UK Student Housing has better returns than residential & commercial

Student Housing: Is it a good investment?

This week Savills published their student housing report. Here are some key findings from that report and some of personal experience and observations from working with our clients.

“Student housing continues to perform well as an asset class with higher yields than both residential and commercial property” – Savills

In the past the student market has been steered clear by investors due to the reputation of how students treat your property. However in recent years and the massive influx of students, the shortage in student housing has created a market where the returns are far higher and secure than residential and commercial property.

According to HESA between 1999 and 2012 the number of full-time students in higher education grew by 540,000, an increase of 46%.

With university halls of residence just about able to cope with the increasing numbers of first year students and private sector student accommodation operators racing to scale up, most students ended up in the private rented sector.

Average student housing rents by rightmove

Many landlords ceased the opportunity, some to accommodate for their own children and their friends. The use and availability of Buy to Let mortgages made it even easier.

Where to invest in Student Housing?

According to Savills, Bath, Brighton, Bristol, Cambridge, Cardiff, Edinburgh, London, Oxford and St Andrews are at the top of the list for investors.

Where to invest in student housing

 PropVestment’s clients have shown interests in south coast universities like Southampton and Portsmouth. In the past favourites have included Manchester and Nottingham and of course London, with investments south of the river.

 Demand for Student Housing & increase in Fees?

It was thought that student numbers would fall after the fees jumped to a maximum of £9,000 from 2012. But this only applied to domestic students.
In 2013 demand from within fell by 2.7%, However, demand from outside of Europe has continued to grow during this period, particularly from the Far East, which has seen average annual growth of 8.5% over the last 6 years.

The overall 0.4% fall in domestic student numbers between 2010-11 and 2011-12 was counterbalanced by a 1.7% increase in international students keeping student numbers
fairly stable.

Is London still the place to invest?

London Student Housing Market

London has 300,000 full-time students, and 110,000 part-time students. It is the student
accommodation market is both the largest and most active in the country.

With private sector rents forecast to continue growing, affordability for domestic students,
who make up 75% of the student body, will continue to be stretched and drive demand
into surrounding more affordable markets.

Therefore there is much opportunity in Zone 1 and Zone 2 areas of London. However in London there are many other factors that also effect the market.

PropVestment Top Tips

Invest and convert larger properties into HMOs to house multiple students. The returns are higher for the landlord, and the greater space can provide more affordable alternatives for students rather than renting a studio on Oxford Street.

Lending holding back property investment in London

Stringent lending stopping property investment

Property Investment stopped by lending

It has been a long standing observation that one of the main reasons the UK property market is struggling is due to the lack of funding in the market place.

We have had a series of funding schemes proposed by the government and other institutions to encourage property investment. These include the likes of NewBuy, FirstBuy, and Funding For Lending.

Funding for Lending is the latest scheme to encourage lending where the banks can borrow cheaply provided they lend it out to the public, be it as mortgages or commercial lending.

FirstBuy and NewBuy is primarily restricted to new builds, which benefit constructors but represent a very small proportion of the property on the market.

Over the last few weeks at PropVestment we have been working on a deal for a young professional first time buyer. However we have it a brick wall with strict, inflexible, non-subjective lending criteria by all the major lenders.

*Due to confidentiality and to protect our exclusive property sources, details on this article will be disguised
 

The investment property

Property Investment in Elephant & CastleLOCATION – Elephant & Castle – Zone 1 – London

  • Elephant & Castle has £1.5 Billion being spent for regeneration.
  • 2 mins walk to the London Underground and Bus stations.
  • Opposite the famous “Strata Building”

 PROPERTY

 

2 Bed Duplex in Ex-council block, currently under full refurbishment.

  • Each leaseholder has spent almost £40k for new concierge, lifts, windows
  • Elephant & Castle - Property next to Strata20th floor with views of London, from the Gherkin, Canary Wharf, O2,  Shard, all the way to Crystal Palace.
  • Large Balcony. Full wall to wall windows across all rooms.
  • 118 Year Lease

Rental expectation – upto £1500 per month currently. PropVestment predicts this will hit £2000 in 5 years. Strata building demands this level for smaller compatibles.

