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JULY 2012
IN BRIEF...
News on the economy, house
prices, the mortgage market and
market-leading remortgage deals
available for UKAR’s residential and
buy-to-let borrowers...
GDP
As anticipated, an otherwise largely
unchanged second estimate of
Q1 GDP from the ONS saw the
hotly-debated contraction in
construction output worsen from
–3.0% to –4.8%, increasing the
overall contraction in GDP from
–0.2% to –0.3%. Forecasters expect
growth to weaken further during Q2
as working days were lost to both
Easter and the Diamond Jubilee.
The lack of decisive action over the
Euro zone crisis dominates business
surveys, while Sterling’s (relative)
safe-haven status strengthened
the pound in Q2. April’s trade data
highlight the threat this poses as
goods exports fell sharply, widening
the overall goods-and-services
trade-deficit from £3.0bn to £4.4bn.
Mervyn King had previously forecast
a ‘zig-zag’ pattern of growth, but with
Spain forced to seek a bailout for
its banks and the dust still to settle
after the second Greek election, a
more prolonged UK recession looks
likely.
Unemployment
One of few positives in recent
data, June’s labour-market data
show employment rising 166,000
and unemployment falling 51,000
to 2.61m/8.2% (ILO measure).
As changes in employment lag
changes in output, however, this
‘feel-good’ news may yet prove
short-lived, and indeed June’s data
also showed that after successive
monthly falls, the Jobseekers
claimant count rose by 8,100 in
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BUY-TO-LET INVESTMENT SUCCESS
Landlords increase
portfolio size
The average UK landlord has increased the size of his or her portfolio in the past three months,
according to a report by Paragon Mortgages. Investors in UK property now hold an average of
14.1 properties.
This is a rise from 12.9 in the first quarter of 2012 and up from 12.5 year-on-year. Terraced
housing remains the most popular type of property. Roughly, 49% of investors who are planning
to increase portfolios are looking for terraced properties. Around a quarter of those surveyed
expect to buy flats or maisonettes with 23% planning to purchase semi-detached houses.
The Private Rented Sector Trends Survey found that around a fifth of respondents are planning to
increase their portfolio size in Q3, a 3% rise on the same period last year.
Ying Tan, managing director at The Buy to Let Business, said the market would remain strong, with
a number of lenders launching new products in recent weeks.
“The fundamentals of the buy-to-let market remain strong. It continues to be difficult for first-time
buyers to get on to the property ladder so there are some big returns for investors in the market.
“Young professionals also like the flexibility offered by rental properties.
“The reason behind the increases in portfolio size is that landlords are often reinvesting their
profits back into property. Investors have also found restrictions on funding have eased and
they’re finding it easier to get finance.”
John Heron, managing director of Paragon Mortgages, said:
“The issues around housing supply in the UK are well documented and have been hotly
debated over the past few months in particular.
“However, what our research shows is that landlords are investing further in PRS property and
they look set to continue to buy over the coming quarters. Whilst this will not solve the problems
around supply it will make a valuable contribution.”
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IN BRIEF... (continued)
May, contradicting forecasts of a
–3,000 fall.
Inflation & Interest Rates
The latest data show that inflation
fell more sharply than expected in
May, to 2.8% (CPI) and 3.1% (RPI) –
many were expecting no change.
This positive news countered May’s
quarterly inflation report where the
MPC argued inflation was proving
slower to fall than it had anticipated,
but that it stood ready to provide
additional monetary stimulus for
the economy if necessary. Weaker
business surveys, revised Q1 GDP
and the IMF’s Christine Lagarde
have built the case for looser policy,
pushing swap rates lower; it now only
seems a matter of time before further
intervention takes place.
House Prices
The average of the two lender
indices rose 0.8% between April and
May (non-seasonally adjusted)
to sit –0.5% down on the year, but
with the average house price now
1.9% higher than in December
2011. London and the South-East
continue to flatter national indices,
but activity slowed in May. RICS saw
fewer new buyers and sellers, and
more surveyors expect prices to ease
over the next quarter, citing worries
over the wider economic outlook as
undermining confidence.
Mortgage Lending
Emphasising the boost that the
first-time buyer stamp-duty holiday
gave to lending in March, the value
of gross lending fell 22% to £9.8bn in
April. Net lending eased back but
at £1.4bn in the first four months of
the year was still more than double
the £670m achieved in the same
period in 2011. Detailed data show
that purchase-lending fell 28% to
£5.3bn, but remortgaging also
dropped sharply, reflecting tighter
market conditions and the impact of
weakening confidence.
