Stagnant UK Property Market: Buyers Perspective

It has been widely reported that the current market conditions are such with very low volume of transactions, falls in mortgage approvals, and an overall stagnation in the UK property market.

Stagnant

Nationwide reported that house prices rose 0.3% in April but are still down 1.2% on last year.

The number of houses sold in May was up 4.7% on the previous month’s figures and reached the highest level seen since May last year.
House sales were 2.0% fewer than May 2010 but significantly up 14.7% on May 2009 and 18.6% up on May 2008. The recovery was led mainly by activity recorded in the North of England and the Midlands. This is very encouraging.
There was positive news for the number of new ‘For Sale’ instructions received in May. In the UK they were up 1.7% eradicating the -0.5% drop seen in April.

It is important to analyse the factors causing this and the mind set of Buyers, and there finally seems some light at the end of the tunnel.

Just today the UK Base rate was held again at 0.5% for yet another month, all indications suggest that there will be no drastic upwards movement. Therefore many home owners and investors are content with staying with existing properties where they are enjoying very low interest rates often just a fraction over the base rate, if they were to sell off current properties and find new ones, it is almost impossible that they will be able to gain similar rates. They conclude it is better to stay put and use the extra savings to pay off capital rather than buy or sell into new properties.
However with such a low base rate saving rates are also very low, which with current inflation figures mean that real return is actually negative.

PropVestors are better placed to either put extra cash into paying off capital or reinvesting in property rather than having money thats losing money in ISAs or savings accounts.

Investors are seeing much better returns on rentals rather than the negative real return of having money in a savings account.

In other property news today it has been stated that rents in particular in Central London are expected to rise 8-10% in the year to come. Investors are well placed to get great returns. Current renters should also think about becoming FTBs (First Time Buyers)  to avoid high rent increases and instead use the low base rate to get on the property ladder. With these factors there should be upwards pressure on demand and property prices, so what is holding back the market?

The UK mortgage market is still very inactive, even though data is showing a recent increase, from our personal experience and that of our clients the lending criteria is very strict and stringent and only those that fall into a model profile, income base, age, and credit history are the ones where mortgages are being approved. Further to this the LTV (Loan to Value) is still surprisingly low in comparison to boom times.

PropVestment concludes that from a buyers perspective the primary factor why buyers are not as active as they would like to be is simply that the lending is just not available and with prices especially in the South East remaining so high. Even those lucky enough to secure finance, they just can not make the deposits needed to buy when the LTV offered is as low as it is.

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What does 2011 have in store for the PropVestor: Part three: Interest Rates

Up or Down....

Interest Rates

Philip Shaw, Investec economist
We have recently revised our in-house inflation forecasts with the view that the CPI measure will rise a little above 4% towards the middle of this year, and a risk that this could be 0.5% or so higher than this should the 2.5% increase in VAT be fully passed through.
The committee’s credibility is at stake. But raising the Bank rate from its current 0.5% risks sending the recovery into reverse. We argue that one solution could be to keep interest rates steady, but to start to reverse some of the quantitative easing.

David Kern, British Chambers of Commerce
The MPC’s decision to leave interest rates and the quantitative easing programme unchanged this month was widely expected. We support this decision, but it is important that the MPC perseveres with the existing policy approach, at least until the middle of the year. Recent calls for early increases in rates are ill-advised and should be rejected.
The UK recovery is fragile and risks of a setback are serious. Pressures on businesses and individuals will intensify over the next few months, but we urge the MPC not to over-react to temporary increases in inflation. As long as wage increases remain modest, and disposable incomes continue to be squeezed, it remains highly likely that the surge in inflation will be reversed, and sharp falls can be expected in the final months of 2011 and in 2012.
It is likely that interest rates will need to increase later this year. But the MPC must wait until the economy has absorbed the initial impact of the austerity plan. Premature interest rate increases, while fiscal policy is still being tightened, risk derailing the recovery and could make it harder to implement deficit-cutting measures.

Lee Hopley, EEF chief economist
The debate around the impact of forthcoming austerity measures and above-target inflation will have changed little for the MPC over the past month. For now, however, the balance of risks still supports keeping interest rates and asset purchases on hold. But, if we begin to see price pressures starting to flow through to major wage increases, the case for raising rates will become stronger.