Asking price – £220,000

Gross Yield is over 8%

If lending 75% Purchase Price, there for deposit £55,000
If mortgage at 4% repayment over 20 years £1011 installment per month
Surplus for Buyer after mortgage £5868 per annum.
10.7% return on cash invested annually

 

The First Time Buyer

  • Mid twenties
  • £50,000 savings, plus £10,000 promised contribution from family
  • £40,000 a year salary before bonus.
  • Over £2000 monthly saving after expenses
  • City working professional, currently living with parents
  • Buying either to stay in and share or rent out fully.

Why the banks won’t lend?

  •  Ex-council
  • Concrete & Steel Construction

If the councils have approved a £40 million refurbishment of the block, clearly there is no risk to the building. Considering most of the block is still council owned they would not put so much of their own money in an unsafe building.

Being Ex-council ensures that maintenance is always prompt and reasonably costed.

The banks have very little risk here because the rental will cover the mortgage repayment by 135%, the usual criteria for Buy to Lets is currently 125%.
The buyer has £2000 disposable income every month, for any major shortfall or unforseen circumstance.

PropVestment’s Thoughts

After all this and almost a model buyer, why are the banks not lending?
Banks are given cash via the Funding for Lending scheme and still are not making it available to the public.

By the banks not lending, we, as in property professionals, end up having to offer such properties to cash buyers from abroad.
Ideally we want young property owners from the UK, however due to the circumstances the only investors that can afford to pay full cash are foreigners. This means that the profits also get taken out and do not recirculate in the UK economy.

The government must do something to ensure banks lend to boost UK home grown property investment.

For any property investment advise, analysis, deals or thoughts, contact us today for a no obligation chat. Sharing thoughts and ideas is how we progress.

 

PropVestment in Telegraph Property

Ex-council homes: how to buy a bargain – Telegraph

PropVestment mentioned in the Telegraph Property section: Why Council homes are a bargain

By  7:00AM BST 03 Sep 2012

A new proposal to sell off council housing in some of Britain’s best postcode areas could be a once-in-a-lifetime investment opportunity. It is no time for snobbery, says Graham Norwood.

Ex-council house in Essex

This 17th-century former hunting lodge in South Ockendon, Essex, used to be three council homes, and is today a six-bedroom house. It’s on the market through Fine (fine.co.uk) for £449,995.

It is one of the biggest property stories of the year, and an opportunity for bargain hunters like no other. When the Telegraph published an article about selling off council houses, by Neil O’Brien, the director of Policy Exchange, it had no idea what a storm it would create.

Last week’s report argued that if councils sold all the homes which become free in an average year, they could raise £4.5bn in revenue. This money would then be ploughed back into 170,000 new-build properties in cheaper parts of the country. The story provoked plenty of debate. Grant Shapps, the Minister for Housing, called the idea “blindingly obvious”. David Cameron said the proposal was “certainly something [councils] should look at”. Not everyone was happy: some Labour MPs warned that it risked creating ghettoes and ruining local diversity.

But aside from the political to-ing and fro-ing, what does it all really mean for homeowners? If cheap houses become available in some of Britain’s best areas, it could provide golden opportunities for canny investors. Certainly, it is time to end the snobbery and acknowledge the truth. Many local authority homes are fashionable, built to last and brilliantly located. For every hideous tower of cheaply built flats requiring demolition, there are spacious low-rise mansion blocks. These date from the public sector heyday of the Thirties, now considered retro-chic.

Then there are thousands of Victorian and Georgian houses, originally built for private sale. Councils bought them as part of grandiose regeneration schemes, many of which came to nothing. But a sprinkling of 21st-century TLC would return them to their former glory, or even better.

There are substantial profits to be made, as has been seen in areas where council properties have been sold in the past. Camberwell is a good example. A two-bedroom council flat bought here for £44,000 in 1994 recently sold for £214,000. During the intervening years, the area has come up in the world. Where once it was slightly grubby, it is now a fashionable village, home to the musician Florence Welch, as well as actresses Lorraine Chase and Jenny Agutter. If a new sell-off becomes policy, there may be thousands of homes coming on the market in the most desirable parts of the country. Often at bargain-basement prices.

In the London borough of Kensington and Chelsea, for instance, the average flat costs at least £967,000 and a typical semi-detached house costs more than £12.5m, according to Land Registry figures. Even in this salubrious enclave, however, a quarter of homes are categorised as social housing: owned directly by the council or through housing associations. In Brighton and Hove, there are similar opportunities. A typical detached house costs almost £461,000, and a flat will set you back £197,000. Yet one in every seven properties is in the social sector. Here and elsewhere, a sell-off would mean ex-local authority properties being marketed at prices lower than those for comparable private homes. There would be rich pickings, for those in the know.

