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Increase WIFI Connectivity To Improve Rental Yields

Recent research has shown that buy to let investors can improve their rental yields by ensuring that WIFI connectivity in the property is good.

The research from real estate connectivity certifications provider WiredScore and the HomeOwners Alliance has found that two-thirds of residential developers can rent properties with good connectivity services at a higher price and/or with a greater yield.

It was found that 85 per cent of British renters and homeowners still face connectivity issues and failing services, forcing them to use an additional 2.5GB of extra mobile data each month to compensate for their poor WiFi – this additional cost totals £2.2 billion across the nation.

Despite consumers paying an average of £312 for their home internet service, this additional cost is being incurred by users trying to overcome regular connectivity issues and failing services – typically totalling 20 service breakdowns per month. It’s perhaps no surprise that over a quarter of British homeowners and renters (28 per cent) would not have moved into their property if they’d known about the connectivity issues they face.

There are clear commercial benefits of good digital connectivity services:

  • Two-thirds (61 per cent) of residential developers report they can rent their properties at a higher price and/or with a greater yield
  • Two-fifths (40 per cent) see an increased demand for their properties
  • More than half (56 per cent) report they can rent their properties for longer, due to the improved in-home experience

With new developers making the effort to install greater WIFI connectivity in new buildings, the onus is on the buy to let private landlord to ensure that they can compete on an equal level.

President and EMEA MD at WiredScore, William Newton, commented: ‘Connectivity is critical to almost every aspect of our lives – social, leisure and working – with most adult internet users typically spending 24 hours online each week – almost double the time spent in 2007. The residential development community has long shouldered the important responsibility of maintaining and improving residential digital infrastructure in line with a rapid growth in consumer demand.’

Source: Residential Landlord

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Changes in the law means home owners can build bigger extensions without planning permission

The changes will cut out the red tape for many people, making extension building more stress free.

Extending a house can be a costly and time consuming task.

Usually you need to approach your council and get planning permission to build an extension if its bigger than the permitted development rules.

This can often take months and just submitting an application costs money.

But a change in the law means a lot of extensions, within a certain size, will now be able to go up without having to seek the  formal permission.

While this change is big – and gives home owners and developers a lot more freedom, it is not a green light to build whatever you like.

How big can it be?

Under the new rules, single storey extension limits have been doubled to up to 6m for terraced and semi-detached homes, and larger extensions up to 8m long for detached houses.

As well as good news for homeowners, under the new reforms shops will now be able to change office space without the need for a full planning application.

The move builds upon changes to the law which allow business owners to change the use of buildings from takeaways to new homes without undergoing a full planning application, according to the MEN.

To help deliver a greater mix of uses on the high street, the changes also allow the temporary change of use from high street uses such shops, offices, and betting shops to certain community uses such as a library or public hall.

Can I just go ahead?

The short answer to this is no.

You do still need to involve your local planning department.

Since 2014, over 100,000 homeowners have taken advantage of the temporary rules which have not only doubled, but don’t require planning permission from local authorities.

Instead of waiting months for approval, homeowners now notify their local council of the building work beforehand, who in turn then inform the neighbours to the property.

However if neighbours raise objections, the council then decides if the extension is likely to harm the character or enjoyment of the area.

Why has this change been imposed now

Kit Malthouse, the housing minister, says these changes have been made so people are not forced to move to bigger properties.

He said: “These measures will help families extend their properties without battling through time-consuming red tape. By making this permitted development right permanent, it will mean families can grow without being forced to move.

“This is part of a package of reforms to build more, better, faster and make the housing market work – and sits alongside our drive to deliver 300,000 homes a year by the mid 2020s.”

By Saffron Otter

Source: Kent Live

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Research reveals small and large UK property owners’ biggest concerns

Owning a property is an essential aspect for every individual. Wait, are we discussing purchasing a house in the UK? Of course, yes. Affordability of housing merely affects an individual’s condition- both mentally and physically. Did you know, 2/3rd of the UK residents are still living in the rented sector? Well, the reason is pretty visible- due to unaffordability factors in the locality, and the cost of the property. Well, location is another major concern for the majority of residents in the country.

Research says, nearly 12,000 tenants have chosen to live in the rented sector by their own choice and not due to the prices of houses. How about the rest? The remaining group of individuals has no options left but to live as a tenant. The current rent or tenant statistics is 5 million, and it is expected to be 5.80 million households in the next two years. Of course, the tenants would be elderly, retirees and the youngsters of the country. What are the reasons for rising prices in the real estate market?

Reasons for unaffordable growth in the housing sector

Well, here are some of the significant concerns that we need to look upon, and make it affordable for every individual though. Mentioned below are some massive factors:

  • The higher cost of living
  • The absence of rent control measures
  • Increase in Private Landlords
  • Too much of the wealth gap in the country
  • Non-diagnosing of the root causes from media and government

How can we make it affordable?