Scott Corfe, CEBR economist
The announcement comes amid a media environment becoming increasingly concerned about the rising cost of living and consistently above-target consumer price index inflation – especially in the light of recent price increases that followed the VAT rise to 20%. Since January 2010, annual CPI inflation has been at or above 3.0%, the upper end of the Bank of England’s target range, prompting some concern that the Bank is losing credibility over its commitment to its central 2% inflation target.
Despite this, we remain wary of being overly hawkish on inflation in the short term. With price growth being primarily driven by government policy (VAT increases) and short-term commodity price shocks, rather than an overheating economy, raising rates now seems premature. Excluding indirect taxes such as VAT, annual consumer price inflation was only 1.6% in November – hardly indicative of out-of-control underlying inflation. Once the impact of VAT on prices drops out of inflation measures in 2012, we anticipate a significant fall in inflation to a level comfortably within the Bank’s target range.
Our central economic forecast suggests 2011 will be an extremely difficult year for the UK, with notable downside risks to growth as the government’s programme of fiscal consolidation gets well under way. With the housing market continuing to falter and question marks looming over the ability of net trade to compensate for weak domestic demand, a rate rise now would be the wrong policy at the wrong time.

Howard Archer at IHS Global Insight
Albeit with reduced confidence, we are retaining our view that the Bank of England will hold off from raising interest rates until the fourth quarter. This reflects our belief that growth will slow appreciably in the first half of 2011 and that a soft labour market will prevent higher inflation expectations feeding through to lift wage growth significantly. However, given current mounting inflation risks, we fully acknowledge there is a growing likelihood that the MPC could act earlier than the fourth quarter, and possibly even before midyear. The MPC could well decide that a small near-term interest rate hike would support its credibility by sending out the message that it is serious about its inflation mandate, but would not have a major dampening impact on growth.
Even if interest rates do rise sooner rather than later, the probability remains that they will move up relatively gradually and remain very low compared with past norms, as monetary policy will need to stay loose for an extended period to offset the impact of the major, sustained fiscal squeeze. Consequently, we retain the view that interest rates will only rise to 2% by end 2012.
Meanwhile, we think further quantitative easing is highly unlikely given the inflation risks.

Christina Weisz, Currency Solutions director
Despite the continuing problems with inflation figures, which are coming in month on month well above the 2% target, any potential interest rate rise to counteract the inflationary problem that the Bank faces is complicated by the ongoing introduction of budget cuts, austerity measures, the VAT rise and threat of rising unemployment. All of these have prevented a clearer picture of economic growth to come to the fore.
These developments make it difficult to ascertain whether the economy is strong enough to cope with a rate rise until the next wave of statistics flood in.

PropVestment
Higher inflation, further extenuated by the VAT rise, may mean the BOE decide to raise interest rates, even though this may significantly disrupt the weak recovery. This is an uncertain factor, and could mean rates stay unchanged for 2011 or could rise significantly.

opinions sourced from the Guardian

What does 2011 have in store for the PropVestor: Part two: Rents

Rents

UK Property 2011

Paragon (buy-to-let mortgage specialist):

The belief that last year’s strong demand in the UK private rental sector will continue into 2011 has inspired four out of 10 landlords to plan rent rises over the coming 12 months.
41% of landlord respondents are looking to increase rents, with 30.7% of this group preparing for a 4% hike and 10% proposing a rise of between 4% and 8%.
Only 4% of landlords surveyed are likely to surprise prospective tenants with a rent reduction during 2011.

LSL Property Services, Buy-to-Let Index:

shows the average rent in the UK rising to £692 per month in November, having increased for the tenth month in a row.
November’s marginal gain was, in fact, largely driven by rents rising by 1.8% in London, to £992 per month.

BBC and ARLA (Association of Residential Letting Agents):

More people than ever are trying to find properties to rent in the UK
It says the number of tenants on agents’ books has reached a record high.
A year ago, one in four agents say demand was higher than the number of properties available but that’s now tripled to three quarters.
They say it’s down to more people being forced to rent as they can’t buy.
It means people are spending months trying to find a home and end up taking places with high rents or somewhere they don’t want to live.
ARLA, the only professional self-regulating body that looks after lettings, is concerned people will be ripped off as independent landlords join the market, start renting out properties and try to exploit desperate renters.

PropVestment

With rising demand and rising costs it is almost certain that landlords will

try put up rents, this is going to cause problems if the Government cuts housing benefits. Although rents are likely to rise, there will also be a rise in rent arrears as people just won’t be able to afford the rents, this will cause unnecessary legal costs and hassle. Our advise to landlords is not to be greedy and if an long standing tenant wants to stay on have some patience and give in a bit, it will be beneficial in the long run.

What does 2011 have in store for the PropVestor: Part one – House Prices

Happy New Year PropVestors

As the new year has arrived, its only fitting that we start analysing the market and try to figure out what we are to expect from the market in the year to come and then we may be able to form a suitable strategy to make it a successful year. There are a few conflicting opinions in the the media and altogether many factors that need to be considered. Here is a few main ones covered from sources and opinions in the media, let’s try detangle and make sense of the information.

