Newsletter - Mortgages for Business - September 2004

Business Property Chronicle

Property Interest Rate Report

CML – Buy to Let lending continues to grow

Buy-to-let lending continued to grow in the first half of 2004, but at a slower rate than last year, according to data published today by the Council of Mortgage Lenders. At the end of June, there were 473,000 buy-to-let mortgages outstanding, worth £46.8 billion, compared with 417,500, worth £39 billion, at the end of 2003.

In the first half of this year, lenders advanced 119,800 mortgages, worth £12 billion. Although the number of loans advanced was six per cent higher than in the second half of last year, and their value three per cent higher, growth was slower than in the preceding six months. Then, both the number and value of buy-to-let mortgages grew by more than 50%.

Although buy-to-let has grown strongly in recent years, it still represents less than six per cent of lending overall. As in the mainstream mortgage market, buy-to-let lending has been boosted by remortgaging, which accounted for an estimated 35% of gross advances in the first half of this year. Arrears in the buy-to-let sector are continuing to run at around half the level of the mainstream home-buying market, with only around one mortgage in 240 experiencing arrears of three months or more.

The average maximum that lenders will agree to lend remains unchanged at 80% of the value of the property. On average, lenders also require rental income to be 30% higher than monthly repayments.

Commenting on the new figures, the CML's director general Michael Coogan said:
"The figures indicate that investors are taking a sensible approach and adjusting to tighter market conditions following recent interest rates rises. They need to continue to consider carefully the outlook for rental yields and property prices, and take into account taxation, maintenance costs and the possibility of void periods when the property cannot be let. But the fundamentals reflect ongoing demand for housing, due to new household formation and delayed moves into home-ownership by some first-time buyers. This should continue to underpin the rental market. So buy-to-let will continue to offer attractions to landlords who research the market properly and invest for the long term."

Kingsturge - Bi-annual Office Occupier Trends survey

The return of large pre-lets in the UK’s regional office markets – boosted by public sector deals in Birmingham, Leeds, Manchester and Newcastle upon Tyne city centres – clearly demonstrates continuing confidence as occupiers agree to major long-term commitments.

That is the conclusion of the latest bi-annual Office Occupier Trends survey from international property consultants King Sturge, which reports that for the six months ending March 2004 activity in Birmingham was only out-performed by the Manchester marketplace.

In total, 3.1 million sq ft (292,315 sq m) of UK office space was acquired by occupiers in 86 deals – each one involving properties with over 10,000 sq ft (930 sq m) of space.

Birmingham’s northern rival recorded the greatest number of deals during the half-year period – notching up twelve lettings, whereas Birmingham only completed nine such transactions.

Nine of Manchester’s deals were in the out-of-town market, the largest being the UK Immigration Service’s acquisition of 43,760 sq ft (4,065 sq m) of accommodation at Manchester Airport, while activity in Birmingham city centre was dominated by public sector lettings, such as the Office of the Deputy Prime Minister’s decision to take 65,389 sq ft (6,075 sq m) of space at 5 St Phillips Place. Other public sector occupiers acquiring space in the city centre included the Court Service 33.000 sq ft (3,066 sq m) and British Waterways, 12,500 sq ft (1,161 sq m).

It was public sector transactions which, overall, accounted for the second largest share of UK occupier activity during the six months under review, but it was the financial and business services sector which took the top spot, with 41 percent of deals done and accounting for 46 percent of floorspace transacted.

However, with new space in Birmingham city centre very much at a premium, the out-of-town market, as in Manchester, is showing definite signs of resurgence – illustrated by Birmingham Business Park lettings to Softlab UK, which has taken 15,554 sq ft (1,455 sq m) of space in Lakeside, and Sirius Financial Solutions, now occupying 26,695 sq ft (2,480 sq m) of office space at Spencer House. Interleasing (UK) Ltd has also moved into 66,450 sq ft (6,173 sq m) of accommodation at nearby Bickenhill.

“In particular, there is very strong demand for courtyard schemes, where both leasehold and freehold tenure can be offered,” said Charles Warrack, an offices specialist in the Birmingham office of King Sturge. He added: “There are over a dozen or so courtyard schemes across the Midlands in a triangle encompassing Stoke on Trent, Stratford upon Avon and Worcester – and all of them are achieving high levels of success.”

