Newsletter December 2006
LEGISLATION A TWO EDGE SWORD AS HMO LANDLORDS RETREAT FROM THE RENTAL MARKET
With significant timing, the number of landlords in the Private Rented Sector who have invested in Houses in Multiple Occupation, HMOs, has fallen sharply. This is revealed in the latest quarterly Review and Index published by ARLA.
The HMO share of the whole rental sector has dropped from nine percent to six percent over the last three months. This coincides with the requirement to register the properties with local authorities by last July and could represent a loss of as many as 75,000 properties to the multiple sharer market.
ARLA has expressed the hope that government recognises from these figures that regulation may be a two-edged sword. While aiming to safeguard tenants it can drive bona fide landlords out of the market very quickly
However, the Review shows that in the mainstream rental market, tenants are staying longer. Their average stay is now over 17 months, regardless of the initial term agreed. This increase in the length of tenancies continues a long-term upward trend. Among these tenants, more than half are under 30 and only 6% are over 50.
Landlords are satisfied with rental market conditions. 85% of all landlords responding to ARLA said they would not sell their investment properties even if house prices should fall, while more than half expect to add to their investment portfolios during the next year. On average, landlords say they intend to hold on to their investments for 16 years. This is in line with the results of ARLA surveys over the past three years.
Commented Adrian Turner, Chief Executive of ARLA, “This quarter’s Review gives a clear warning of the dangers that can be posed by legislation in a marketplace. We all recognise that tenants of Houses in Multiple Occupation must be protected from bad landlords.
“However, if legislation is seen as over-burdensome it becomes a two-edged sword. This is because it is likely that it is those landlords who are prepared to stand up and be open about their properties and the way they manage them who are leaving the market. Meanwhile, the rogues are probably still in place, but crawling under the carpet where they will be difficult to trace”.
For investors in the Private Rented Sector, the average return shown this quarter on an investment calculated over a minimum five year period is 11.15% for a cash purchase investment. This rises to 22.23% for a geared investment, where the mortgage starts at 75% loan to value. The 20 year average house price index stands at 8.66%.
The quarterly ARLA Review and Index of returns on buy to let investments is compiled from the results of the quarterly surveys of ARLA member letting agents and investor landlords who subscribe to the ARLA Buy to Let website. This is the largest survey of its kind and is undertaken with the support of the ARLA panel of Buy to Let Mortgage Lenders: Birmingham Midshires, GMAC Residential Funding, Mortgage Express, NatWest, Paragon Mortgages and The Mortgage Business.
The data, which covers yields, rents, void periods, types of rental property and their regional differences was drawn this quarter from 451 letting offices run by ARLA member firms and 305 investor landlords. This is the largest survey of its kind in the rental market.
Full details of all ARLA surveys and the Review & Index can be found in the Buy To Let section of the ARLA web site.
NAEA launches new lettings report
NAEA lettings agents report a strong lettings market for the third quarter of 2006. The National Association of Estate Agents (NAEA) has launched its new quarterly lettings survey today, which will regularly report on movements within the residential lettings market. With buy to let currently booming in the UK and a raft of new legislation being put in place the sector has seen considerable growth recently. NAEA lettings agents revealed that the rental market in the third quarter of 2006 was buoyant and strong. The increase in property prices that consistently acts as a barrier to first time buyers, matched with the influx of Eastern European immigrants is continuing to fuel this sector of the property market.
Time taken to let decreases
The time taken to let a property steadily declined over the last quarter with the average for the quarter at 12.2 days. This compares to an average of 13.2 in the first quarter and 13 in the second. The third quarter is traditionally the busiest time for lettings agents with many people aiming to occupy new homes before the start of the school year and many students returning to their studies. July and August were steady with the average reported at 12.6 days, pace increased in September with an average of 11.6 days.
