Newsletter August 2005London losing house price crown The gap between house prices in London and the rest of the UK has shrunk to its lowest level in nearly eight years, research from Halifax bank has shown.
Prices in London are nearly one-and-a- half times the national average compared to two times in 2001.
While prices in the capital fell during the past year they rose sharply in the north of England, Scotland and Wales.
In fact, all 10 towns recording the biggest price rises in the last year were outside the south-east of England. Risers and fallers
Irvine in Strathclyde has seen prices rise by 44% in the past year, the biggest percentage increase in the UK.
Talbot in West Glamorgan, Motherwell in Strathclyde, Glenrothes in Fife and Blackwood in Gwent all saw average annual house growth of more than 35%.
At a county level, County Fermanagh in Northern Ireland saw the biggest price rises, followed by the Highlands in Scotland.
"Although the slowdown in house price inflation over the past year has been broadly based, there continues to be a distinct north-south divide with more subdued, or falling prices, across southern England," Martin Ellis, Halifax chief economist, said.
"As a result, the gap between prices in London and the rest of the UK has fallen to its lowest for eight years." RICS comment on IPD figures Investment Property Databank released statistics today (15 July) show a marked upturn in UK commercial property values, rising at the strongest pace in six months. June's 1.2% rise in values follows a 0.9% increase in May.
Rises are up by 4.2% in the past six months, compared to residential property values which have been stagnant over the same period.
The divergent performance of the two property sectors reflects the impact of a large weight of money flowing into the commercial property market, as financial institutions and private individuals have sought alternative investment options to the equity market and bonds.
The increasing demand for commercial property investment has also been supported by sharp declines in market interest rates. Market interest rates (gilt yields) have fallen almost 1% since November 2003, despite a 1.25% rise in the Bank of England's repo rate.
However, bond yields are probably close to their lows, and are likely to show an upturn later in the year and in 2006.
If such an upturn transpires, then it is likely that rises in commercial property values will slow sharply next year.
Wrapping landlords in red tape may backfire
Through the introduction of the new HMO legislation the government aims to improve conditions for tenants in the private rented sector. The National Landlords Association (NLA) fears that excessive red tape could have the opposite effect by actually discouraging investment in the private-rented sector.
From October 2005, as part of wide ranging changes to regulation of the private rented sector under the Housing Act 2004, the government will introduce a new definition of Houses in Multiple Occupation (HMOs). At the same time a complex system of mandatory and selective licensing of HMOs will come into force.
Under the new scheme an HMO will be any property shared by more than two unrelated tenants and which is not owned or managed by a public body. Student accommodation owned and managed by educational establishments that have signed up to a Code of Practice are also not classified as HMOs, nor is an owner occupied property with fewer than three lodgers.
Not all HMOs require a licence. Mandatory licensing will come into effect for all HMOs with three or more storeys and if there are five or more tenants in two or more households. HMOs that are not subject to mandatory licensing could nevertheless be liable to additional licensing or selective licensing, which local authorities could introduce in areas of low housing demand or with significant anti-social behaviour. To qualify for a licence HMOs will also have to comply with prescribed amenity standards and will also be subject to inspection under the new Housing Health and Safety Rating System.
David Salusbury, chairman of the NLA, comments: "The new regulations are likely to be cumbersome and complex. The NLA is concerned that the government could be using a sledgehammer to crack a walnut. The short timetable for implementation means that local authorities have very little time to prepare and we believe that the large majority of landlords are unaware of the forthcoming regulatory changes."
Landlords could face substantial losses
There is also concern that once a property is licensed as an HMO, landlords it will not be possible to de-convert it back to a single dwelling. Whilst this would not be a problem for most areas of the UK, local authorities in London could seek to prevent landlords from de-converting an HMO. If this is the case property investors could face substantial losses on their investments. There is also the problem that if a landlord wishes to sell the property on as an HMO, any tenants would, in theory, have to be evicted until the new landlord received an HMO licence. This could also seriously hinder the market.
David Salusbury concludes: "Whilst quite rightly seeking to safeguard the rights of tenants the government also needs to take into account the rights of the private rented sector. 62% of NLA members say that government regulation is causing them the most concern. If balance is not maintained I am concerned that overregulation could lead to a reduction in the number of HMOs available for rent. This could lead to less accommodation being available to those who are the most reliant on the private rented sector, namely young professionals and the most vulnerable". Housing market 'gently softening' UK house prices rose slightly in July but "the overall picture remains one of a gently softening market", according to the latest survey by Nationwide.
Prices rose by 0.2% in July, with the average house costing £158,348.
However, the annual rate of house price inflation fell to 2.6%, the lowest rate since May 1996, the society said.
The Nationwide said there were signs of housing market activity starting to pick up, although transaction levels are still well down on last year.
It noted that estate agents had reported buyers returning to the market and sellers willing to negotiate on prices.
"This could be the start of some unwinding of the stalemate between buyers and sellers and see the return of some liquidity to the market," said Fionnuala Earley, Nationwide's group economist.
The Nationwide said that the annual rate of house price growth had now fallen below wage growth for the first time since May 1996.
It said that a cut in interest rates - which is expected by many analysts when the Bank of England meets next week - would provide some stimulus to the market.
However, it added that a rate cut "is unlikely to cause an acceleration in the rate of house price growth".
Protecting your asset
One of the biggest concerns for property investors is having a vacant property. There is no income for you to set off against your outgoings. You can make sure that things do not get any worse. Check how your insurance is affected and protect your asset, even though empty.
Bronja Whitlock, manager of the Property Insurance Division at Mortgages for Business says, “The first thing to review is the definition of ‘unoccupancy’ on your policy. Generally your property will be considered vacant if it has not been lived in for 7, 14 or 30 consecutive days depending on the insurer. If the property is empty at the time of a loss, insurers will generally ask for a copy of the last lease agreement to check the duration of the ‘unoccupancy’”
Some insurers do restrict cover immediately when a property becomes vacant. They may also reduce cover to fire, lightening, explosion and earthquake, if the property is still vacant at policy renewal time. This sounds really on the property-owner but look at it from the insurer’s point of view. Bronja continues, “If a property is empty there is no one to spot broken tiles, faulty electrical switches, blocked drains or leaking gutters. Insurers will also view vacant premises as more likely to attract burglars, vagrants, malicious persons or even squatters.”
Good insurers however provide almost full protection including ‘wet’ perils such as storm, flood and escape of water, so do look for these on your existing policy and when renewing
Most insurers cannot be persuaded to continue cover for malicious damage and theft for empty premises but you can mitigate the risks yourself.
Generally your insurance policy will require you to inspect vacant premises every 7 or 14 days and to keep a record of this inspection. You should look to the terms of your policy for details but the following areas will usually need to be included:
o windows and doors securely locked and any broken windows boarded up
o water system turned off and the system drained or the heating at a minimum of 58 degrees
o tidying garden or outside areas and ensure any combustible or waste material is removed
o property must be maintained in a good condition
o remove any letters or free newspapers
o Of course the best solution is to let your property again as soon as possible. Sometimes investors hold out for a specific rental sum but this does not always make commercial sense. Weigh up the financial drain of, and the extra safeguards required for, a vacant property when calculating the rental income you want.
Bronja concludes, “These are sound precautions that every property investor should follow. If investors are concerned that their current level of cover on their buy-to-let property they can contact us for a no obligation quote on 01732 471699 or visit our website at www.mortgagesforbusiness.co.uk/propertyinsurance.
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