One such project is Eliot Business Park at Nuneaton in Warwickshire where, although construction of the courtyard scheme is not anticipated to begin until the autumn, strong interest has already been shown by potential occupiers. Three-quarters of enquiries received so far have been in respect of freehold accommodation, with leasehold interest being centred on accommodation in the range of 5,000 sq ft (464 sq m) to 10,000 sq ft (929 sq m).

Mr Warrack said: “Clearly, the general economic situation of low interest rates and economic growth has encouraged companies to expand and upgrade their office requirements – and certainly the time to purchase freehold has never been better. And there is no doubt that the out-of-town market has proved a good hunting ground for those companies seeking easily accessible modern office accommodation with good amounts of car parking. Not to mention a choice of leasehold/freehold tenure.”
He added: “It is always difficult to predict the future, but forecasts are that the current trend will continue – and landlord/developers, if they are to take advantage of market opportunities, should get their schemes ready as soon as possible in order to meet demand.”

One of the latest courtyard schemes currently under consideration is Woodbury Court, which, King Sturge, together with Harris Lamb, is marketing as a new development at Junction 7 of the M5 motorway. The scheme is able to offer accommodation ranging from 1,500 sq ft (139 sq m) up to 10,000 sq ft (929 sq m).

“We are currently in the process of receiving detailed planning consent and anticipate strong demand for office space which will be situated in a location where there is already proven demand,” added Mr Warrack.

ARLA – Warning to Landlords and Tenants: Use a regulated agent

With the peak Autumn season for lettings just around the corner, ARLA, the Association of Residential Letting Agents, has issued a warning to landlords and tenants to ensure they use regulated letting agents belonging to the professional associations. The Association wants the public to be as aware when approaching the rental market as they are when they travel on holiday.

The Chief Executive of ARLA, Adrian Turner, issued the warning following the crash this month of Exeter letting agents, Greenacres. This is the fourth failure to be brought to ARLA's attention since January this year, as lettings firms have failed in Brighton, Bristol, and Nottingham.

Said Adrian Turner, "Despite the fact that more than a Billion pounds is held by letting agents at any one time, there is no statutory control over them or their clients' money. However, the three professional bodies regulate their own members very closely indeed."

He pointed out that there is no need for the public to risk money or property. When a regulated letting agent is used, tenants' deposits and landlords' rents are fully ring-fenced and bonded.

Mr Turner believes that a major reason for carelessness when choosing a letting agent is the fact that only a small percentage of the public is in the rental market at any one time and when there is a problem it remains as local news. As a result, the public at large remains unaware of the potential for failure.

"The public is careful to protect their money and their interests when they travel. Probably, as so many people travel, often several times a year, most are conscious of the need to use fully regulated travel agents or to cover themselves in one way or another. And, when a jumbo load of tourists is stuck in a South American jungle it makes for a dramatic story and hits the national headlines.

"Unfortunately, the failure of a local letting agent is not held up as a warning in the same way, even when students and the vulnerable can lose their deposits and the rent can be a significant part of a landlord's pension. So, as the leading professional body for the Private Rented Sector, we believe we must keep repeating the mantra: Always use a regulated agent."

It is simple to find a regulated agent. There are some 1,500 ARLA member offices and they cover most of the country. There is a website and a hotline to help both landlords and tenants find ARLA members quickly.

Regulated ARLA agents are fully bonded, hold professional indemnity insurance and are audited by independent chartered accountants. They are also required to hold professional qualifications in letting and residential management and many are now members of the Tenancy Deposit Scheme for Regulated Agents, TSDRA.

TSDRA is a further guarantee that deposits are controlled correctly. Any dispute between landlord and tenant can be resolved without going to court but through fast, skillful and independent adjudication and without extra cost for the adjudication. Many letting agents who are members of ARLA and RICS have joined the scheme which replaced the government scheme in May. It is expected to be made a compulsory condition of membership of these two organisations in the near future.

Admitted Adrian Turner. "It can be a bit depressing when we do so much to protect the public with bonding, insurance and qualification requirements and, now, the Tenancy Deposit Scheme and still the public goes to unregulated agents, especially as there is no need. Properly qualified regulated agents are to be found in most places."