Well, this cannot be a single person’s thought or action. This needs many hands and brains to work upon and raise the concerns. The reasons are already known to most of us. Not only buying houses have become expensive, but even the roof repairs and maintenance also have been costly. Well, research says that owning a property in the United Kingdom is the most luxurious asset. To prevent the rise in prices, we can act upon some specific policies:

  • Why not free up those local authorities to invest or purchase in a new property?
  • Private landlords and their pricing modules need to be monitored and manage with necessary regulations.
  • Land and property taxations need to be reformed once again.
  • Land Hoarding can be replaced with Development in the sector.

However, acting upon being a single individual is nearly impossible. Did you know many of the individuals have started moving to other places leaving London altogether? Most of them are young buds. Approximately 7,000 people are homeless and are spending their cold nights on the busy streets. Not just the UK, many countries need to reform their real estate sector and housing policies. This will undoubtedly make the living of every individual better and improved. Well, as mentioned already some of the tenants have entered the rental sector with their own choice, may be due to their work, or other factors, but the majority of them have chosen to be a rented citizen due to their unaffordability.

Inevitably, the private rented sector will grow to enhance in the tenant demands, but is this working well for the whole industry? Don’t you think there’s a need to act upon these issues?

Source: London Loves Business

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Investors grab Brexit bargains among UK housebuilders

Daring investors are dipping their toes back into UK housebuilders, attracted by high dividend yields and low valuations even though they are seen as among the most vulnerable sectors in the event of a messy Brexit.

As Britain’s exit from the EU remains shrouded in fog, housebuilders have been top targets for short sellers betting on a fall in the shares, but recent data shows short positions have fallen and some investors are buying back in.

To those investors, Brexit fears and the perceived risk to housebuilders also give the potential for strong rallies. Indeed, British housebuilder stocks have risen 11 percent since their December low and Taylor Wimpey has shot up 30 percent since then.

“I like it when there’s a short. You can have good returns when there are disagreements,” said Fabrice Theveneau, head of global equities at Lyxor Asset Management in Paris, who has recently bought shares in some UK housebuilders.

“The guys who’ve been shorting the housebuilders made a lot of money on them… they could very quickly turn their positions.”

In the last thirty days, the level of short interest has fallen for most UK housebuilders, data from FIS Astec Analytics shows.

Shares in the UK’s biggest listed housebuilders fell between 26 and 33 percent in 2018 as housing data increasingly showed a severe slowdown in sales volumes and prices, blamed in part on the uncertainty surrounding jobs and growth after Brexit.

British property surveyors are the most downbeat about the short-term outlook for house prices in nearly eight years, a survey on Thursday showed, as buyers and sellers shy away from major financial decisions.

London and the South-East have led the slide in house prices and sales. Yet a Deloitte survey found construction in four regional cities is booming.

Investors are using that regional divide to guide their choices.

“We try to avoid those mostly focused on London, like Berkeley. We prefer Taylor Wimpey, Persimmon, and Barratt Developments,” said Lyxor’s Theveneau.

TARGETED STRATEGY

Data from FIS Astec Analytics shows short sellers are even differentiating between London-focused builders Berkeley and Crest Nicholson.

Crest Nicholson has seen short interest increase significantly, with a utilisation rate (percentage of total shares borrowed) as high as 32 percent.

Last year, Crest Nicholson pulled back from London, closing its office there in a bid to reduce its dependence on the UK capital’s faltering housing market where prices were falling and costs were rising.

“We have faced some challenges in London and with sales at higher price points where political and economic uncertainty has adversely impacted customer demand… this is likely to continue pending Brexit resolution,” it said in January.

The company which focuses on the south of England has moved into the Midlands in a push into more affordable areas, and has postponed opening its new South East division.

Rival Berkeley Group, which also has significant exposure to London, has meanwhile seen short interest fall since the Brexit vote.

Charlie Campbell, an analyst at Liberum, put this down to the housebuilder’s more international customer base which could insulate it from falling confidence among UK buyers.

Berkeley Group has sales offices in Dubai, Bangkok, Singapore, Hong Kong, Beijing and Shanghai.

Another strategy followed by some investors is to home in on stocks that could show more resilience in the face of slower sales and low buyer confidence.

Paul Mumford, fund manager at Cavendish Asset Management, owns Telford Homes because of its focus on building in non-prime, “up and coming” areas of London, and its policy of forward selling developments.

Mumford also owns Henry Boot, Daejan, and St Modwen, which he says are more insulated from the cyclicality of the housing market because they are more exposed to the commercial property market.

OVER-OPTIMISTIC?

How much of the hard Brexit scenario is discounted in housebuilder shares is key to investors seeking to find value.

Redburn analysts say current valuations factor in a roughly 30 percent decline in EBIT (earnings before interest and tax) this year, which would imply a 5 percent fall in house prices and 10 percent fall in volumes. The analysts have no sell recommendations in the sector.

That is a far more benign scenario than the 35 percent fall in house prices over the next three years predicted by Bank of England governor Mark Carney if the UK exits without a deal.