“Even in prime condition, ex-council properties sell for 20 per cent less than a similar home next door because of the stigma,” says Geoff Tanner, a private property consultant based in Cambridgeshire. “If it is in poor condition, it could be 30 per cent less. The proposed sell-off would represent a great deal for buyers who get in quick.” Some councils are already encouraging tenants to free-up larger properties. In Devon, more than £700,000 worth of cash incentives have been paid to tenants. This has released 330 homes in areas such as Exeter, Plymouth, rural Devon and the coastal South Hams.


This one-bed, ex-council flat is in Drury Lane in Covent Garden. It is being sold for £437,000 through Chesterton Humberts.

Westminster Council, in central London, has set up CityWest Homes Residential, a service specialising in marketing council homes. Its website, cwhr.co.uk, advertises flats to rent in areas such as Bayswater and says homes for sale are “coming soon”.

With all this activity already ongoing, it’s no surprise that estate agents have greeted the prospect of a sell-off with open arms. They highlight the advantages of council-owned buildings compared with those which have been squeezed by the private market. “Council properties are often well-built with good-size rooms and communal gardens,” says Christopher Saye of Chesterton Humberts. “Red-brick period blocks don’t even look like council properties and generate plenty of interest. They are cheaper than comparable private developments, with far lower service charges.”

During the Eighties, Margaret Thatcher’s Right To Buy initiative allowed tenants to purchase their homes with a discount of up to 70 per cent, if they had lived there for two years or more. Many councils also offered 100 per cent mortgages to encourage buyers. The scheme boosted Britain’s home ownership level from 57 per cent in 1980 to 68 per cent in 2000.

But the sort of sell-off proposed by Policy Exchange would be even more dramatic. It would be an open field, with anyone entitled to buy the flats. Not just those already living in them. “It’s simply good asset management. Some local authorities do this already. We’ve sold properties in high-value areas at auction on behalf of authorities,” explains Yolande Barnes, head of research at Savills and one of Britain’s leading housing experts.

Clearly, there is no shortage of enthusiasts for the quality and good value offered in ex-local authority housing. Nirav Shah, 24, bought a three-bedroom apartment in Waterloo, central London, in 2008 when he was a student. “My father and I looked at lots of properties and none even came close to the former council flat for location, space or condition,” he explains. He now runs a property investment firm called propvestment.com. “I no longer live in the flat, but I rent it to other students. It has been let permanently since I left. Ex-council is a perfect investment,” he adds.

His apartment was one of many built to Parker Morris standards, a planning regime which until the Eighties imposed minimum sizes on public-sector architects and builders. Parker Morris stated that a one-bedroom council flat built for up to two people should have a minimum of 495 sq ft. Try finding that in a modern private flat today. The standards have even got a thumbs-up from London Mayor Boris Johnson, too. After taking office, Johnson promised to “re-establish space standards promoted by the visionary planner Sir Parker Morris”. He argued that this was the only way to “build for the long term. Buildings that people will want to keep for 100 years and not tear down in 30.” Space, location and value: the council-house dream seems almost too good to be true.

But while many are in favour of selling council homes, there are still issues to resolve. “One concern might be tenant displacement,” says Jennet Siebrits of CBRE, a consultancy advising developers and public bodies on housing. She fears new homes built with money from a sell-off would have to be in cheaper areas. “We would need careful analysis about which parts of the UK have the highest demand for social housing,” she says.

There are also concerns that moving council tenants away from their places of work could create pockets of unemployment, and ruin the mix of people which makes Britain so vibrant. Policy Exchange believes, however, that these short-term problems would be outweighed by the benefits of creating half a million new homes in three years.

So will it actually happen? With a Cabinet reshuffle imminent and a relaunch of the Coalition likely at this month’s party conferences, there is an appetite for radical initiatives. And no sector needs them more badly than housing. A boom of new construction would create homes for the needy and jobs for builders, as well as opportunities for people looking to get on the property ladder.

A social housing revolution may be just the economic shot in the arm the country wants. And for keen-eyed individuals, it could be the investment of a lifetime.

