Monday, 22 April 2013

Landlords Actively Add to Buy-to-Let Portfolios

There was a surge in the number of landlords trying to raise enough capital to take advantage of high gross rental yields by adding to their portfolios during the first quarter of this year, according to detailed research released by Mortgages for Business, the specialist buy to let broker.
Remortgaging rose significantly from 43% in the last quarter of 2012 to 69% of all residential buy to let transactions in Q1 - the highest on record for a single quarter since the start of the broker's Complex Buy to Let Index in Q1 2011. Refinancing also accounted for over two-thirds of transactions on Houses in Multiple Occupation (HMO) and Multi-unit Freehold Blocks (MUFB).
The latest survey of estate agents, conducted by the Royal Institution of Chartered Surveyors (RICS), shows that the increased availability of cheaper home loans, boosted by Funding for Lending Scheme, has helped more investors gain access to home loan funding.
Housing transactions 
Surveyors sold an average of 17.4 homes in February - up from 16.8 in February, led by a rise in home sales in the West Midlands and London, according to the RICS survey.
"A buoyant, healthy property market is central to economic recovery and, while these are still very much early signs, it is encouraging that sales are beginning to pick-up," said Peter Bolton King, Rics' global residential director.
Looking ahead, respondents to RICS' survey said that they are optimistic that the recent increase in transactions is set to continue. A net balance of 19% more surveyors expect sales to rise further over the coming three months.
Howard Archer, economist at forecaster IHS Global Insight, said: "Recent signs of modestly improving housing market activity, supported by the Funding for Lending Scheme, and a moderate recent overall firming of prices suggest that there is a growing prospect that 2013 could be a slightly better year for the housing market."
However, transactions are still significantly below the levels reached in the early-mid 2000s, at the height of the last property boom, reflecting the fact that many would-be homebuyers are still struggling to gain a foot on the housing ladder.
Help to Buy 
Launched at the beginning of April, the ‘Help to Buy' scheme, which was announced in this year's Budget, could dramatically help to boost the number of people able to buy property, most notably new build.
‘Help to Buy' gives people on all stages of the property ladder the opportunity to purchase a new home with a deposit of just 5%. Under the scheme, the government will lend up to 20% of the value of the property through an equity loan. The purchaser will have to pay just 80% the cost of the property - made up of a 75% mortgage and 5% deposit.
Susan Young, sales and marketing director at Crest Nicholson, said: "Help to Buy is a great opportunity for everyone looking to buy a new property. What's so great about the scheme is that the lower deposit is available for all purchasers, whether they are first time buyers or looking to make the steps into their next home."
Various government backed incentive schemes have helped various purchasers acquire property in recent years, and many experts believe that continued investment in these schemes are exactly what is needed to inject further movement into the housing market and help fuel economic recovery.
Stephen Stone, chief executive at Crest Nicholson, commented: "Help to Buy has been billed as a real game changer for the housing market, and it's absolutely essential that we continue to offer purchasers some much-needed financial support to help bridge the deposit gap and secure an affordable mortgage."
Inevitably, despite serious efforts by the government to help homebuyers, many prospective purchasers will continue to struggle to raise the deposits needed to access a mortgage or fail to qualify for Help to Buy or any equivalent scheme, placing greater pressure on the private rented sector.
Strong rental market 
With Savills forecasting that around 20% of all households in the UK will be renting a property by 2016, resulting in a requirement for an additional 1.1m rental homes, there is growing demand for new buy-to-let landlords to enter the market and existing landlords to add to their portfolios.
It is estimated that there are 4.8m privately rented homes in Britain, up from just 2.5m in 2002. In London, private renting already accounts for 27% of all homes, some 900,000, having overtaken social renting in 2010, which now accounts for just 24% of tenure or 783,000 homes.
Increasing rents and lower capital values are giving a much better return on cash than the banks, particularly for those investors who are snapping up the right property, in the right location and at the right price with the right financial structure. 
Charles Brittain, Business Development Director of Invest Connect commented: "Rents have risen over recent years and interest rates are low providing the potential, depending on finance structure, for greater monthly returns."
Capital growth 
Residential property has historically doubled in value every 7-10 years and has done now for over half a century, as it did from 2000-2010. During this period the market experienced what was described as ‘the 2007 property crash'. In the last 10 years from 2002-2012, properties have seen around 50% increase in value across the UK.
Brittain added: "This could suggest that in the next 10 years we are going to see property values rise by at least 50% again if not more than double that figure, as per the historical 7-10 year double in value timescale. The 20 year rolling cycle of prices shows an increase in property annually averaging each year by 7% over the worst period since 1952 to 66% a year at best [1989-2009].
Research shows that rent increases over the past year have averaged 5.2%, Savills forecast 20% rental growth over the next five years, while research from Rightmove indicates that almost two-thirds of tenants are expecting their rents to rise over the next year.
Rental yields vary enormously depending upon where the property is located, with the highest yields generally achieved for the lowest value properties. But consider: Any investment carries some inherent risk.
The riskier investments, most notably high-yield properties, have the potential to make you the most money, but they also have the greatest chance of losing you money. The trick is to balance risk against reward when investing in property.