There is no date yet set for a new vote on May’s Brexit deal, but share prices have been climbing despite the lack of any clarity.

“The big question is not what happens today but where are we in the middle of summer, is all this behind us?” said Liberum’s Campbell.

“If it is, then the shares are pretty cheap, but if we’ve just gone through a disorderly Brexit you could look back at the shares and at this point in time you might think we were all a bit over-optimistic.”

Source: UK Reuters

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‘It’s happening again’: UK property funds adjust pricing ahead of Brexit

Asset managers are reportedly getting tetchy about scrutiny of the Investment Association UK Direct Property sector in the lead up to Brexit despite the fact they argue they are better placed to deal with redemptions than summer 2016, when the UK voted to leave the European Union.

In December, the sector faced £315.6m outflows – the worst redemptions since July 2016, when a raft of funds gated due to a mass exodus of client money.

The Threadneedle UK Property Authorised Investment and Kames Property Income funds both switched to bid pricing in December, essentially wiping out returns for the year for investors exiting the funds. However, the funds attracted £10.8m and £2.6m respectively in a month where all other funds, bar MGTS St Johns High Income Property, faced outflows ranging all the way up to £92.6m for the Janus Henderson UK Property Paif.

Portfolio Adviser understands concerns have been raised in the industry that media coverage of liquidity positions could trigger a run on funds, despite the fact funds are raising cash levels and the market is more liquid than 2016.

The Financial Conduct Authority made headlines this month when it was revealed the regulator is monitoring property funds daily for liquidity.

UK property fund returns since Brexit

Fund Performance
Scottish Widows HIFML UK Property 28.85%
TIME Investments Freehold Income Authorised 25.94%
Janus Henderson UK Property PAIF 17.25%
L&G UK Property 15.28%
Sector: IA UK Direct Property 13.68%
TIME Investments Commercial Freehold 13.47%
Kames Property Income 12.93%
Royal London Property Inc 10.82%
BMO UK Property 2 Inc 10.72%
MGTS St Johns High Income Property 10.47%
Standard Life Investments UK Real Estate 9.89%
Aberdeen UK Property 8.85%
M&G Property Portfolio 8.15%
Threadneedle UK Property Authorised Investment 7.99%
Aviva Inv UK Property 7.30%
Source: FE Analytics for period between 24 June 2016 to 12 February 2019

‘It’s happening again’

In early July 2016, less than two weeks after the Brexit referendum, Standard Life, Aviva Investors and M&G gated funds followed shortly after by Columbia Threadneedle and Janus Henderson. Investors pulled £5.7bn from the sector in the period from January to July 2016, according to Morningstar Direct.

“It’s starting to happen again,” says Morningstar director for manager research ratings Jonathan Miller about December outflows and pricing adjustments. He attributes recent adjusted pricing at Kames and Threadneedle to outflows and “presumably a feeling that their rainy-day cash, part of keeping their powder dry to meet redemptions, wouldn’t suffice”.

Brexit uncertainty is largely cited as the driving force behind investors pulling money although other factors have compounded outflows. “Property managed a respectable 7.5% total return over the year so it seemed the investment community did trim quite aggressively,” says Architas investment manager Jen Causton.

She expects funds in the sector would have to gate if there is a no deal Brexit.

Chelsea Financial Services managing director Darius McDermott points to a slowing UK economy as a poor environment. “When the UK is slowing down, commercial property is not a go-to asset class. It’s quite correlated to the economy.” UK GDP growth slowed to 0.2% in Q4 2018 and the economy contracted in December, the Office for National Statistics this week revealed.

Total assets in the sector have shrunk from £14.0bn in May 2016, in the midst of outflows but ahead of the Brexit vote, to £11.9bn in December 2018, the last date for which Morningstar Direct has data.

UK Direct Property funds – AUM pre-Brexit vote versus now

Fund May 2016 December 2018
M&G Property Portfolio £4.8bn £3.7bn
L&G UK Property £2.5bn £3.3bn
Aviva Investors UK Property £815.0m
Janus Henderson UK Pty PAIF £1.6bn £2.8bn
BMO UK Property £305.0m £554.4m
Scottish Widows HIFML UK Property £479.1m £446.3m
SLI UK Real Estate Platform £608.0m £438.0m
Royal London Property £399.5m £408.4m
Aberdeen UK Property £625.5m £427.6m
Kames Property Income £203.4m £315.1m
Threadneedle UK Prpty Authrsd Invmt £270.9m £304.1m
TIME Freehold Inc Authorised £289.8m
MGTS St Johns High Income Property £38.9m £111.9m
VT Redlands Prpty £96.4m
Source: Morningstar Direct

Adjusted pricing wipes out returns

Architas holds L&G UK Property or Kames Property Income funds in its multi-manager range and a handful of investment trusts for more specialist exposure, like doctor surgeries and ecommerce.

