Newsletter February 2007BTL Investors Uneffected by Interest Rate Hikes
First-time buyers will feel the pinch of interest rate hikes in the coming months but buy-to-let investors will continue to make their mortgage repayments says research conducted by RICS.
With affordability at the worst levels since 1992, first-time buyers will slip behind in their mortgage repayments to a greater extent than buy-to-let investors who are less at risk.
Buy-to-let investors tend to be older - with over half of all investors aged over 45 - and have larger disposable incomes (and possibly greater access to equity release) compared to first-time buyers who have pushed themselves to the limit to get onto the housing market.
Of the £11.65m mortgages in the UK, 0.96% (111 860) of them were in arrears.
But only 6.6% of all mortgages were buy-to-let and only 0.69% of these mortgages were in arrears - a mere 5 318 in total.RICS expects that buy-to-let investors will have no difficulty finding tenants at suitable rental rates in the coming quarters as rental demand remains strong in a growing economy.
Employment conditions remain firm and rising house prices could force would-be-buyers to rent.
Data from the RICS Lettings Survey shows that rents are rising at close to the fastest pace in five years, and tenant demand remains buoyant.RICS Economist David Stubbs commented:
"Buy-to-let investors will be less at risk from repossessions in the coming months.
"Older, wiser investors are likely to ride out periods of interest rate rises looking to the benefits of long term capital growth rather than short term rental income.
"January's surprise interest rate rise is likely to soften new buyer enquiries in the coming months but those buyers who have already taken the housing market plunge could find mortgage companies knocking at their doors in the near future as affordability conditions bite."
National Standard for Sustainable Homes
The Code for Sustainable Homes - a new national standard for sustainable design and construction of new homes was launched.
By integrating elements of this voluntary Code into new homes and obtaining assessments against the Code, developers will be able to obtain a ‘star rating’ for any new home which will demonstrate its environmental performance.
It will provide valuable information to home buyers, and offer builders a tool with which to differentiate themselves in sustainability terms.
The Code for Sustainable Homes was launched as part of a package of measures towards zero carbon development, including an overaching consulation: Building a greener future on the shift to zero carbon; and a consultation on the draft of a new Planning Policy Statement: Planning and Climate Change.
New Year Optimism Shown By Investment Landlords
Investors in Buy to Let are heading into the New Year in an optimistic frame of mind, the ARLA Review and Index for the last quarter of 2006 reports.Six out of ten investment landlords expect to acquire more property in the year ahead and even if property prices were to fall, only 2.1% would sell.
Instead, Buy to Let is understood as a long term investment with a quarter of all investors expecting to hold their properties for more than 20 years. The average life expectancy of a buy to let property investment is over 15 years.
On the other side of the coin, tenants are staying for longer than ever. Regardless of the initial term of the tenancy – often six months – tenants are staying for an average of over 17 months. This is a month longer than a year ago.
Commented Adrian Turner, Chief Executive of ARLA, “It remains the case that buy to let investors are proving to be good landlords who cater for their market and provide the accommodation that tenants are looking for. This allows the private rented sector to offer real choice in housing.”
These returns are compiled for the quarterly ARLA Review and Index from ARLA member letting agents and investor landlords who subscribe to the ARLA Buy to Let website. This is the largest survey of its kind in the private rented sector with data supplied by 372 letting offices and 279 investment landlords.
According to landlords, three out of ten tenants are aged between 23 and 30. A quarter are between 31 and 40 and a further quarter are between 41 and 65. One in six are under 23.
The impact of immigration from the new member states has been noted by landlords but it is clear from their responses that most landlords have yet to try obtaining references from the home countries of these prospective tenants. This is not reflected by ARLA member letting agents surveyed who report that they are experiencing severe difficulties with references from these new EU member states.
Said Adrian Turner, “The lettings industry and buy to let investors are both starting the new year in an optimistic frame of mind. Private individuals have taken over as the main drivers of the sector and it is clear that they are here to stay, and for the long term. This new breed of landlord understands that residential property investment can, and must, take account of the ups and downs of the sales and the rental cycles and they are not spooked by scare headlines about housing.”
Central London Office Market Booms as take-ups top 1 million SQm in 2006
The take-up of office space in central London reached record levels in the last quarter of 2006, with 319,000 sq m representing the highest quarterly total for over two years.
GVA Grimley’s Central London Office Commentary for the final quarter of 2006 reports a 21% increase in office take-up on the previous quarter, which is 56% higher than the five-year quarterly average. The total take-up of office space in central London for 2006 was 1.06 million sq m, a growth of 24% on the previous year and the highest annual total since 2001.
While demand for office space in central London continues to rise, the lack of good quality supply is leading to increased rents and, in the core locations, making it difficult for some potential tenants to find accommodation. By the end of 2006, the central London vacancy rate was 6.1%, the equivalent of 1.1 million sq m of available office floor space and the lowest level for over five years
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At the end of the year, prime rental growth was 19.4% pa in the West End, 17.5% pa in the City and 13.3% pa in Docklands. Prime rents finished the year at £92.50 per sq ft in the West End, £57.50 per sq ft in the City, and £42.50 per sq ft in Docklands.
In the final quarter of the year, central London office investment transactions totalled £3.7 bn, 61% of which by value were in the West End, the remainder in the City. As with the previous two quarters, there was no investment activity in Docklands. Over the final quarter, prime office yields in the West End and City cores remained at 3.75% and 4.25% respectively.
Jason Hanley Partner at GVA Saxon Law says “Increased demand from high net worth financial organisations for offices of the highest quality coupled with limited new stock in the pipeline continues to drive up rents across the West End at the start of 2007. We can expect to see rents exceeding all previous records, across all market sectors. GVA Saxon Law are already letting new, prime west end office floors for rents approximately 15% higher than we were in 2006 and deals in Mayfair at £120 per sq ft are imminent”.
RICS UK Housing Market Survey December 2006
House price inflation has cooled following the November interest rate rise, says the RICS UK housing market survey published 16th January 2007.
House prices rose for the fourteenth consecutive month in December but the pace of increase eased back to August levels. 37% more Chartered Surveyors reported a rise than a fall in house prices, down from 46.9 % in November.
The pace of increase remains strong, above the long run average of 21%, but this is the first real evidence that the November rate rise has started to take some of the heat out of the market.
Although the market experienced its first slowdown since 2004, it remains firm, sustained by a booming city economy and a strong financial services sector. House prices remain strong in London with few signs of the market easing up despite higher interest rates.
House price rises in the North have accelerated but outside London, the South East has started to slowdown.
Northern Ireland continues to grow as the weight of money from the Republic of Ireland supports the market in light of lower Eurozone interest rates.
Completed property sales rose to 28.5 per surveyor from 28.4 in September – the highest since August 2004. The ratio of completed sales compared to the stock of available property rose to 42.8% from 42.5 %.
This is the highest ratio in two years and a strong indicator of a still buoyant market.
New buyer enquiries stabilised in December reinforcing the strength of the underlying economy in light of the two quarter point interest rate hikes that have taken place since August.
The recent interest rate increases have slightly dented surveyor confidence but confidence in price outlooks are viewed as stronger than the survey's long run average.
RICS spokesman Ian Perry comments:
"Interest rate rises have started to cool the housing market and last week's rise will have a further impact in the coming months, but the market remains strong.
"However, the rate rise will do nothing to aid home owners struggling with affordability conditions with more repossessions looming on the horizon.
"As we move further into the new year, consumers will begin to tighten their belts as finances come under pressure but rising wages and employment will continue to boost the economy and RICS expects interest rates to finish at 5.5% by year end.”
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