Category Archives: Credit Crunch

London Property Bringing in the Money

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With a lot of people agreeing that the worst of the recession and the credit crunch is now behind us, it is very heartening to see the London property market showing distinct signs of an economic recovery.

The growing confidence in the London market is an indicator that vendors realise that sales are now more profitable and, nearly as importantly, properties are turning over much more efficiently.

Leading London estate agents are delighted with the fact that the number of buyers registering with them has risen by 70% from this time last year. To make things look even rosier there has also been an 80% increase in agreed sales over the same period.

On the buy to let front, the London market has contracted with available stock decreasing by 13% as accidental landlords decide to sell and get out of rental all together. This combined with the fact that the demand for rental properties has actually increased by around 20%, has eased the plight of a lot of landlords who had been faced with vacant property problems.

A knock on effect of all this is that landlords are able to demand a fair price for their rental properties again after having suffered a fairly substantial drop in the preceding year or so. All in all London property is again looking like a good investment.

End to Stamp Duty Holiday May Cause Disaster!

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Many people give at least some of the credit for the UK property revival to the Government’s decision to lower the stamp duty threshold from £175 000 to £125 000 but this stamp duty holiday is about to come to an end and it could spell disaster.

Surveys carried out by leading mortgage lenders seem to indicate that the end of this arrangement could well see tens of thousands of sales fall through.

Many experts are criticising the Government on this one as they believe that they have missed a golden opportunity to reform this tax. The stamp duty tax is seen as distorting the property market because of the huge increase from 1% to 4% on properties in the £125 000 to £500 000 bracket. Experts also believe that the tax should only be applied to the excess rather than to the whole purchase price.

This planned reversion to the old level of stamp duty is causing deep concern in the property industry. James Thomas, head of residential investment at property consultants Jones Lang LaSalle, has expressed a worry that this move could cause drops in property prices across the board.

‘There are already signs of the recent resurgence in house price growth slowing and our latest Residential Market Forecast anticipates a fall in average UK house prices of around 7% in 2010,’ he explained.

As usual, however, this kind of news could prove to be a double edged sword. Buy to let buyers may well benefit from the knock on effect of a rise in tenant demand.

Fewer Landlords Remortgaging Properties

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The number of landlords choosing to remortgage their investment properties has fallen to its lowest level in two years according to a survey by Paragon Mortgages.

The survey Paragon carried out revealed that only 39 percent of landlords chose to take out a remortgage in the third quarter of this year. Combined with this is the fact that the borrowing of money for portfolio extension purposes is at its highest level since 2001. Figures indicate this is now 48 percent.

John Heron, managing director of Paragon Mortgages, said:

“Landlords are not remortgaging for two reasons – they cannot because of the low number of mortgages available, and there is little incentive to do so because the reversion rates when coming off an introductory deal are so attractive due to the low Bank of England base rate and Libor.”

“We have not experienced the massive sell off of buy-to-let property during the recession that some were predicting, but buying activity has been subdued. As house prices have stabilised, landlords now obviously believe that it is a good time to start expanding before house price inflation starts up again.”

This is good news but a note of caution is clearly being sounded of the lack of availability of buy to let loan products available in the market at the moment. This really does continue to be of grave concern.

Agency Collapses: Deposits Vanish!

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We all understand that there were some rogue landlords that made things tricky for tenants regarding their deposits. We even kind of understand why the government intervened with its approved tenant deposit scheme but it is interesting to see that even they do not get it right all of the time.

Last month, one of the governments approved agencies collapsed and went into liquidation owing a whopping 382,000 pounds, largely made up of tenants’ deposits.

Stephen Greenwood had apparently been in business 36 years prior to this fall from grace. The company gave the recession and the failure of a large Spanish investment as reasons for their liquidisation.

Of course, we all have a lot of sympathy for this as many of us have experienced the hardships that have come with this recession. We wish the Rugby estate agency firm that has taken over his properties,  Craig Walford, the best of luck.

He seems to be doing the best he can by the existing tenants, having worked 23 hours day in the initial stages to get things up and running and has now opened the doors to the former Greenwood’s office to accommodate the extra business.

Paragon’s Success Indicates Buy to Let Surge

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Paragon are the UK’s biggest player in the buy to let sector and it appears from figures released this week that their figures are on the up!

2008 bought in figures of 53.7 million pounds and it appears likely that the figures for 2009 will top that by 1.1 percent. The group is putting their success down to very careful mortgage book management.
 
Paragon chief executive, Nigel Terrington, can be forgiven for sounding a little smug when he  says “In a year which has seen a deep UK recession and continuing turmoil in credit and banking markets, Paragon has fared well, significantly strengthening its position at a time when many of its competitors have failed.”

Despite the fact that the group’s loss provisions showed an increase in this time they are clearly making enough in other areas to offset this and show an improvement in their overall figures.

According to analysts, this is a good sign for the market in general. Galvan Research head of trading, Ed Woolfitt, says “As the property market firms up and starts to improve, niche sector operators like Paragon are set to benefit substantially. We believe the improving prospects and strong cash position puts Paragon into pole position as a recovery play.”

And paragon themselves have indicated that as the market firms up and profits start to improve, they hope to be able to go back to supporting the new lenders in the market.