“One of the funds we invest in moved to a bid price and it effectively wiped out last year’s returns,” says Causton. “You crystallise that if you come out of the fund. It does affect the performance quite a lot, particularly when returns are quite hard to come by.”

Kames and Threadneedle were the worst performers in 2018 falling 2.6%, the only funds with negative performance, compared to 3.9% gains in the IA UK Direct Property sector. In the period from 24 June 2016 to the end of November 2018, before the price adjustment took place the Kames fund returned 19% and Threadneedle delivered 15.1%, both outperforming the sector return of 13.5%.

Chase de Vere favours open-ended funds for its bespoke portfolios and discretionary models. Bid pricing is part and parcel of investing in the sector, says research manager Justine Fearns. “If you can time it right, or get lucky, then all good and well but if you are investing for the longer term then ultimately it should be the investment case that is the driver of purchases and redemptions, although there could be other considerations to take into account.”

IA UK Direct Property returns in 2018

Fund Performance
TIME Investments Freehold Income Authorised 8.07%
Scottish Widows HIFML UK Property 7.84%
TIME Investments Social Freehold 5.21%
TIME Investments Commercial Freehold 5.00%
L&G UK Property 4.65%
Standard Life Investments UK Real Estate Platform 4.57%
Aberdeen UK Property 4.36%
M&G Property Portfolio 4.17%
Janus Henderson UK Property PAIF 4.10%
Sector: IA UK Direct Property 3.91%
BMO UK Property 3.66%
Aviva Inv UK Property 3.65%
Royal London Property 3.40%
MGTS St Johns High Income Property 3.37%
LF Canlife UK Property ACS 3.30%
VT Redlands Property Portfolio 1.94%
Kames Property Income -2.57%
Threadneedle UK Property Authorised Investment INI GBP TR in GB -2.57%
Source: FE Analytics

Cash allocations march upwards

Kames Property Income fund co-manager Richard Peacock tells Portfolio Adviser two sales due to complete this week are due to take liquidity from 17.3% to 19%.

“Given the market outlook we are targeting a liquidity position of around 25%. With return prospects slowing, holding an elevated cash position will have less of a dilutive impact on fund performance,” Peacock says. The fund has had bid pricing in five of the 59 months since launch, he adds. “By comparison, the majority of the peer group swung to bid price in 2016 due to outflows and have remained on that pricing basis ever since due to continued outflows.” Kames introduced a 10% pricing adjustment to the fund following the Brexit vote.

Threadneedle holds 12.3% in cash “the upper end of its liquidity corridor”. “Whilst this plays an important role in the context of meeting potential redemptions, as markets stabilise it can provide a valuable buying opportunity as well,” a spokesperson says.

The M&G Property Portfolio is holding cash above its 7.5% to 12.5% range at 15%, which it describes as a prudent measure to manage any client flows during uncertain market conditions.

It has been reducing retail assets in a similar move to Janus Henderson. Ainslie McLennan, co-manager of the Janus Henderson UK Property Paif, says: “Our long held view has been that the retail sector, particularly traditional retailers and high street assets, would come under pressure.” Instead they are seeking an “appropriate, diversified mix of assets we believe to be best suited to the conditions ahead”, McLennan says.

Fearns lists L&G UK Property as her fund pick for the sector. The team has been engaging with clients regularly to help its liquidity management and it was one of the few funds that did not gate in the aftermath of the referendum, she says. Chase de Vere prefers property funds to hold cash over property securities for liquidity due to it being the more stable and liquid asset class, she says.

LGIM did not wish to comment when contacted by Portfolio Adviser but it has the highest cash allocation in the sector at 25.5%, according to FE Analytics. It made a 15% ‘fair value adjustment’ to L&G UK Property in the aftermath of the EU referendum.

In contrast, Royal London Property holds 8%. Head of property Gareth Dickinson highlights that the fund, which requires a £100,000 minimum investment, consists of a” relatively small number of institutional investors” and redemption requests require three months’ notice, which influences the shareholder base. The fund has not adjusted pricing since the Brexit referendum.

More liquid market

While redemptions are picking up, asset managers say the UK property market is more liquid than the lead up to the Brexit referendum.

“It is difficult to make a simple comparison between the two periods and the impact on liquidity management,” says Peacock, who describes the referendum as a binary risk event whereas recent outflows have been spread over several months.

He adds: “The levels of sales completed by the peer group already is encouraging and demonstrates that we still have a liquid market for those investors looking to sell which is a contrast to Q3 2016 when transaction volumes fell and liquidity dried up for many funds.”

Outflows may actually benefit the sector, according to Willis Owen head of personal Adrian Lowcock. “All that hot money is now out; all that shorter-term money is now out. What you’ve got left should be longer-term investors.”

However, outflows leave funds in the position of having to sell assets to increase cash positions, Lowcock says. Willis Owen currently favours passives for property exposure, such as the iShares Global Property Secs Equity Index and L&G Global Real Estate Dividend Index.