Buying an ex-council property: the pros and cons

Pros: 
Price – they usually sell at 20 per cent less than comparable private properties, says the Royal Institution of Chartered Surveyors.
Investment – ex-council houses are good for buy-to-let landlords wanting more for their money.
Location – ex-council property is often very central, perfect for transport and nightlife.

Cons:
Outside – tower blocks can look daunting from the street.
Communal areas – there can be disputes over charges and responsibilities if some flats in a block are publicly owned and others private.
Ceiling price – until the stigma dies, ex-council homes will sell at a discount compared to private homes.

Original article link http://www.telegraph.co.uk/property/9508685/Ex-council-homes-how-to-buy-a-bargain.html

OTHER MUST READS: PropVestment in Daily Mail

 

Barnett Ross Auction

Development projects selling well: Observations from Barnett Ross Auction

Results from Barnett Ross Auction July 2012

On Tuesday 17th July 2012 PropVestment attended the 60th Barnett Ross Auction in London, to find that the UK property market shows mixed feelings, with development projects selling very well.

  • Buyers demand high yields

  • Sellers demand high prices

  • Development projects sell well, buyers willing to take risks for returns

  • Means market is still slow for traditional sales

Barnett Ross AuctionMost of the properties and lots in this auction were of a commercial or development projects nature.With only 2 of the 69 lots as pure residential. It can be seen as a successful auction on the day with 70% lots sold on or prior, however this is comparatively less to the 92% success to their last auction in May.

 

One of our clients showed interest in a standard commercial and another lot with development potential. We were able to get the commercial lot at a very reasonable price, resulting in a rental yield of 9.6%. The winning bid was over guide but the returns and limited risk meant this was a very good deal for our client. We was expecting more competition however as the lot was just outside the hot market that is London there was less interest from inexperienced investors that have a premium and preference for London only property.

For the other lot that was a risky and uncertain proposition for future development. We advised our client of the potential returns once site was cleared and planning obtained. A strategy was put in place to bid up to 150% of the guide. Unfortunately the lot sold at over 400% guide.

Due to confidentiality we cannot reveal these details but here are some highlights of the auction:

Developments Projects Selling Well

  • Lot 2: Reserve Below £100k, Sold at £170k – Freehold vacant corner property in Ilford
  • Lot 3: Reserve Below £150k, Sold at £700k – Total derelict shop unit with potential for 3 story development in Kings Cross.
  • Lot 61: Reserve Below £175k, Sold at £257k, Vacant office and first floor flat in NW2, potential for 2x one bedroom flats.
  • Lot 67: Reserve Below £7k, Sold at £34k, vacant land and potential for more adjacent as unregistered, potential for house or flats. in SE25

Bargains

  • Lot 23 Sold at £725k, Rental £93k with 2 vacant units – 13% yield with rise possible – Industrial in Tottenham
  • Lot 25 – Sold £215k, Rental £29k – 13.5% yield. – 2 shops in Cheshire.

Sellers Keeping Reserves too high?

Over 22 lots where the reserve was not met, a fair few where the difference was only a few thousand, possibly 1% of the asking price. Some will have sold after but this shows why the market is so slow, sellers holding out at higher prices and buyers and demanding higher yields and so will not pay too high a price.

Please have a read of our analysis of other auctions recently: Brendons, Allsops, Savills and where we feel the roles of auctions have changed 

If you require any assistance or property advice: call us today 07960 344399 for a FREE consultation

info based on observation from the Barnett Ross Auction, data correct as to what was observed.

 

 

Allsop Residential Auction February 2012: Results, Analysis & Conclusions – PropVestment

PropVestment provides a brief but insightful analysis of the results from Allsop Residential Auction in February 2012. We spent some time attending on behalf of a client looking to make a cash investment.

Allsop Residential Auction Headlines

  • 90% success for all lots in London and South East.
  • AST (Assured Shorthold Tenancy) yields over 10% 
  • Northern England struggling
Allsop Residential Auction

90% success rate at Allsop Residential Auction for London and South East

As you can see with the above chart, London as shown by the M25 statistics shows that over 90% auction success with an average price of £324,074. South East and South West also sold well with almost similar success rates however the values were significantly lower.

The worst success was the North East and Northern Ireland. The North East had the lowest success and the lowest average value for the Mainland. This means that this part of the country is the worst effected and the limited activity shows that even bargain hunting investors are staying well way.
The Northern Ireland results could be attributed to problems in mainland Ireland, however with only 6 lots that all sold, the data set is very limited.

