No let-up for buy-to-let in UK cities
Wednesday, 19 March 2008
Paula Hawkins
Anxiety over the state of the property market in Britain shows no signs of letting up. As the major auction houses gear up for their February sales, there are worrying signs. Savills says it has seen an increase in the number of repossessed properties - and it expects this trend to continue over the coming months.
We have seen an uplift in repossessions," says Chris Coleman-Smith of Savills. "I think we will see a steady stream of repossessions at auctions across the country this year." Allsop, Britain's largest property auctioneer, says 40 per cent of the lots in its February auction were repossessions, a significant number of which came from buy-to-let investors.
The Council of Mortgage Lenders reported on Friday that 27,000 houses were repossessed in 2007, the highest number since 1999. The 2007 figure was 10 per cent lower than the CML had forecast for the year; homeowners will be hoping that its forecast for this year, of 45,000, is also too pessimistic.
Even if its forecast is too high, such statistics make uncomfortable reading for vulnerable investors, particularly those who bought new-build properties in oversupplied city centres. Last month Neil Woodford, the highly regarded fund manager at Invesco Perpetual, said he expected house prices to fall by around 10 per cent this year, and warned that new-build properties in some city centres were now "almost unsellable".
Concerns over the new-build sector were reinforced by news that three mortgage lenders - Mortgages Plc, West Bromwich building society and Preferred - will no longer lend above 75 per cent of the property value on these flats.
One of the main problems is that in many cities, such as Leeds, Newcastle and Liverpool, there is oversupply of new-build flats, most of which have been bought by buy-to-let investors who are struggling to find tenants. Investors have bought into new developments with unrealistic expectations, both of capital growth and of rental demand.
"There are one or two city centres where people were led by the nose into rent-guaranteed deals, and once the guarantees ran out they found themselves without tenants and in trouble," says David Whittaker of Mortgages for Business, the specialist buy-to-let lender.
Tim Hyatt, the head of London lettings at Knight Frank, the estate agent, says investors buying into new developments should not expect to rent their flat straight away. "If you buy at the early stages of a new development, you should expect void periods to be higher initially," Hyatt says. In some developments building work will still be going on, and even if the development is complete it may take two or three years before the area develops a feeling of a community in which tenants will want to live.
Coleman-Smith has seen such properties struggle at auction. "We had a new-build flat on sale at an auction in Birmingham last year. It had been bought about 18 months previously for £150,000 - we couldn't sell it at £120,000," he says.
But while investors who overstretched themselves or bought the wrong sort of property are struggling, for the rest of the buy-to-let market the outlook remains fairly positive.
Paragon Mortgages, the buy-to-let specialist, says rents are now rising at their fastest rate on record: they rose by 19 per cent in 2007 and by 8 per cent in the last quarter of last year alone. As a result, yields are starting to creep up after a year of stagnation: the average is now 6.2 per cent, up from 6 per cent a year ago, while in the North the average is just over 7 per cent. Paragon says the total annual return for 2007 was 21 per cent - three times higher than in 2006.
Many letting agents report a significant increase in enquiries in January. "People appear reluctant to look at buying right now, so we have plenty of high-earning tenants looking for high-standard properties," says Adam Joseph of Lets Go, the estate agents. Some parts of the country, such as Surrey, are seeing rising numbers of "in-betweeners" - people choosing to sell their homes and then rent for six months or a year in anticipation of a fall in house prices. "Let-to-buy is making a comeback," says Hyatt.
Professional property investors, meanwhile, are looking to capitalise on the discomfort of those amateurs who are being repossessed or forced to sell. "Professional investors - the sort that haven't been lured into off-plan, builder-discount properties - are starting to cut some good deals and get better yields," Whittaker says. Those who were wise enough to sell when the market looked like peaking now have cash to invest, and for them repossessions can make an attractive target.
Repossessed properties are perfect for landlords because they tend to be sold at a substantial discount to market value," says Melanie Bien of Savills Private Finance, the mortgage broker.
However, anyone considering buying repossessed properties as investments needs to be very cautious. "Buying a repossessed property tends to mean that there are lots of questions unanswered: there are no existing owners to let you know about problem neighbours or whether there have been boundary disputes, or even if the central heating works," Bien says.
"These are things you or your solicitor need to check out before signing on the dotted line." If you are borrowing to purchase a buy-to-let property, it must be in reasonable condition.
"The lender will want to see that the property is habitable and ready to let. There must be a working bathroom and kitchen."