Buy-to-let
A recent Shelter/Resolution
Foundation report entitled ‘Housing
in Transition’ identified past trends
and laid out their visions of the
future of tenure change. It identifies
the state of the economy as being
central to this, with recent decreases
in homeownership likely to continue
London rents rocket to
record levels
Rental prices in London rose to record levels during June, according to the LSL Buy-to-Let Index
published on 20th July. Properties in the capital now command an average monthly rental cost
of £1,166 a 4% annual rise, with tenants paying an average of £41 extra compared to June 2011.
Across England and Wales as a whole, rents lifted 0.9% to an average of £720 per month. These
figures are up 2.4% on the same period in 2011. Rental prices rose in the majority of regions
with the top gains in Wales, the North West and West Midlands, where they rose 2% and 1.7%
respectively.
Rents dipped in the South West, falling by 0.3%.
David Newnes, director at LSL Property Services, said: “The sheer weight of tenant demand
continues to push up rents across the country. Lending criteria remain tight and the number
of mortgages given to first-time buyers – especially
those without substantial deposits – is still a long
way from the level seen before the credit
crunch. With higher rents and the growing
cost of living eroding how much tenants
can save towards the large deposits
required to buy, it’s no surprise to see
the private rented sector growing by
262,000 households a year.
“But shorter-term factors were
also at play in June, especially
in London, by tenants moving
with urgency ahead of
the disruption of the
Olympics.”
Money market data
May 2012
June 2012
Difference
3m Libor
1.01%
0.96%
–0.05%
2-yr swap
1.32%
1.06%
–0.26%
5-yr swap
1.56%
1.30%
–0.26%
10-yr swap
2.28%
2.07%
--0.21%
Source: Bloomberg
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IN BRIEF... (continued)
if the economy remains subdued
(mortgaged homeownership to fall
from 31% in 2012 to 27% in 2025).
As a corollary the private rental
sector (PRS) is forecast to grow from
18% to 22% in the same time period.
This increase is magnified in London,
where the PRS is forecast to rise to
35% by 2025, the largest single form
of tenure.
Should the economy fail to
mount a strong and sustained
recovery, they conclude it is likely
that the PRS and thus buy-to-let will
continue to play a bigger part in the
overall housing market.
Fixed Rates
For the first time in a number of
months the best fixed BTL deal table
is broadly stable. For <70% LTV HSBC
is the only new entrant, but this
replaces a similar deal with a lower
fee, meaning that the blended rate
increases by a chunky 0.2%. It will be
interesting to see if this stability is a
trend or simply a pause for breath in
a changing market.
Rental yields and tenant
demand keep growing
The average yield on rental property increased from
6.1% in the first quarter of the year to 6.5% in the second,
according to the latest Private Rental Sector Trends
Survey commissioned by buy-to-let lender Paragon.
Professional landlords with property portfolios fared
better than their ‘amateur’ counterparts, reaching 6.9%.
Rental yield is defined as a property portfolio’s annual
rental income as a percentage of its total value. When
quizzed about levels of tenant demand, 36% said
they believed it is growing, while 55% think demand is
stabilising right now. Going forward, 44% expect demand
to rise over the next 12 months.
A fifth of buy to let investors plan to buy another
investment property in the next three months.
John Heron, managing director of Paragon Mortgages,
said:
“Strong tenant demand has continued to place upward pressure on rents and we have as a
result seen yields strengthen despite the pressure on consumers.
“It is no surprise to see that more experienced landlords achieve better yields with this being
driven by their choice of property type and their approach to management.”
Buy to let on steady
course in 2012
The buy-to-let market continued on a steady course in
2012, with mortgage advisers reporting 44% of landlords
are buying properties to expand their portfolios,
according to specialist mortgage lender Paragon.
However, buy-to-let mortgage gross advances dropped in the first quarter of 2012 to 32,300,
down from a three-year reporting high of 34,300 in the fourth quarter of 2011. The Council of
Mortgage Lenders said this was a seasonal lull, with better figures expected next quarter.
On a more positive note, arrears of three months plus continued to fall to 1.31%, a three-year low.
Paragon’s survey reported the number of landlords looking to remortgage nudged up in
the second quarter from 31% to 32%, while the proportion of those applying for a buy-to-let
mortgage who were first-time landlords decreased from 23% to 20%.
John Heron, managing director of Paragon, said: “Levels of buy-to-let mortgage business are
healthy at the moment but could be better. The market is still being affected by the wider
financial markets and factors such as the Eurozone.”
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