Rental yields above 10% , investors market

The main information to be taken from these statistics is that most sales are investments for rental yields, with ASTs demanding lower prices but therefore higher yields. This can be attributed to risk factors.

An interesting stat is that sites with planning permission had a very low success rate, there are buyers there but sellers are keeping a high reserve on these.

CONCLUSIONS

As with previous auction articles like Auctions are for sellers we see similar stats here, majority of lots in London and South East sell well at high prices, however the rest of the market is struggling.
Auctions are for experienced investors and sellers, and not currently for first time buyers. 

*Graphics from www.allsops.co.uk Allsops Residential Auction

Auctions are now for selling rather than buying property

On Monday 6th February 2012 PropVestment paid a visit to Barnard Marcus residential property auction at Grand Connaught Rooms in London. We were in for a surprise as we were there as a buyer but soon found auctions are now for selling.
This was the first major property auction of 2012 in London. Thus it was pack out, many experienced and new property buyers in the hall.

Auctions are for buying not selling now

Lot 1 had guide of £800,000, a four bed house in Battersea, it went for £1.28m + 2.75% fees. This was the story of all the first twenty or so lots.
All the first 23 lots were in London, the average winning bid was over 30% above the guide price, taking out 5 where even at this level the Reserve was not met, the other 18 properties sold at over 36% above guide price.

A few other key high lights from this auction:

  • Most land only deals did not sell, reserve not met
  • A piece of land without planning permission for a possible 8 units went for £860k, that’s insane for the area, almost £110k land cost then planning then construction.
  • Most of the lots on by order of Mortgage companies got bids over guide however did not sell due to Reserve Not Met (RNM). This can only be the case as the lenders have over valued in the past and now face negative equity. Failures.
  • Properties in North England and Wales were the hardest sale, many RNM and a few with highest bids well under guide prices.

PropVestment Conclusions: Auctions are now for selling

Property Auctions have changed now, its a much more public affair and it seems that its no longer a place where you can pick up a bargain. The sellers use it to sell properties that otherwise will not fetch a similar price through traditional means such as local agents. This tell us something about the quality of the properties and legalities of them. There were many amendments to the information provided with particular importance on certain higher rentals, those properties were on the day changed to vacant possession. Therefore the guide rental was incorrect, how is one to know what the real rentability of a property is without doing thorough research.
Due to these pit fall, an auction is no longer a place for inexperienced or first time buyers to find a property to buy. Auction are now for selling.
Rather it is a place where landlords can easily offload not so good properties and rely on the ignorance or lack of research of bidders.

PropVestment Auction Advice
Buyers – Do your thorough research and get someone to look at the legal documents prior to bidding.
Sellers – Use auctions to sell unwanted properties, especially in London, everything sells

Have a read of our observations last year at Savills here

How to calculate your REAL return on Investment: 5% becomes 35%

The REAL Return on Investment

Traditionally property return on investment is calculated by rental yield, especially when it is being compared to returns of other types of investments. However I believe it is a much more exact science, and can vary significantly depending on specific properties and on how the investor structured the deal when purchasing the property. A traditional yield of 5% can actually be 35% if the deal is right.

Let me start with a simple example. A two bedroom flat, bought with standard Buy-to-let 75% finance, at 5% interest only for £200,000 that is renting out for £10,000 per year. Traditional yield will be 5% (rent/value=10/200=5%). Under the way I calculate it, the rent less the mortgage interest divided by initial money in, therefore for this deal ((£10,000-£7,500)/ £50,000) so its 5%. The “real” return on investment is still the same.

But wait, what about capital gains, this is still a form of returns even though they may only be realised at a much later stage when selling and that will be liable for Capital Gains Tax. Well that is not strictly true, if the investor remortgages again after a year with similar terms, 75% of the capital gain can be realised. So if we make a very conservative and modest assumption in present gloomy market conditions of a 5% increase in value that is £10,000 and if we take 75%, and add it to the surplus cash from earlier that is a total of £10,000 return, effectively 20% return on the deposit paid. That is an amazing return, which I can’t see any other form of investment where the risks are so low and the investor has so much control over the asset.

There are certain things we have not considered like remortgage costs, legal and stamp duty, maintenance, and tenants. These will of course change calculations. Also the reason I simplify with a interest only mortgage, because if it was repayment that add to the capital or equity of the property so in effect cancels out the cost, although in realisation it will only be 75% realised when remortgaged.