Investment trust versus open-ended debate rings on

Morningstar’s Miller says pricing adjustments highlight “what can happen overnight given the illiquidity in the space”. “We believe there’s a mismatch in having daily dealing for bricks and mortar property funds, given the illiquidity profile.”

McDermott says he currently only holds property via specialist investment trusts, but despite the swings that can occur when property funds adjust pricing, he warns investment trust volatility can be higher.

He says investors can only be penalised to the extent of the property fund’s spread, which is “typically 5%, sometimes 5.5%”. “Investment trust discounts can go much wider than that. After the Brexit vote when all the property sector was under stress, some of the investment trusts were trading at 20 or 30% discounts. You could get your money back but you were getting it back at 30%,” he says.

Association of Investment Companies data shows the Schroder Real Estate Investment trust discount was 19.7% on 30 June 2016 compared to a 1.6% premium three months earlier. It was trading at a discount of 16.3% at the end of December 2018. The UK Commercial Property Reit was the next highest discount at the time of the Brexit vote at 17.1%. It now trades at a 10.9% discount.

Source: Portfolio Adviser

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House Prices Down 2.9%, Halifax Reports

House prices in the UK fell by 2.9% last month, according to Halifax’ latest report.

The January decrease comes after 2.5% growth in December 2018. House prices grew by 0.8% in the year to January, down from the 1.3% annual rise seen in December. This is the second time in the last three years that house prices have seen a monthly drop in the first month of the year. The average house price in the UK now stands at £223,691 by Halifax’ calculation.

“Attention will no doubt be drawn towards the monthly fall of -2.9% from December to January, the second time in three years that we have seen a drop as a new year starts,” said Russel Galley, managing director at Halifax.

“However,” he added, “the bigger picture is actually that house prices have seen next to no movement over the last year, with annual growth of just 0.8%.

“This could either be viewed as a story of resilience, as prices have held up well in the face of significant economic uncertainty, or as a continuation of the slow growth we’ve witnessed over recent years.”

Analysts have suggested the uncertainty surrounding Brexit is putting off potential buyers, and that the outlook of the UK’s housing market in 2019 will depend on the transition the country faces after we leave the EU on March 29.

“January is often a tough month, in which sellers who have failed to shift their home in the previous year typically cut the price in order to drum up interest,” said Jonathan Hopper, managing director of Garrington Property Finders. “But the confidence-sapping uncertainty of Brexit is getting worse, not better, and the next few months will be decisive.”

The significant role of Brexit in the slowdown of the housing market was reiterated by Mark Harris, chief executive of mortgage brokers SPF Private Clients. “Flat growth is probably the best we can hope for, given the current tricky political situation we find ourselves in,” said Harris. “Brexit has caused a slowdown in purchase activity as would-be buyers sit on their hands, waiting for the outcome before committing to something as major as buying a new home.”

Russell Galley said: “There’s no doubt that the next year will be important for the housing market with much of the immediate focus on what impact Brexit may have. However, more fundamentally it is key underlying factors of supply and demand that will ultimately shape the market.

“On the supply side the most constraining factor to the health of the market is the shortage of stock for sale, although this does support price levels. On the demand side we see very high employment levels, improving real wage growth, low inflation and low mortgage rates. All positive drivers tempered by the challenges of raising deposits. On balance therefore we expect price growth to remain subdued in the near term.”

However, some analysts are holding out hope that the housing market could yet see an upturn after the initial impact of Brexit.

Andy Soloman, founder and CEO of business growth advisers Yomdel, said: “The coming months are likely to bring some small green shoots of price stability and once we emerge from our Brexit blanket in to the cold light of day having reached an agreement, further stability and upward growth should return to the market.”

Source: Money Expert

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Why hasn’t modular housing taken off yet?

Modular has long been hailed as a solution to a housing crisis that has left workers in England and Wales needing to fork out eight times their annual income to buy a house, according to ONS data published in 2018.

The homes are quick to assemble and are cost-efficient, they are built to last and they leave a much smaller carbon footprint than traditional housing. Off-site construction also means fewer builders are required, which solves another problem facing the industry – a shortage of skilled workers.

Last week Birmingham City Council proudly announced that they were to build the city’s first council-built modular home, yet in other countries, modular houses already make up a significant proportion of homes, with around 84% of homes prefabricated in Sweden using timber elements.

So why aren’t modular homes more popular in the UK?

Past misconceptions

Three million new social homes must be built in England over the next two decades to solve the crisis, according to a January report by the charity Shelter. At least 1.2 million homes are needed for younger families, who can’t afford to buy and face a lifetime in expensive – and insecure – private renting.

One of the key issues is that when we hear the term module housing, we often think of the prefabricated homes that were erected to address the post-Second World War housing shortage.

From spring 1946, more than 156,000 pre-fab houses were erected across the UK in record time as a temporary solution envisaged to last no longer than ten years. The houses were typically bungalows and while much-loved by residents, were built in a style which gained a bad reputation for being low quality and unsightly.