.........................
The Telegraph
Anxiety over the state of the property market in Britain shows no signs of letting up. As the major auction houses gear up for their February sales, there are worrying signs. Savills says it has seen an increase in the number of repossessed properties - and it expects this trend to continue over the coming months.
We have seen an uplift in repossessions," says Chris Coleman-Smith of Savills. "I think we will see a steady stream of repossessions at auctions across the country this year." Allsop, Britain's largest property auctioneer, says 40 per cent of the lots in its February auction were repossessions, a significant number of which came from buy-to-let investors.
The Council of Mortgage Lenders reported on Friday that 27,000 houses were repossessed in 2007, the highest number since 1999. The 2007 figure was 10 per cent lower than the CML had forecast for the year; homeowners will be hoping that its forecast for this year, of 45,000, is also too pessimistic.
Even if its forecast is too high, such statistics make uncomfortable reading for vulnerable investors, particularly those who bought new-build properties in oversupplied city centres. Last month Neil Woodford, the highly regarded fund manager at Invesco Perpetual, said he expected house prices to fall by around 10 per cent this year, and warned that new-build properties in some city centres were now "almost unsellable".
Concerns over the new-build sector were reinforced by news that three mortgage lenders - Mortgages Plc, West Bromwich building society and Preferred - will no longer lend above 75 per cent of the property value on these flats.
One of the main problems is that in many cities, such as Leeds, Newcastle and Liverpool, there is oversupply of new-build flats, most of which have been bought by buy-to-let investors who are struggling to find tenants. Investors have bought into new developments with unrealistic expectations, both of capital growth and of rental demand.
"There are one or two city centres where people were led by the nose into rent-guaranteed deals, and once the guarantees ran out they found themselves without tenants and in trouble," says David Whittaker of Mortgages for Business, the specialist buy-to-let lender.
Tim Hyatt, the head of London lettings at Knight Frank, the estate agent, says investors buying into new developments should not expect to rent their flat straight away. "If you buy at the early stages of a new development, you should expect void periods to be higher initially," Hyatt says. In some developments building work will still be going on, and even if the development is complete it may take two or three years before the area develops a feeling of a community in which tenants will want to live.
Coleman-Smith has seen such properties struggle at auction. "We had a new-build flat on sale at an auction in Birmingham last year. It had been bought about 18 months previously for £150,000 - we couldn't sell it at £120,000," he says.
But while investors who overstretched themselves or bought the wrong sort of property are struggling, for the rest of the buy-to-let market the outlook remains fairly positive.
Paragon Mortgages, the buy-to-let specialist, says rents are now rising at their fastest rate on record: they rose by 19 per cent in 2007 and by 8 per cent in the last quarter of last year alone. As a result, yields are starting to creep up after a year of stagnation: the average is now 6.2 per cent, up from 6 per cent a year ago, while in the North the average is just over 7 per cent. Paragon says the total annual return for 2007 was 21 per cent - three times higher than in 2006.
Many letting agents report a significant increase in enquiries in January. "People appear reluctant to look at buying right now, so we have plenty of high-earning tenants looking for high-standard properties," says Adam Joseph of Lets Go, the estate agents. Some parts of the country, such as Surrey, are seeing rising numbers of "in-betweeners" - people choosing to sell their homes and then rent for six months or a year in anticipation of a fall in house prices. "Let-to-buy is making a comeback," says Hyatt.
Professional property investors, meanwhile, are looking to capitalise on the discomfort of those amateurs who are being repossessed or forced to sell. "Professional investors - the sort that haven't been lured into off-plan, builder-discount properties - are starting to cut some good deals and get better yields," Whittaker says. Those who were wise enough to sell when the market looked like peaking now have cash to invest, and for them repossessions can make an attractive target.
Repossessed properties are perfect for landlords because they tend to be sold at a substantial discount to market value," says Melanie Bien of Savills Private Finance, the mortgage broker.
However, anyone considering buying repossessed properties as investments needs to be very cautious. "Buying a repossessed property tends to mean that there are lots of questions unanswered: there are no existing owners to let you know about problem neighbours or whether there have been boundary disputes, or even if the central heating works," Bien says.
"These are things you or your solicitor need to check out before signing on the dotted line." If you are borrowing to purchase a buy-to-let property, it must be in reasonable condition.
"The lender will want to see that the property is habitable and ready to let. There must be a working bathroom and kitchen."
.........................
The Telegraph