Let’s be a bit more adventurous now, and add a few more clever changes to the model. We have to cap the borrowing at 75% LTV because that is the realistic maximum in the current lending condition. Let’s say the purchase price was 15% BMV (below market value) but the Mortgage was LTV, and the investor used a £10,000 personal loan at 10% compounded with capital and repayment due in two years, to part gather the deposit. So the initial investment in, is £10,000, the rest is the personal loan and the BMV saving. Assuming rent is steady; let’s look at the situation in 2 years time.

Property value in two years is now £220,500, so a refinance would raise an £15,375, less the loan that needs to be paid back (£12,100), plus £5,000 rent surplus which means £8,275 cash inflow, or 82.75% over two years on what was invested, so that is 35% return on capital invested per year.

There are incredible deals available; you can look around yourself, internet sites, auctions, personal contacts. If all else fails, contact us, info@PropVestment.com. You have to be clever with the way you invest, market condition are against us so we must beat the system and be innovative in our thinking.

Please take caution in tricky deals and do all your due diligence, the figures I use are fictional but are close to what is really possible.

How do you calculate your return on investment?

QFKUDEMEN4KX

 

Stagnant UK Property Market: Sellers’ 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.

House Price Crash shows very clearly the levels of mortgage approvals and the graph illustrates this with fine detail. Click on the link.

The amount of new mortgage approvals for house purchase, (but not yet lent), rose to 45,940 in May 2011 from 45,447 in April. However May’s approval figure was lower than the average for the previous six months despite the slight increase, according to figures released by the Bank of England.

Nationwide’s index has prices remaining stagnant since May, and down 1.1% annually, while Halifax has prices up 0.1 % in the same month and down 4.2% annually, while the Land Registry has prices down 2.3% annually. Overall there is clear evidence of stagnation in the market.

It is important to analyse the factors causing this and the mind set of Sellers’ and what is causing them difficulties.

Once again today the UK Base rate was held again at 0.5% for the 28th month running. It will be interesting to see the divide in the Bank of England committee when the minutes are released.

Lending to individuals

At PropVestment we sight two major problems causing this stagnation. Firstly Sellers are too over optimistic, thinking that their property should have risen along the same rise levels as seen before the credit crunch, and cannot come to terms with a possible drop in value, so they set their asking price above what is realistically achievable and representive of their property.
This means that many properties stay on the market longer, the few that are closer to realistic values and are lucky enough to attract attention of the buyers suffer from a secondary factor. Price agreed, next step acquire a mortgage approval.
When the bank valuer goes to value the property, its significantly undervalued relative to the asking price, the mortgage offer comes at a LTV of this valuation, leaving the buyer with a shortage to complete. Result, the deal falls through.

Why should a seller sell? Well with current interest rates, many PropVestors have mortgages around the 1-2% mark, they are enjoying a healthy surplus on rents and selling just means, realising Capital Gains Tax.

Therefore if one does not need funds else where, logic says to stay put, not sell and lose a chunk to the tax man and instead enjoy the cake of higher rental yields to mortgage installments.

Further as stated in our last article, 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. Especially where the mortgage costs are not looking to rise due to the base rate on hold.

The UK mortgage market is still quite inactive, even though data is showing an 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. Sellers do not want to accept the lower valuations and feel their properties hold more value so will not sell at current market prices.

PropVestment concludes that from a sellers’ perspective the primary factor why sellers are not as active as they would like to be is simply that the returns are just too good, and staying put is the best option. Even those looking to sell, find the potential buyers are not capable of securing the finance to meet asking prices.

LENDERS START LENDING, SELLERS & VALUERS GET REALISTIC

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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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Impact of University Fees on your PropVestment

Tuition Fees

Since the announcement some time ago about raising of tuition fees up to £9,000, the pros and cons have been weighed up by the media, but mostly from the perspective of the students and their overall cost of university. At PropVestment we like to consider you, the Property Investors perspective or the “PropVestor” as we like to refer to you.

A recent report by Centre for Cities shows the economic impact of the rise in UK university fees. They suggest that some local economies will be seriously hit by the rise in student fees and the loss of student numbers.