Although a few are still standing – a testament to their construction – the homes are poorly constructed by today’s standards.

‘As for the “pre-fab” image, modular homes have very little in common with the inter-war “homes for heroes”‘ says Jessie Wilde, relationships & projects manager at the Bristol Housing Festival.

‘Today’s modular homes are precision-manufactured, energy-efficient homes with high levels of quality control,’ he adds. ‘Their construction methods are more sustainable than traditional methods and modern factories can offer better working environments than building sites.’

Luke Barnes, CEO at Ideal Modular Homes, adds: ‘Some people may have a misconception of modular from post-war homes. However, since the 1940’s there have been major advancements in technology and building materials.

‘Here at Ideal Modular homes, all our properties surpass building regs standards, are precision built in just 5 days and to an unmatched level of quality,’ he says.

Although modern modular homes look nothing like their previous incarnations, some people fear factory-built housing would leave families living in tiny, “identikit” homes. Traditionally, too, homes in the UK have been built with brick or stone rather than wood, which is often used to construct modular housing.

Tackling the ‘change averse’ planning system

There are also challenges when it comes to off-site construction. More money is required upfront to invest in the factories required to build homes, which can deter developers, and they are also costly to run. Factories that create modular housing require economies of scale, but the industry is relatively small (compared to Sweden, for example). There is also a more general fear of change when it comes to replacing the more “traditional” system of house-building.

‘Like anything made on a production line, the modules can be made quickly in high volume and to a quality standard at a low cost,’ says Nick Fulford, CEO of modular housing brand nHouse. ‘As a result many people, including the UK government, see volume modular housing as the solution to supplying enough housing in the UK and improving quality levels.

‘Until recently the modular housing industry was held back by a lack of innovative house designs, inexperience in how to make factories work, an unsupportive mortgage and lending sector and negativity from local planners,’ he adds.

Most local planners are very conservative and ‘change averse’, Fulford says, adding they thought modular homes would be of poor quality and design.

‘Until recently companies have struggled because the experience wasn’t there, the designs were not right, the mortgages were not available and the amount of capital investment to set up a factory is substantial,’ he adds.

Wheels slowly turning

Things are now changing, albeit slowly. Last year, Berkeley Homes announced their aim to build 1,000 modular homes a year out of their new factory in Ebbsfleet, Kent. The insurance giant Legal & General opened their factory in Leeds in 2016, with the aim of producing 4,000 modular homes a year.

Modular homes have been planned for Bristol too, Wilde adds. ‘Modular build is used on constrained and unconventional sites because units can be lowered in by crane. For example, ZEDpod modular homes, exhibited at the Bristol Housing Festival launch, are designed for land outside the development plan such as existing car parks and hard standings.

‘Last October, Bristol City Council committed to investing in six rapid-build, modular homes from ZED Pods. The ZEDpods will be offered to people in housing crisis later this year, subject to planning.’

‘New companies like nHouse have joined the industry offering high-quality homes. There are now around 20 factories up and running and the industry is gaining in experience, the BOPAS accreditation scheme means that main lenders like Natwest and Santander are offering mortgages and the UK government has really got behind ‘modern methods of construction’ like modular.’

The Buildoffsite Property Assurance scheme (BOPAS) is a risk-based evaluation which demonstrates to funders, lenders, valuers and purchasers that homes built from non-traditional methods and materials will stand the test of time for at least 60 years.

Moreover, people who want to own their own homes – and who have been priced out of the property market – are less interested in how their houses are built. It’s more about whether they will last and suit their needs and tastes.

‘With billions now being invested the UK government would like our industry to supply around 60,000 homes a year within a decade,’ Fulford says. ‘So it’s going to be much more common to see all sorts of modular homes around Britain.’

Source: Environment Journal

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New opportunities and risks in evolving market

It is widely accepted that we have reached a late stage of the property cycle. Some even argue that a downturn has already set in. However, our view is that while values feel pretty full, we certainly aren’t in bubble territory. It is reassuring to note that UK commercial property values have increased half as much as they did during the last cycle and the industry as a whole is nothing like as highly geared as it was in the run-up to the financial crisis a decade ago.

However, as lenders and investors, we can’t afford to be complacent. We remain alert to the risks of lending late in the cycle which today are as much, if not more, of a concern as structural changes in the market. Against this background, we have still been able to find value and we have invested more than £800m over the past 12 months, including our largest transactions to date in both our senior debt and partnership capital strategies, while we have been able to back some very interesting residential development opportunities in London and the South East.

The most obvious risk in today’s market is posed by changes to shopping habits. The inexorable rise of online shopping has already started to bite hard into the retail property market and undoubtedly, values and rents will continue to come under more pressure. We have therefore been reducing our exposure against retail property for some time but we are not turning our backs on the market completely.