To find a regulated agent visit www.arla.co.uk or call the ARLA hotline, 0845 345 5752. For details of the Tenancy Deposit Scheme for Regulated Agents visit www.tds.gb.com

RICS residential lettings survey for England, Wales and Scotland - Three months to end of July 2004

Rents are rising at the strongest pace for three years, with overall demand for rented homes remaining firm. Despite this the recent stall in house price rises is causing jitters among some landlords says RICS (Royal Institution of Chartered Surveyors) whose latest survey of Britain’s rental market is published on 24th August 2004.

Many would be buyers are taking up rented accommodation while they see how the housing market progresses. This has contributed to rents having risen at their fastest pace since October 2001. In the three months to July, 13 percent more surveyors reported a rise in rents than a fall, compared to 8 percent in the previous quarter. Likewise 13 percent more surveyors expect rents to rise over the next three months than fall; a figure that is firmly above the average for the past five years.

The demand / supply balance is further affected by the lowest rise in new properties entering the market for three years.

The market in London showed a marked slowdown in tenant demand, but northern regions are reporting some of the strongest rises recorded for three years. This mirrors house price trends across the regions, being strongest in regions away from London.

According to surveyors, family homes are in relatively short supply, causing their rents to rise at a faster pace than other types of property.

RICS residential lettings spokesman, Jeremy Leaf says:

‘Demand for rented property continues to increase, to some extent boosted by potential first time buyers who are either being priced out of the housing market, or waiting to see if house prices are really flattening out.

‘Investors have become more cautious, wary of a possible peak in house values. As a result the proportion of existing landlords selling their property when tenancies come up for renewal has risen. However, this is having little impact on the wider housing market.

‘Houses appear to be the most in demand from tenants, leading the upturn in rental levels. Contrary to popular belief the majority of rental properties on the market are terraced houses and semis, with flats accounting for just one third of the market, although there are urban/rural differences in these figures.’

Further facts from the RICS survey:

The average monthly rent in Great Britain (inc London) for three months to July was £727.

The average rent for a one-bed flat in London was £1114 and £3142 per calendar month for a four-bed detached house.

The smallest decline in gross yields were recorded in London – reflecting an upturn in rents and a slowdown in house price rises.

The private market continues to account for the lion’s share of the lettings.

Lettings market facts:

Most tenants in the UK are young adults: almost two-thirds are aged less than 35 and a quarter under 25.

The youngest households pay the highest rents and the oldest the lowest.

The private rented sector accounts for 10-12 % of the UK housing stock.

Private renting is greatest in the south-east of England, university and seaside towns and some large cities – especially London.

One third of privately rented properties are flats, the remaining two-thirds mainly terraced or semi-detached houses

Kingsturge – Renewed demand from occupiers requiring large industrial and distribution accommodation

Renewed demand from occupiers requiring large-scale industrial and distribution accommodation has cut the total level of available floorspace in the UK for the first time in four years, according to the latest quarterly survey from international property consultants King Sturge.

But in the East Midlands the amount of available floorspace increased in the three months to April 2004 by 3.1 percent to 1.487 sq m (16,005,919 sq ft).

“Generally speaking, significant activity generated in the UK ‘big shed’ market towards the end of last year has continued into the first half of 2004,” said David Binks, a partner at King Sturge who heads up the consultancy’s East Midlands’ industrial property team. “And developer confidence in speculative development in this sector has also returned,” he added.

Mr Binks said that there were several large reported requirements in the market from major retailers, one of which, Sports World, was close to agreeing the purchase of a 40.5 hectare site at Shirebrook in Derbyshire. He said it was believed the company wanted to construct a 130,000 sq m (1,399.307 sq ft) distribution facility as well as headquarters offices and convenience retail and training facilities.

“As a result of the improving outlook for demand, a number of developers have announced speculative development programmes for large units. For example, ProLogis is to develop ten sheds this year totalling 204,000 sq f (2,195,835 sq ft) after purchasing 154 hectares of industrial development land in Kettering, Wellingborough and Northampton,” added Mr Binks.

He said that the level of speculative development currently under construction in the East Midlands had significantly increased since the last quarterly survey to around 50,277 sq m (541,176 sq ft). Spec schemes were at South Normanton, off J28 of the M1, where Sladen Estates was developing a single unit of 2,165 sq m (23,303 sq ft); Holmewood Enterprize Zone, near Chesterfield (near J29 of the M1) and Spinney View, Northampton, at J15a of the M1.