In 2007/08,  the mean total expenditure of full-time English-domiciled undergraduates was £12,254 per student across the three terms.
If this held  true in 2008/09 for the 50,100 undergraduates in Leeds, then their total spending would have been around £624 million; while the spending of the 21,800 undergraduates in Stoke would have amounted to £267 million.
Undergraduate consumer spending alone accounts for up to 10% of the total economic activity of some cities and some of this, the report says, will definitely be lost.The impact will obviously differ across cities. Even though it is estimated for Oxford and Cambridge where students account for 8-10% of economic activity, the institutes will have full admission and places will not be lost therefore the volumes will not suffer. Other cities may fair much worse.
In terms of rental demand, this will change proportional to university places, students need a place to stay regardless. However the amount that students can budget for rents will be much lower and there will be a battle similar to the one with house prices at the moment, where landlords hold out too high rents and affordability is low, this could result in the most stubborn Landlords left with vacant properties, and students out of accommodation.Rising student numbers has been one of the reasons why the buy-to-let market has boomed in recent years, but will pricey tuition fees be damaging to landlords?Whilst the majority of students have historically moved away from home to study, will this practice continue in light of tuition fee increases?
The student population in major university towns could plummet, leading to a catastrophic decline in demand for student housing. Many Landlords have their portfolios quite concentrated on student housing and may suffer with lack of diversification across their portfolio in terms of property type and geographical locations.
Many student properties could be made available for the standard private rented sector, however, the yields on student properties do tend to be higher. Student landlords need to be aware of changing market conditions and to regularly review their business strategies in order that they do not get caught with a glut of unwanted property.

Students staying close to home

Home insurance company LV thinks that there could be flash selling of investment properties in university towns.
The UK university fee increase, together with declining numbers of 18 to 24-year-olds in the general population, will see a 14% fall in higher education numbers over the next decade.
They forecast that the number of students living in the city of Newcastle will slump by 52% in the next nine years – a loss of 15,000 students. It also predicts the student population of Sunderland will fall by 35%.
Other cities which will feel the impact include Swansea, Portsmouth, Stoke-on-Trent and Nottingham, with university student population forecast to decline by 40% in these areas.
Student life is set to be transformed over the next decade, as the impact of rising tuition fees forces university students to reassess their finances and living arrangements.
LV suggests that by 2020, 52% of students will choose a local university and stay with their parents. Only twenty-one per cent of UK full time students currently live at home.

PropVestment conclusion

Overall the rise in tuition fees will impact student landlords, and we are not here to argue the righteousness of university decisions. Like all the best in business landlords much take precautions and adapt their strategies according to changes in the market. In all fairness many landlords, our clients included have enjoyed the student boom and milked rents well, in particular those using HMOs. We advice landlord over exposed to certain geographical areas to research and find the up to date information about the universities future plans, fee charges and expansions. Being ahead of the game and well informed is the fore most priority to be successful. Use this information to adapt your target, maybe start advertising earlier or more strongly for the 2012 intake of students.

If the university has a high percentage of foreign students, circumstances may not change as much as they will still be paying the same higher fees. Alternatively if its one of the top universities or around London, there is so much demand for student living and also young professionals, the impact will be less extensive.
There may be a greater demand for less exclusive or ex-local rental properties and as students budget and trade down to affordable or larger properties with higher occupancy possibilities. From our experience these can be the most appropriate properties for students.
The impact on the whole UK property market will not be much and if anything may help local people afford rentals more, where in recent years they may have been out priced by the influx of students.

We at PropVestment are experienced in Buy To Let and Student rentals so for any advise do not hesitate to contact us, for a no obligation consultation. We have great means to advertise to students, manage lets, legal matters and HMO regulations as well as a tight network of letting agents. Read our buy to let blog.

Have a read of our other articles on Student Housing:

PropVestment in Daily Mail: Wise councils: Spacious and solid, ex-local authority houses can be a very good deal
PropVestment Guide: Top Tips for Property Listings
Today: New Laws for Landlords, All Tenancy agreements upto £100k become ASTs
HMO: Huge Money Opportunity
Landlords : How to protect against bad tenants

Sources:
http://www.centreforcities.org/assets/files/2011%20Research/11-05-05%20Starter%20for%20ten.pdf
http://planetproperty.wordpress.com/2011/04/19/university-fees-the-end-of-buy-to-let/
http://planetproperty.wordpress.com/2011/05/05/university-cities-will-be-hit-hard-by-student-fee-rises/