your investments, you will continue to reap the rewards.

Source: Property Forum

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Property investors (not just landlords) may be caught out by new energy rules

People who invest in property via a pension, for example in a SIPP, could see their returns severely dented as a result of a new energy rule.

The Minimum Energy Efficiency Standard (MEES), which came into effect in England and Wales in April, requires all buildings within its scope (listed buildings, for example, are excluded) to hold an Energy Performance Certificate (EPC) rating of between A and E.

Properties falling in the sub-standard F or G rating are illegal to rent out, and new leases can’t be created, renewed or changed as a result. The rules will apply to existing domestic tenancies from April 2020, and non-domestic leases from April 2023.

According to estimates from the Department for Business, Energy & Industrial Strategy (BEIS), there are around 200,000 non-domestic and 280,000 domestic properties in the UK with an EPC rating of F or G.

Why pension property investors are affected

The impact of the rules are well documented for buy-to-let landlords who face a penalty of up to £5,000 for breaches, but many indirect property investors may also face financial implications.

If you hold commercial property or residential property (though this isn’t a tax-efficient move) in a SIPP (self-invested personal pension), returns could be dented if the landlord/owner doesn’t take action to meet the minimum E rating. This could mean it’s difficult to re-let or sell your property.

Other potential issues include:

  • Difficulty extending the lease
  • Additional costs to gain a valid EPC
  • Expensive to bring the property up to the minimum standard
  • Financial penalties (capped at £150,000 for non-dom properties, enforced by the Local Weights & Measures Authorities) may have to be met from the pension scheme.

The most important point for property investors to note is that if you hold commercial property in a SIPP, you as the end investor are likely to be named as the legal owner/landlord of the property which means you could bear the brunt of the costs, ultimately denting your returns.

What the individual SIPP providers say

Dentons Pension Management, which has around 2,500 commercial properties on its books, 10% of which fell below standard last year, confirms the end investor is the landlord.

Martin Tilley, director of technical services at Dentons, says: “If a lease is up for renewal soon, remedial action must be taken. The problem faced by investors is that the property won’t be able to be re-let and so money will need to be spent to bring it up to the required level, which will come out of pension savings.”

Suffolk Life, part of Curtis Banks Group, one of the largest commercial landlords with over 6,000 properties on its SIPP book, has around 16.5% of commercial properties which are F or G rated.

Suffolk Life says it is considered the landlord in some cases, but the end investor may also be a joint owner or landlord in other cases. Either way, it says the end investor would be impacted by any costs of refurbishment to bring the commercial property up to the minimum standard.

Jessica List, pension technical manager at Curtis Banks, says: “If a property isn’t brought up to a minimum E rating we can’t grant a new lease or renew a lease. A property with an F or G rating may also attract a lower value if the investor wishes to sell it.”

Barnett Waddingham has over 1,200 commercial properties in the UK and less than 20% are currently rated the sub-standard F or G rating.

James Jones-Tinsley, self-invested pensions technical specialist at Barnett Waddingham, confirms the trustee (s) of the SIPP are the landlord.

“For our Flexible SIPP, we are the only trustee. For our Bespoke SIPP, the member is also a trustee and so the member and ourselves are co-landlords of the property,” he says.

He adds that members should speak to their usual client manager in the first instance, and obtain an EPC where required, and then inform them of the energy rating.

Mattioli Woods has around 1,100 commercial properties on its books but can’t confirm how many fall below standard as it is currently “collecting data for EPC ratings”.

Lianne Harrison, section manager at Mattioli Woods, says the pension scheme, which includes the individual member trustees and the professional trustee, is the owner/landlord.

“The landlord is ultimately responsible for bringing properties up to the minimum E standard, and for our pension schemes, this means working with individual members so the work required is completed,” she says.

She adds: “For any property purchases/sales and new leases/lease renewals, we require an EPC to be prepared if there isn’t already one in place. The member trustee chooses an EPC provider, and the cost is settled by the pension scheme. If any work is required to improve the efficiency of the property, the member trustee would arrange this and, again, the cost would fall to the pension scheme.”

As such, SIPP pension holders who invest in commercial property should ensure the properties meet the minimum requirements. If not done already, the SIPP needs to commission a report to look at and assess the building to meet the standards.

What about commercial and residential property fund investors?

Investors can access bricks and mortar via commercial (and to a lesser extent, residential) property funds, but here, unlike SIPP property investors, the impact is negligible as the cost of refurbishment would have already been priced into the cost of shares or the funds themselves.

As an example, Aviva UK Property owns 26 assets in the UK, making up 128 units. 98.5% have an EPC of E or higher but two have G ratings (these have an exposure of 0.0013% of rental value). Aviva is the landlord, so the fund will pay refurbishment costs. Aviva says these are “built into our valuation methodology across all properties and therefore we do not believe investors will be negatively impacted as a result of MEES”.

However, fines for breaches can come out of the fund, which would affect investors as money would be taken from generated income, according to Aberdeen Standard Life UK Real Estate. But again, the actual cost to individual investors would be minimal.

Are property peer to peer and equity crowdfunding investors affected?

Property P2P allows investors to build a portfolio of loans, each is secured against a property, targeting a regular rate of interest, usually 4-5%.

As you’re investing in a P2P lending product, you’re lending money to a borrower where their property acts as security in case they fail to repay. As such, the investor is not the owner or landlord so there’s no impact for investors.

Property equity crowdfunding allows investors to buy shares in individual properties, along with other investors. Typically, the properties are owned by a special purpose vehicle (SPV), which is a UK Limited Company. This is because you can’t have more than four people listed on Land Registry for ownership. As such, the properties aren’t owned by the end investor, and even if any properties did fall below the minimum E rating, this would be factored into the cost and returns for investors.

Source: Your Money