Property Prices to Fall in 2010

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According to Bloomingberg, UK house prices are more likely than not to fall next year. Furthermore they state that it will be 2014 before house prices get back to the highs of 2007 when the UK was at the peak of its housing boom.

The economists and estate experts surveyed say that the rebound of 2009 was as surprise and highly unlikely to continue into the following year.

Most predict, on average, a 1.6 percent fall in UK house prices:

“The market is still overvalued, whichever measure you use, prices need to fall a further 20 percent to 25 percent to get back their long-term trend.” said Seema Shah of Capital Economics Ltd.

This was quite an extreme view for the survey with this group being the most bearish in their predictions but there is definitely a trend in the report towards thinking property is still well over valued in the UK.

In terms of what this means for landlords, it could be seen as a mixed blessing. While we all like to see the value of our investments growing, a lower price on property gives many a chance to further add to their portfolio. This means that in the long term they will find themselves with a much more valuable collection of property.

In the end it probably comes down to whether you are in property for the long haul. This research once again enforces the point that property is not necessarily the way to go if you are after making a quick buck. Most of us knew that anyway.

Professionals Back into Buy To Let Market

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It appears that the low price put on a lot of housing at the moment is encouraging professionals such as lawyers and doctors to get involved in the buy to let sector.These people have cleaned out the stock of several leading house builders recently, especially in the northern cities.

According to Cluttons, the estate agents, they are also becoming increasingly active in London.
 
Speculation on why these youngish professionals have chosen now to get into the buy to let sector throws up a multi faceted answer. Most of these people are sick of the small return on their money from the average bank. With interest rates being so low, they would rather put their cash into something they can see returning handsome dividends in the long term.

Another issue that faces these people, in a lot of cases, is the prospect of future housing for offspring attending college and university. They see buying rental property now as killing two birds with one stone.

Hopefully, their asset will appreciate, and when the time comes they will have then somewhere to house children rather than being forced, or opting, to move from the family home.

In theory this sounds like a good plan. All we can hope is that they are prepared adequately for the rigors of becoming a landlord. Many people aren’t.

UK House Sales Remarkably Stable

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As I ended the last blog with some of the bad news floating around regarding the property sector, I have decided to begin this one with some more upbeat news.

It appears that house sales in the UK have been holding very well in last financial year. According to construction companies such as Redrow, UK house sales are very stable at the moment.  A spokesperson for Redrow had this to say this week after the company’s general meeting.

“Home sales in the financial year to date have been remarkably stable with net private reservations averaging 45 homes per week, including the normally seasonally weaker months of July and August,” the company said.

“Total net private reservations achieved in the first 18 weeks are 47 per cent ahead of the same period last year with cancellation rates having returned to historic norms.”

This is a very encouraging sign of renewed growth in the housing sector that can only benefit the entire economy.
 
On the down side the same companies were quick to point out that the lack of mortgages available from the banks is still a matter for concern. As we know, that concern is twice as relevant in the buy to let sector as banks seem determined to keep options very limited in this area. We can only hope that banks see the error of their ways and loosen their purse strings sometime in the near future.

Doom and Gloom Predicted!

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Having given all of us, and myself, a few cheery blogs in a row it is time to face up to the fact that some experts are not giving the thumbs up to the immediate future in the property sector.

The National Landlords’ Association is very clear about the fact that rental arrears are still causing potentially ruinous problems for a lot of landlords. In a recent report, the NLA revealed that according to their figures three quarters of landlords have experienced problems with rental arrears and, even more worryingly, nearly half of these reported substantial problems in the last twelve month.

Of course, this rental arrears issue then impacts dramatically on a landlord’s ability to meet their own commitments including their mortgages and the upkeep of their properties. Tenants with financial difficulties appear to still be a huge headache for landlords despite all the talk of an upturn in the economy.

Another worry on the horizon for professional landlords is the plan to bring the property sector under full regulation. Many may think there is nothing to fear from this but it is certainly a huge unknown that is making many landlords uneasy. It is a fact that regulation tends to cost a lot of money, and that cost is often passed down to the ones being regulated. This fact alone is enough to make landlords nervous.

In the next blog I will look at the way landlords are being treated by the financial institutions and do a bit of a summary of where all this leaves us.

Rental Returns Looking Rosy

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In the last blog, I covered some of the positive stories that are around at the moment about the rental sector. This blog is a little more of the same with a bit more focus on the rental returns aspect of things which, let’s face it, is the most vital part for any landlord.

LSL Services, which owns the UK’s largest lettings agent network, puts the improvement in rental returns in the UK at 13 percent over the last twelve months. It now puts the average rent in Britain at £669.

One of the things that LSL attributes this to is the number of first time buyers who are being turned away by the banks’ new lending policies. It estimates that a staggering two hundred thousand of these have become renters when before they would be in their own houses. This increased demand has allowed landlords to put a fair price on their rental properties.

All of this good news has resulted in a feeling of optimism in a lot of landlords, with surveys showing that fourteen percent of us are expecting to add to our portfolios over the next two to three months.

Looking at it from the point of view that this purchasing will promote growth, it is easy to think that things really do look quite rosy in our sector, but should all this good news be tempered with a bit of caution? According to some experts it should.

I will look at what they have to say in the next blog.