Increase in vacant properties
Further evidence of an expanding buy to let market is the number of reported empty dwellings in the third quarter of 2006 compared with the same quarter last year. The last year has seen a significant increase in the number of landlords entering the market as more and more people choose to cash in on the booming property market. The average number of vacant properties reported per agent in the third quarter of 2006 was 14, compared with 6 empty properties per agent in the third quarter of 2005, yet the average time to let has decreased from 14 days in 2005 to 12 in 2006. A greater number of properties coupled with the increase in speed taken to let, indicates a strong sector.
First time buyers
The first time buyer segment of the market accounted for just 11.9% for the third quarter. Industry professionals would hope to see this at a much higher level of 25%. The rental market is benefiting from the many affordability barriers effecting potential first time buyers, as buy to let investors compete for the traditional first time buyer properties.
Rents increase
Agents reported that rents increased by an average of 1.45% per month in the third quarter. This is a dramatic increase of pace in comparison to the same period last year where a 0.87% increase was reported for September. An increase in demand for rental property plus rising house prices and the introduction of HMO licensing have all contributed to the hike in rental prices. Jan Bartlett, lettings expert at the National Association of Estate Agents comments: “The lettings market has seen many significant changes in the last twelve months. The introduction of licensing of houses of multiple occupation, tenancy deposit schemes and the housing health and safety rating system, have and will have significant impacts upon the market.“On the whole the sector is performing well with many agents reporting significant improvements in business. The mass influx of Eastern European immigrants has boosted the market and of course, the ever increasing average age of the first time buyer has assisted in an increase of buy to let investments.”
NEW GUIDE TO HOUSING’S MOST SUCCESSFUL INNOVATIONS
The 2007 Buy to Let Guide looks back over the first decade of the most successful innovation in the housing market in living memory. At the same time, it provides investor landlords with an overview of the many developments in mortgages, legislation, insurance and tax.
The Guide is published under the auspices of ARLA, the Association of Residential Letting Agents, and the Council of Mortgage Lenders. It is available to the public through all ARLA member letting agents.
The guide is complimentary to the other information provided by the professional bodies. To give potential and existing investors in Buy to Let with a clear understanding of the duties and obligations of being a landlord in today’s consumerist society, as well as the benefits and opportunities to be found in this new investment asset class.
This year, the Guide profiles the typical investor landlord and their reasons for investing in Buy to Let. There are also profiles of property portfolios and the types of let property, and the influences on the market. These include immigration and student debt.
The section on how to make best use of mortgage borrowing takes new investors through the checklist they should use before making the final decision to become a landlord.
Also, with the sophistication now applied to the buy to let mortgage market, profiles of the ARLA Panel of Mortgage Lenders give readers a head start in finding their way through the maze of financial information.
This panel includes many of the original supporters of the ARLA concept of Buy to Let, Birmingham Midshires, Mortgage Express and Paragon Mortgages. These were joined very quickly after the launch by NatWest, to be followed by GMAC Residential Funding and The Mortgage Business.
Welcoming the 2007 edition, Adrian Turner, Chief Executive of ARLA, said, “This is a concise but colourful explanation of the ramifications that lie behind investment in the private rented sector. It makes it clear that Buy to Let is an investment opportunity provided the requirements of today’s consumer society and modern legislation are taken into account. These demands are not onerous but they must be understood. The ability of Buy to Let investors to work within this framework explains why there are some 750,000 buy to let properties housing over a million families in just ten years, since it all started.”
The guide describes investors’ obligations to their tenants. These include a fair tenancy agreement, deposit protection and insurance, as well as keeping rental property in a proper state of repair with safe appliances. It also describes the help and advice that is available through ARLA-regulated letting agents. Nearly 2,000 of these are listed in the publication.
The Guide also looks to the future for investors. “Every indicator published in this new edition shows a sustainable rate of growth to meet the demands of the changing lifestyles, working patterns and aspirations of tenants,” said Adrian Turner. “The professionalism of the whole private rented sector has grown along with Buy to Let, and letting agents are well able to give sound advice about entering the market and to provide all the help that is needed to become, and to remain, a successful landlord.”