The largest speculative scheme in the region is under construction at J30 of the M1 at Barlborough, where Gladman Developments is continuing with its “Big Five” development programme with the construction of a 43,942 sq m (472,987 sq ft) unit.
As far as rent levels are concerned, then King Sturge, in its latest UK Industrial & Distribution Floorspace Today report, says that prime rents in the region are around £53.80 - £59.20 per sq m in Northampton, and £51.10 per sq m in Leicester, Derby and Nottingham. Although rental values have remained static over the last four months, over the last twelve months they have increased by 0.4 percent.

Halifax: House Price Changes in Major University Towns and Cities

Thousands of A-level students have this week (Thursday 19th August) received their A Level results to enable them to confirm their university places and finalise arrangements for their accommodation.  Most new students usually spend their first year living in halls of residence, but others will be moving into rented houses with their friends.

Increasingly parents are considering buying investment properties for their sons and daughters to live in while they are at university, and Halifax Estate Agents has examined the changes in average property prices for the country's top 20 university towns and cities as well as those offering the most popular courses.

The average increase in property prices across the UK over the past five years has been 103%, and the majority of these towns and cities have performed very well, with ten out of the 13 university towns outside London outperforming or matching the UK over the same period.  Two exceptions, Cambridge and Oxford, nonetheless have still seen a doubling in prices since 1999.

There are thousands of university undergraduate courses to choose from, ranging from American Studies to Zoology, but the top 10 most popular courses remain more traditional.
 
In addition to the top 20 most highly rated universities, the universities above are recognised as excellent providers of some of the most popular courses.  Many areas around these universities have also seen good increases in house prices over the past five years, compared with the UK increase of 103% for the same period.

Buying a Property for University Accommodation

Wherever students are living, accommodation costs will amount to a substantial expense as courses are generally between three and five years in duration.  Finding suitable, safe and secure rental accommodation at the right price and close to the university combined with fears over mounting student debt is leading a growing number of parents to consider buying a property for their children to live in while at university.

Jane Pridgeon, Managing Director of Halifax Estate Agents, said:

"While it can be a good investment, the decision to buy a property for a son or daughter at university ultimately depends on the parents' personal circumstances and property prices around the university in question.
Feedback from our estate agents in university towns and cities shows that potential student properties are in high demand, particularly among parents looking for a long term investment while at the same time providing a home for their children."

CML - Transactions push mortgage lending figures to new record

A large number of loans for house purchase drove mortgage lending higher in July, according to figures released today by the Council of Mortgage Lenders. Gross lending was three per cent higher than last month, and 13% higher than in July 2003, at a new record level of £29.2 billion.

The figures were driven by loans for house purchase, which rose to a new record of £14.7 billion, compared to £13.9 billion in June and £11.9 billion in July last year. There were 131,000 loans for house purchase in July, the highest total since the 135,000 recorded in August 2002. Once again, loans for house purchase accounted for half of gross lending.

Remortgaging totalled £11.3 billion in July (£11 billion in June), accounting for 39% of advances, the same proportion as last month. However, in July last year, when remortgaging stood at £11.2 billion, it accounted for 44% of gross advances. Its decline as a proportion of lending, based on a similar total, provides further evidence of the current strength of lending for house purchase.

Despite affordability constraints faced by first-time buyers, they accounted for 28% of loans for house purchase, compared with 27% last month and 30% in July last year.

Average fixed and variable rates both rose by 15 basis points last month but the spread between them remained very small, at just four basis points. Despite this, the proportion of fixed rate loans only rose to 38% in July, compared to 34% in the previous month, as more borrowers sought to shelter against higher rates.

Commenting on the figures, CML director general Michael Coogan said:
"While these figures do not reflect the full effects of recent interest rate rises, they clearly do show that there was a strong seasonal revival in the house purchase market this spring. Estate agents are continuing to report a slowdown in current activity in their offices but this will not be reflected in lending figures for a few months. The continuing growth in the popularity of fixed rate lending reinforces a trend we have seen since spring, indicating that some borrowers are responding to higher borrowing costs."