House Prices

Hometrack:

House prices to drop 2% in 2011 on ‘weak demand’,  UK house prices fell for a sixth month in December and will extend their decline in 2011 on “weak” demand and tighter mortgage-lending conditions.
The average cost of a home in England and Wales dropped by 0.4% during December , according to the housing intelligence group.
The drop was driven by the ongoing shortage of buyers, with estate agents reporting a further 4.8% fall in the number of people registering with them in December, the sixth consecutive monthly decline.

Capital Economics:

The major lenders’ indexes are likely to end up showing house prices dropped between 1% and 2% in 2010,  how severe the drop will be – they put it at a whopping 10% next year.

Chesterton Humberts:

prices will manage to rise slightly as the wider economic recovery continues, up 1.2% in London and 0.8% elsewhere. They are also more positive about the past year, calculating prices were up 1.8% by mid-December.

Office for Budget Responsibility (OBR):

The independent fiscal watchdog predicts that prices will fall 2.7% in the coming financial year.

PropVestment:

In London and the South East it is difficult to agree to major price drops, sellers will hold out at higher prices, suggesting activity will stagnate however prices won’t drop significantly, especially due to continual foreign buyers in the market. However in the wider country as people get desperate to sell or move due to new jobs etc…prices will inevitably drop.

Look out for the the rest of this series of article: Rentals, Lending, Market Activity, Interest rates

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A new rental concept: SpareRoom+eBay= airbnb

the eBay of rentals

Airbnb is a fresh concept at the rental market, an innovative service that brings the industry in line with the world of Facebook, eBay and YouTube.  What does this kind of service mean for the real property investor and how does is change the industry? Is it applicable to a major portfolio or just limited to the vocational landlord with a spare room under the room? In this article I’d like to introduce this innovative service and discuss the implications for landlords and how best to make use of such a service and adapt it to your investments and property portfolio.

apps are the new way

Airbnb was founded in August 2008 and based in San Francisco, California. Airbnb is a trusted community marketplace for people to list, discover, and book unique spaces around the world online or from an iPhone device.  In April 2009 it received $600k from Angel investors and has now raised $7.8m through venture capital.

It brings the Ebay concept of how to monetise items in your house, airbnb aims to help people monetise space in their property. Whether the available space is a castle for a night, a sailboat for a week, or an apartment for a month, Airbnb is the easiest way for people to showcase these distinctive spaces to an audience of millions. By facilitating bookings and financial transactions, Airbnb makes the process of listing or booking a space effortless and efficient. With 50,000 unique listings available in more than 8,000 cities and 167 countries, Airbnb offers the widest variety of unique spaces for everyone, at any price point around the globe. One founder Mr Chesky has no permanent home, instead is a client of his own business, moving from property to property.

Airbnb requires compulsory reviews, this ensures people respect the system and builds a profile; one bad review can damage your reputation so one must have trust and respect and be honest. It helps create a social network style environment.

The procedure

The procedure

  1. Sign up, create a profile and list
  2. Get booking
  3. Airbnb takes credit card payment in advance and releases to hosts a day after client checks in, to ensure quality assurance and make sure client is happy with the condition. Airbnb charges a 6-12% commission.
  4. Compulsory review

The more reviews the better your profile and more prospective business.

It is clearly a promising option, nearly 100 hosts made $50k last year, so it is a viable alternative. A couple in California rents out their tree house, and made $29k in one year. They never got a good response from traditional listings to fill their property.

Listings for host and clients are getting even easier with the launch of mobile phone apps for the site.

But now back to the serious property investor, is this a viable approach and alternative?

I think it comes down to the type of property and location. It is very appropriate for spare rooms and extensions to existing owner occupied properties where the landlord can host and provide the hospitality. Also the higher premium for the short term lets is a great option for exclusive spots, say in city areas, or areas where there is a short-term explosion in demand. It is clearly not worth it for your suburban apartment; one must remember the type of client searching on this site and the other options available to them. To be successful the property has to offer something different, a unique experience that another hotel or bed and breakfast does not.  Competing on price alone will not be sufficient especially as it is a new way and will be perceived riskier.

Some research and data that can be collected over time as this service becomes more prominent, and then we will be able to analyse with empirical evidence.

For the time being watch the space www.airbnb.com . It is going to have some impact on the industry and may just spring a new range of innovative services and companies that take the market into a new dimension, for the traditional market I do not feel it is a threat yet.

 

PropVestment Guide: Top Tips for Property Listings

Top Tips for Property Listings

With so much online and offline marketing now available through traditional estate agent, and corner shop window listings, through to listing online or Zoopla, Right Move, Gumtree, Findaproperty etc…It is vital your listings catch the attention of viewers and then that attention must be converted into interest. Here is a basic guide of some of the essentials you must get right whether listing to sell or rent, offline or online to get maximum impact.

