Lettings News Round Up
The future looks bright for the Lettings Industry
BUY TO LET REBOUNDS
The plunging buy-to-let market has shown the first signs of ‘stabilising’ with figures today showing only a slight decline in new lending in late spring.
Arrears on buy-to-let mortgages also improved, according to the Council of Mortgage Lenders which claimed: ‘The peak in buy-to-let arrears seems to have passed.’
However, total new lending against residential property investment was down 79% on a year earlier.
Around 21,600 new loans were advanced in the second quarter – between April and June – representing a 4% decline from 22,400 in the first three months of the year.
Buy-to-let lenders were hit hard by the credit crunch due the industry’s heavy reliance on borrowing from international money lending markets. Those markets jammed up in August 2007 due to fear and confusion about how bad debts were being packaged up and sold internationally. Buy-to-let lending has been falling for two years.
New advances in the second quarter totalled just GBP1.9bn or 5.6% of total gross mortgage lending compared with GBP8.9bn or 12% a year earlier. That represents a decline of 79%. The CML warned that with tighter lending criteria and less equity in properties, it had become more difficult for borrowers to remortgage.
However, arrears showed ‘considerable improvement’ with 29,400 borrowers behind on payments, a 17% fall from a peak of 35,600 earlier in the year. The CML said lower interest rates had helped landlords, especially given the ‘majority’ of buy-to-let loans are interest-only, which see larger proportionate declines in monthly payments than repayment loans. The same effect is reversed when rates rise. The improvement comes despite new figures this week revealing unemployment continues to soar, rising to 2.5m in June and a rate of 7.6%, up from 5.4% a year earlier.
CML senior policy adviser Rob Thomas said: ‘So long as properties have paying tenants, landlords now have much greater ability to service mortgage payments and we expect arrears to continue to fall as landlords are helped by lower interest rates.
‘But healthy rental demand is contingent on a number of factors, including tenants’ continued employment.
‘Whilst house price falls have limited the scope for some landlords to remortgage, there is no evidence that landlords are exiting the market in large numbers and some landlords have the opportunity to make acquisitions and take advantage of higher yields.
‘But new lending to the buy-to-let market will continue to be constrained by the shortage of funding.’
Source: This Is Money
LANDLORDS – RENTAL MARKET STRENGTHENS
Good news for Landlords as rental market strengthens
Landlords celebrated a golden scenario of rising rents, rising prices, falling tenant arrears and lower void periods in July according to the latest research from LSL Property Services, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.
Rents in England and Wales rose at their fastest pace in a year in July, up 0.5% compared to June, the second consecutive monthly increase.
Overall, tenants are still getting a good deal. Rents are 4.5% below the peak last August, but the strengthening housing market and growing signs the recession is over suggest sustained rent declines are now a thing of the past.
Tenant finances are in better shape too. Arrears fell sharply in July, dropping to 11.2% of all rent owing from 11.6% in June, meaning rent totalling 247m pounds had not been paid on time. 517,000 tenants were behind with their rent at the end of July, down from the 529,000 who had not paid up by the end of June. One third of these had not paid their landlord for more than a month and almost one quarter (22%, or 115,000) were facing action by their landlord to evict them.
Landlords are also having less difficulty finding tenants. Voids, the number of days a property stands empty each year, have fallen by 2.5 days in the latest period from an annualised 29.2 days to 26.7. These 2.5 extra days’ rent per year will net landlords collectively an extra 181million pounds that would otherwise have been lost.
Yields slipped slightly in July from 5.04% to 5.02% because rent increases were outstripped by stronger house prices. But, after adjusting for the improvement in longer term arrears and void periods, the effective yield actually rose slightly, from 4.59% to 4.61%.
David Brown, commercial director of LSL property services said: “Landlords finally have reason to celebrate after a tough eighteen months. There was a glut of rental supply from the middle of last year as thousands of people who were struggling to sell homes put them up for rent instead. This additional supply from those less motivated to achieve market rents forced other landlords to put prices down and led to declines in overall rental levels.
“With the housing market now recovering, the economy thawing, and tenant finances in better shape evidenced by lower rent arrears, rents are starting to rise again.
“Short-term excess supply is now disappearing from the market and landlords are filling properties more quickly. Rents are still lower than a year ago, so tenants can find good deals, but they should move quickly to snap up the best rented homes.”
The upswing is being led by London and the South East which are both seeing the strongest recovery in rents. These two regions also have the lowest arrears and rented homes stay unoccupied for the shortest time here too. In London, a typical rented property is unlet just 18 days per year, more 9 days less than the average and less than half the time homes are sitting vacant in Wales and the North East.
Despite recent improvements, tenants are still most delinquent in Wales. Almost 15% of rent was unpaid there. Overall, Wales is offering landlords the poorest return – after adjusting for voids and long term rental arrears, yields are just 3.4%. Yields were best in the North West at 5.6%. Even though arrears and void periods there are above average, rental levels are good compared to relatively low house prices. See table below for full data.
David Brown added: “Just as the housing market recovery is beginning in London and the South East, so too the rental market is gaining ground there most quickly. Landlord returns vary widely around the country, however. Buy-to-let is a sound investment only if landlords really do their homework, pick properties which with wide appeal which won’t sit empty for months, and select tenants with good payment references. A high rental value on an empty property brings a zero return. A tenant who fails to pay is worse still.”
BBC REPORTS UK WIDE RENT RISES
Residential landlords can look forward to some very positive news today, with the BBC reporting that rental rates have risen across the country. In fact, statistics released by LSL Property Services suggest that residential rents were up by 0.5 percent in July, in both England and Wales, as compared to numbers published during the previous month. Not only does this new statistic underpin the argument that the buy-to-let and housing sectors are on the road to recovery, but it also suggests that the economy may be moving out of the doldrums of recent months faster than previously anticipated. The main reason for the 0.5 percent rise in residential rents is tied in large part to the decline in the number of vacant properties. Fewer properties are appearing on the market, and this has reorganized the balance between supply and demand in a way that benefits landlords.
LSL Property Services based its research on an examination of 18,000 residential properties throughout England and Wales. The organization found that landlords are once again in the driver’s seat, thanks not only to lower vacancies and rising rents, but also because residential property prices are rising. As such, many landlords are finding that their portfolios are worth noticeably more than at the beginning of the year. Equally positive news is the fact that tenant arrears are finally declining, after several troubling months when many landlords across the country often struggled to collect monthly rents. While more than 529,000 tenants failed to pay their rent on time in June, this figure dropped to 517,000 in July.
BUY TO LET PERFORMANCE STABILISES
Standard & Poor’s provided more positive news on the UK housing market on Friday, saying there were signs of stabilisation in the performance of securities backed by buy-to-let mortgages.
Delinquencies on UK residential mortgage-backed securities (RMBS) fell for the first time in two years in the second quarter, a sign that interest rate cuts are having some positive effect on credit performance, S&P said.
The recession and surging unemployment have put pressure on household finances, leaving thousands of homeowners unable to keep up with mortgage repayments. Average total delinquencies for UK prime BTL RMBS fell to 6.1 percent in the second quarter from 6.2 percent in the previous quarter, while riskier nonconforming BTL RMBS delinquencies fell to 17.1 from 18.6 percent, S&P said.
Delinquencies of 90 days or more, however, continued to rise.
Other data on Friday showed that UK home repossessions eased in the second-quarter.
The number of homes repossessed by lenders in Britain fell to 11,400 in the three months to June, compared with 12,700 in the first quarter, the Council of Mortgage Lenders (CML) said.