”As lenders and investors, we can’t afford to be complacent. We remain alert to late-cycle risks”

While there is clearly trouble ahead for department stores and the centres they anchor, many retail centres will continue to attract shoppers, particularly those in densely populated areas that are focused on convenience shopping. We’ll continue to back borrowers and partners with deep retail experience in this part of the market.

The industrial market presents very different challenges for us. The rise of ecommerce is driving growing occupier demand but this means competition between investors to buy assets and between lenders to fund them is high. We have been active in the industrial market for many years but, with investment yields contracting to record levels, we see better relative value in development than investment and have funded two speculative warehouse schemes in the South East in recent months. Having said that, one of our biggest loans this year, and the largest loan to date in the senior debt programme, was the £125m refinance of an industrial portfolio, predominantly located in the West Midlands.

‘Live-work-play’ situation

The office market is also going through a period of rapid change with TMT tenants driving demand in many parts of the country, not just London, which are often followed by co-working operators, with most looking for that millennial-friendly ‘live-work-play’ situation. We are keen to support borrowers targeting this market, as evidenced by our loan earlier this year to support FORE Partnership’s £51m acquisition of Tower Bridge Court on the South Bank. It was our first office deal in London since 2015 and we are on the lookout for others as pricing for value-add investments in the capital is looking increasingly attractive.

evolving market

Tower Bridge Court £51m acquisition and refurbishment whole loan

We also continue to target the other major UK cities, confident that despite the uncertainty around Brexit, there are good lending opportunities available. The fundamentals of the office market in large UK cities remain healthy. Demand for space is robust; this has been driven by strong employment growth; supply remains tight due to a lack of new development and a similar lack of conversion of secondary office space to residential under development law.

Alternatives also look more attractive than ever. In an environment where Brexit brings an uncertain economic outlook, it clearly makes sense to be lending and investing in sectors where demand isn’t tied to the economic cycle. One such example is data centres; demand for data is set to grow exponentially but there are a very limited number of locations that can meet data centres’ specific requirements for connectivity or power. As well as backing student accommodation and hotels, which have been our alternatives bread and butter since 2011, we have been providing finance for data centres as well as a number of other non-traditional assets this year.

Indeed, we made our biggest-ever loan across the business this year in the alternatives sector – a £200m whole loan to Royale, an operator of permanent park homes aimed at the over-50s. The loan was backed by 27 individual parks and 3,500 plots, providing a good level of granularity. We also like the fact that the number of over-50s is set to grow at twice the rate of the whole population.

This year, ICG-Longbow expanded its direct investment activities with the launch of our build-to-rent business, through the Wise Living joint venture with SDL Group, and a pan-European sale-and-leaseback strategy. Growing both will be a key focus for us in 2019. Increasing demand for private rented housing gives us confidence in the outlook for build-to-rent, particularly as our focus is on family housing, which is an undersupplied part of the market. The sale-and-leaseback business is also an exciting venture for us that brings together ICG-Longbow’s property expertise with ICG Group’s 29-year track record of investing in European corporate credit deals.

We also plan to expand our partnership capital lending and investing activity into continental Europe in due course. For us, it’s a natural progression for the business and doesn’t mean we’re any less interested in the UK. Although the UK market faces challenges, not least Brexit, we are still firm believers that there are plenty of good opportunities out there.

Healthy sign for the market

Looking at the supply of capital to the market, we see that banks remain cautious and have lowered their LTVs. However, we see this as a healthy sign for the market as a whole and they at least remain active. From our perspective, the fact they have pulled back somewhat is helpful for obvious reasons. When it comes to our senior lending, we used to compete with the banks mainly on our flexibility and speed, whereas now there is usually substantial clear water between our terms and the banks on leverage, while in the higher LTV whole loan market there are only a handful of lenders equipped to underwrite more complex property strategies, including value-add and development.

Finally, in the residential construction market, we have seen more activity from other non-bank lenders, but in our opinion this has been more than offset by a couple of UK banks pulling back from the market, while the volume of debt capital available still remains low relative to financing requirements.

With positive occupational fundamentals in all but retail, we look ahead to 2019 with confidence that there will be plenty of attractive lending opportunities, despite (or even potentially resulting from) the ongoing political uncertainty. Having raised nearly £900m across our senior debt, partnership capital and residential development strategies this year and with fundraising efforts still ongoing, we have plenty of firepower coming into the new year and we look forward to continuing to support our customers with our flexible capital and partnership approach going forward.

Source: Property Week

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Landlords rely on brokers for better deals

Landlords rely on brokers to guide their financial choices because they feel intermediaries have access to better deals, according to research by a bridging lender.

In a survey of 2,000 adults who own three or more residential properties, 35 per cent agreed they rely on brokers to inform choices made when securing finance for a property purchase.

The research, conducted by bridging lender Market Financial Solutions, found 41 per cent of the landlords who relied on brokers felt they could access better rates than a borrower going direct with the lender.

Paresh Raja, chief executive of Market Financial Solutions, said: “Whether it is someone purchasing their first house or their 50th, this research shows how instrumental brokers are in guiding property buyers through the financial options available to them.”