  • Be Simple & Truthful
  • Lots of Photos & Map
  • Eye catching Title
  • Appropriate contact information
  • Content
  • Technology, Video & Social Media Read more

Today: New Laws for Landlords, All Tenancy agreements upto £100k become ASTs

Landlords and tenants should be aware of significant new changes around tenancy agreements as of October 1, according to The Deposit Protection Service (The DPS).

From Today, shorthold tenancies where the annual rental amount is above £25,000, but not more than £100,000 a year, will become Assured Shorthold Tenancies and this will apply retrospectively.

However, tenancy deposit protection should not apply retrospectively and, therefore, only new deposits and renewals taken on or after October 1 will definitely need to be protected. The advice from The DPS is to protect all deposits now as it is better to be safe than sorry.

Going forward, this closes a loophole that previously left many of the most vulnerable tenants with no protection. Higher rate tenancies were not originally included under tenancy deposit legislation, which only covered ASTs up to £25,000. Tenancies valued higher than this were seen as contractual tenancies and deposits did not need to be protected.

But this situation, according to The DPS, left some groups such as students or large house-shares vulnerable.

The Deposit Protection Service (The DPS) is calling for all landlords, and tenants, to be aware of this change and also to protect themselves until there has been clarity in this policy area.

This does mean extra paper work for Landlords but it is better to be safe than sorry, the procedure of registering and updating details on the DPS website is very easy and straight forward, http://www.depositprotection.com/

Your tenants can also check if they are covered and overall gives a Landlord a much more professional impression. Make sure you are registered and upto date with all the latest legislation. Do not hesitate to email us: info@PropVestment.com if require any advice, its free!

Protect Your Property and Finances: Landlord Insurance

PropVestment: Cover yourself for the rainy day

Are you covered? Do you know your BSI for each property?

Many Landlords, me included, have not always got the right insurance in place for their properties and portfolios. One of the main reasons for this is the lack of information available in the everyday press, news and media. It is not like normal insurance which is shoved down your throat at every bank, supermarket or post office you visit. It is more specialised and can be tailored very much to your needs and you’ll be surprised at how many companies do provide it, and the reason it has come to my attention is I drove past a Direct Line Landlord insurance bill board yesterday.

There are many different types of Landlord. From the individual who is renting out their second home to the ambitious property tycoon with an ever-increasing portfolio of trendy dockside apartments. The common theme for all landlords is the need to purchase landlords insurance to protect their investment.

As a landlord, you are effectively using your property as an extra source of income – and this needs to be protected. A normal home insurance policy is not valid when you are taking an income from the property. A residential landlord policy is what is required.

With the correct landlords insurance policy in place, you can relax knowing that should any damage be caused to the property you are protected against the financial consequences. With this peace of mind in place, you can worry about running your property and nothing else. Read more

SAVE up to £1,500 per Property in Tax relief by Being GREEN

Save money Saving the environment

Landlord’s Energy Saving Allowance (LESA) is a tax allowance of up to £1,500 per property that private landlords can claim when they install energy efficiency measures in their rented properties.
So for a portfolio of 10 properties that’s £15,000 tax savings. Being Green and energy efficient is important, this added financial incentive is easy to take advantage of, but it won’t be around for ever. Further at present in the economic climate it easy cheaper and easier to get improvements done, and do not forget winter is coming.

In 2004 the Government introduced a tax allowance called the Landlord’s Energy Saving Allowance (LESA), allowing private landlords to claim back money when they improve the energy efficiency of their rented properties. This is a very simple process with expenditure offset against tax through your annual Tax Return form, up to a maximum of £1,500 per property. Read more

HMO: Huge Money Opportunity?

Although Multiple Occupancy can achieve huge rewards in the form of rents, in particular student lets, Landlords must take the required legal procedures to ensure it is all above board. In our experience it is easy to gain over 50% premium on rental income under HMO. There are now professional agents that can take care of the managements and legalities but here are some basics you must know. Licenses are only £335, so get them and don’t risk fines or prosecution when the outlay is so small.

The returns can significant, raising the ROI above any other residential investment, letting are very easy through university listing or sites such as www.spareroom.com.  Please get the relevant advice and don’t take short cuts in the pursuit of profits.

After reading this nitty gritty we offer a fantastic investment opportunity at the bottom of the article.

Here is the Basics

What is an HMO?

HMO stands for House in Multiple Occupation and generally refers to one of the following:

  • A house split into bedsits
  • A house or flat share where each tenant has their own tenancy agreement
  • Students living in shared accommodation Read more