The 2007 ARLA, CML Buy to Let Guide, published by Incisive Communications, is available through ARLA, and ARLA member letting agents.
Retailer demand for shop space weak but investment activity on the rise
Investor demand in the retail property sector has picked up despite continued weak demand for shop space from retailers, says RICS Commercial Property Survey. For Q3, 9% more chartered surveyors reported a fall in retailers’ demand for shops than a rise compared to 12% reporting a fall in Q2.
While retailer appetite for shop space is still poor, investors are coming into the market on hopes that the sector has passed its lowest point. However, retailer enquiries for new shop space dropped again for the ninth consecutive quarter, though surveyors expect demand to bottom out in Q4.
Retail property is the only sector to record an acceleration in purchase activity in Q3 while growth in turnover slowed for the office and industrial property sectors compared to Q2. Nonetheless, overall investment demand for commercial property showed another solid increase in Q3 and contrasts with moderate rises in occupier demand for property.
27% more surveyors reported a rise in commercial property investment turnover than a fall in Q3 compared to 29% in the previous quarter. In the retail sector, 28% reported a rise in Q3 up from 25% in Q2. Investors in the retail sector will be hoping that healthier high street trading will boost rents and investor income.
Overall business property demand rose for the fifth consecutive quarter as economic conditions have improved and investment spending has been stepped-up by firms. 7% more chartered surveyors reported a rise in activity than a fall, compared to 8% in Q2 and 1% a year ago. The demand for office space rose by the largest on record with 28% more chartered surveyors reporting a rise than a fall boosted by a strong business and financial sector.
Business enquiries for commercial property space rose for a third consecutive quarter and at the firmest pace since Q1 2005, confirming that interest rate hikes have not shaken confidence. New enquiries for office space rose at the fastest pace in just over two years due to the strength of the financial and business services sector in London and southern England.
The balance of the commercial property market is shifting towards landlords as the value of inducements given to new tenants showed the first notable drop in five years. Surveyor expectations for rent rises for the next quarter hit a six year high with strong conditions envisaged in the Central London office sector, with optimism not far off the highs achieved during the dot.com boom. Surveyors no longer expect a fall in retail rents but available shops on the market rose for the 15th consecutive quarter which will limit rent rises in the near term.
RICS Economist Oliver Gilmartin said: “The financial sector in London has pushed growth in office demand from businesses to record levels on the back of strong growth in the overall economy and rising employment.
“Investors are also very active, with interest in the retail property sector on the rise. Buyers of shops are confident that interest rate rises will not dampen consumer spending, with some signs that the fall in retailer demand for shops has bottomed out. Consumer confidence remains high and goods prices on the high street are on the rise again which will boost profit-margins.
“We expect further increases in interest rates into early 2007 to reign in the amount of capital flooding into the commercial property market and slow the appreciation of property values from recent sharp gains.”
Government sets new housing management standards to tackle anti social behaviour
The importance of strong housing management in tackling anti-social behaviour in creating a community culture of respect is at the centre of a new UK Government 'Standard' aimed at council and housing association landlords.
'The Respect Standard for Housing Management' outlines the central elements essential to delivering an effective response to anti-social behaviour and building stronger communities, such as accountability, leadership, giving greater resident empowerment, and supporting community efforts at tackling anti-social behaviour.
Housing Minister, Baroness Andrews, said the new Standard draws on best practice already generated by social landlords and their partners during the last few years.
'A culture of respect is central to many of the things we seek to achieve in creating better places where people can thrive. The Standard creates a clear opportunity for landlords, tenants and the community to work together to ensure this can be attained. Those landlords who have already acted as trailblazers have set a high standard for others to aim for and in order to ensure that every community is free from antisocial behaviour and all its ill-effects, all landlords can play a key role'.
For more information please visit the Government News Network website.
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