Recent figures released by fintech firm Mortgage Brain found a significant difference between the cost of comparable buy-to-let mortgages and mainstream residential products.

As of November 1, the cost of a five-year fixed buy-to-let mortgage at 80 per cent loan-to-value (LTV) was 24 per cent more than the same product type for a residential mortgage.

A two-year fixed buy-to-let mortgage at 80 per cent LTV cost 20 per cent more than its residential equivalent.

The survey of landlords with a portfolio of three or more properties also found a preference to explore financing outside of traditional mortgage products, with 41 per cent expressing a want for a better understanding of the options available to them.

Mr Raja said: “Importantly, beyond the historically dominant mortgage providers, there are now many forms of alternative finance that buyers can call upon.

“And property investors are clearly keen to explore options outside of mortgages that might be better suited to their particular circumstance.”

Mr Raja said with more than a third of landlords relying on brokers, it is vital intermediaries have in-depth knowledge of all financing options and not just different rates for the same product.

Steve Olejnik, managing director at Mortgages for Business, said he thought the number of respondent landlords using brokers to guide financial decisions in the survey was surprisingly low.

He said: “In my experience nearly all buy-to-let mortgage business is done via intermediary channels.

“But there will be landlords who purchase in cash and therefore don’t require finance – I would think therefore that those not going to a broker are predominately cash buyers.”

Mr Olejnik said brokers are becoming increasingly important in filling the advice gap.

He said: “In a buy-to-let environment more complex than ever, landlords really do need broker advice to find the right product.”

Source: FT Adviser

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Over half of mortgage applicants rejected for reasons like being self-employed

Over half (54%) of mortgage applicants who’d fallen out of the application process were denied a home loan for reasons that could be considered ‘normal’ by most people, such as being self-employed or contract workers, Together has found.

Other factors once believed to be ‘non-standard’ include taking a dividend, or the type of property they were looking to buy, including conversions or high-rise flats.

Pete Ball, personal finance, chief executive at Together, said that many mainstream lenders needed to keep pace with the demands of these types of borrowers.

He said: “The world has changed. People’s pay, working patterns and pensions have altered beyond all recognition from 30 or 40 years ago.

“Even where they live, who they chose to live with, or the type of property they want to buy is vastly different from a generation earlier.

“What was previously thought to be ‘normal’ simply doesn’t exist anymore.”

Together’s study, which was conducted by market researchers YouGov, builds on earlier research by the Intermediary Mortgage Lenders’ Association, (IMLA) which revealed a significant proportion of the UK population fail to secure a home loan between an initial enquiry and the time they would receive a mortgage offer.

The latest survey discovered that, of those rejected, 12% were denied because of their employment type, while 3% had insufficient employment history. This could be despite potential borrowers being in a good position to repay their mortgages.

One in 10 (10%) were denied because the property they wanted to buy was considered ‘non-standard’, which could mean anything from a converted barn to a high-rise apartment.

Self-employed workers are also being “locked out” of the mortgage market by some lenders, Mr Ball said. Labour market data shows the population of people who are working for themselves has soared by a quarter in the past decade to 4.8 million, making them a cornerstone of the UK economy.

Millennials – those aged between 18 and 34 – were worst hit overall – with two thirds (66%) who took part in the survey failing to get on the housing ladder because of the way they live and work nowadays, which may mean they do not meet some mainstream lenders’ criteria

A total of 46% of over 55s were denied home loans, some because they were too near retirement age.

Ball though this could pose a growing problem in the future, as the age of the UK population rises, with the number of people aged 65 and over in England and Wales projected to increase by 65% to more than 16.4 million in 2033.

Andrew Montlake, of mortgage broker Coreco, said: “Across the country, people are living and working longer and have varying ideas of what their perfect home will be at different stages throughout their lives.

“Unfortunately, much of the mainstream mortgage market has been slow in catering for these potential borrowers, who make up a wide section of society. The market needs to continue to adapt to make sure it remains fit for purpose.”

Additionally, Together found nearly one in five (18%) people were turned down because they had a low credit score or a lack of credit history.

Surprisingly, fewer than one in 10 (9%) of said they’d been turned down because their deposit was too small and 16% said they were not earning enough to afford repayments on their home loan.

Over a quarter (27%) of rejected applicants who did not obtain a subsequent mortgage were put off ever going through the process again – shelving their dream of owning their own property – rising to 32% for over-55s.

Some one in 10 (10%) of those who withdrew a mortgage application/enquiry the last occasion they were unsuccessful pulled out before receiving an offer as they found the process too complicated, and 7% said there were too many stages.

A disappointing 28% who were originally unsuccessful have not secured a mortgage.

Ball said: “As a lender, we’ve been providing flexible, common sense lending for over 44 years, so we recognise that was once considered unusual or specialist is now becoming more normal, and the mainstream needs to be able to adapt to the changing world.”

Source: Mortgage Introducer