Getting Returns from UK Property

This article by Sarah Davidson of Every Investor on October 14th, 2013 tells us how to gain returns from UK housing property investment.

Neil Hermon, fund manager of The Henderson Smaller Companies Investment Trust, argues the case for investing in smaller companies in the UK property sector.

“If you own a house the 2% rise in prices since last year and currently low mortgage rates are enough to help you sleep at night.

“If you are one of the unfortunate, mainly youthful, 17% of the population who rents from a private landlord, analogies about chasing the ends of rainbows will likely come to mind.

“Getting a foot on the ladder, it seems, is becoming an increasingly expensive business.

“Aside from foreign investment, the government is working hard to help. The Funding for Lending scheme, launched in July 2012, was originally designed to incentivise banks and building societies to boost their lending to the real economy.

“A key beneficiary of this has been the mortgage lending market, boosting supply and therefore reinvigorating the UK housing market. Enter the government once more this time with Help to Buy.

“Announced in April this year, the scheme was designed to aid first-time buyers by offering them a five year interest free equity stake of up to 20% for any new-build property worth up to £600,000. This means buyers only need a deposit of 5%. What is more, George Osborne has brought into effect phase two of the scheme which extends the offer to include any home bought by a first-time buyer.

“The effect? Property sector growth. First-time buyers account for over half of the mortgages approved in London, not too dissimilar from the rest of the country, and data by The Council of Mortgage Lenders shows they are borrowing 47% more than compared to a year ago.

“These growth drivers will generate promising investment opportunities within the UK property space.

“One company I am particularly excited about is LSL Property Services, whom I recently met following their annual results. Their business model is designed in such a way that enables them to generate revenue from a number of different avenues.

“They are the second largest operator of sstate agents in the UK running over 500 branches including brands such as Your Move and Marsh and Parsons. They are also the fourth largest broker of mortgage and non-investment insurance in the UK and finally, through e.surv, they own the UK’s largest surveying and valuations platform.

“They are also number one for asset management and property management services, executing all parts of the chain from repossession services and renovation, through to sale.

“The company is in a strong position to grow into a market leader in all lines of its business.

They have around £100m of financing available and management are approaching the available merger and acquisition opportunities sensibly. Combined with the top-down government drivers of Help to Buy and Funding for Lending, their future looks prosperous.

“UK housing is again an attractive investment proposition; you certainly would not have thought so in 2009 – how things have changed.”

Article Source: http://www.everyinvestor.co.uk/news/2013/10/14/viewpoint-getting-returns-uk-property-6290/

London Wealthy Leave for Country Life as Prices Rise

This article by Patrick Gower of Bloomberg on October 14th, 2013 reveals how wealthy left London to be living in a country life when house prices rise.

It took more than a year for Mark Hudson to find his six-bedroom home in the English countryside. Within weeks of moving in, he got a bid that topped the 1.75 million pounds ($2.8 million) the property cost.

“Somebody called offering a significantly higher sum,” said Hudson, a 55-year-old manager at a publishing company, who in August swapped his home in Clapham, a London district favored by young bankers and lawyers, for Dorset, the farm-dotted county 125 miles (202 kilometers) southwest of London that was the setting for Thomas Hardy’s Tess of the D’Urbervilles. “It looks like we caught it just at the right time,” he said.

Country homes are coming back into fashion, after lagging behind urban locations such as London’s West End since the 2007 financial crisis when banks cut off mortgages. Prices for manor houses, farmhouses and cottages valued at more than 750,000 pounds climbed at the fastest rate in more than three years in the third quarter, Knight Frank LLP said in a report today, as Prime Minister David Cameron makes reviving the housing market central to his efforts to pull the economy out of recession.

“It’s U.K. economic growth and broader housing-market confidence,” said Liam Bailey, global head of residential research at the London-based property broker.

The government last week introduced the second phase of its Help to Buy program, which offers mortgage guarantees that allow purchases with down payments as low as 5 percent. The first phase, which began in April, provided interest-free loans for buyers of newly built homes. The program has contributed to the strongest housing market since the financial crisis, even as two thirds of 31 economists surveyed by Bloomberg described it as “bad” policy.

Bigger Appetite 

“Help to Buy has obviously been a catalyst that has encouraged people,” Bailey said by phone. “It’s stimulated appetite to get into the market and that’s not only the lower-end first-time buyers -- it’s right through into the prime sector.”

In July, homebuyers took out 3,900 loans of 500,000 pounds or more, the most since September 2007, according to the Council of Mortgage Lenders. There’s also more willingness to lend at higher loan-to-value ratios, according to Henry Knight, managing director at mortgage broker Springtide Capital Ltd.
 
Two years ago, Barclays Plc (BARC)’s Woolwich unit, Nationwide Building Society and Lloyds Banking Group Plc (LLOY)’s Halifax “stopped agreeing mortgages for more than about 1 million pounds, but now they’ve moved up to 2 million pounds and some have gone to 3 million,” Knight said by phone. “There are just more lenders playing in that market now.”

Prime Country 

Knight Frank’s prime country-house index, based on data from the firm’s U.K. branches, shows that prices rose 0.8 percent in the third quarter from the previous three months. Gains were led by Virginia Water, Berkhamsted and Cobham, just outside London. Prices climbed 0.4 percent on an annual basis.

The measure includes manor houses, defined by Knight Frank as a large property standing in extensive grounds; farmhouses, which typically have six bedrooms and several acres of land including garden, paddock and barns; and cottages, which normally have four bedrooms and about an acre of land.

While demand for properties within commuting distance of London was strongest, prime country homes in every region of England climbed for the first time in two-and-a-half years during the quarter, according to a reported published by Savills Plc (SVS) last week.

“This is your last chance to buy before stock goes down and prices really start to rise,” Yolande Barnes, director of residential research at the London-based broker, said by phone.

Queen’s Castle 

Current offerings of theirs include Park Place, an eight-bedroom period house on the edge of Windsor Great Park with cottages and stables on about 15 acres. The property, about an hour’s walk from Queen Elizabeth II’s Windsor Castle and close to English private school Eton College, is priced at 20 million pounds.

Savills, along with Hamptons International, is also selling Bayfields Farm, a country house in Hampshire, about 30 miles from Highclere Castle, where TV show “Downton Abbey” is filmed, for 2 million pounds.

The value of U.K. luxury homes had plunged in the wake of the 2008 collapse of Lehman Brothers Holdings Inc. and the ensuing credit freeze and recession. Average prices of homes in London’s most expensive neighborhoods fell 25 percent in 2008, while those in the countryside fell 20 percent, Knight Frank’s Bailey said.

Mortgages of more than 500,000 pounds to home buyers dropped by almost 50 percent between 2007 and 2008, according to the Council of Mortgage Lenders.

Affluent Foreigners 

London’s property market began to recover in 2009, in part because of affluent foreigners seeking a haven from turmoil in the Middle East and the wider European debt crisis.

These buyers, attracted by mansions a short walk from Harrods and Buckingham Palace, helped push the price of luxury homes in central London up 23 percent since their last peak in Autumn 2007. Prices of prime country homes remain down 20 percent, according to Knight Frank.

Now the recovery is spreading beyond London. The number of homes sold in the U.K. reached the most in nearly four years in July, according to the Royal Institute of Chartered Surveyors. That helped push the value of prime country homes up for the third consecutive quarter, Knight Frank said. House prices in affluent areas about an hour from London climbed 1.6 percent during the three months, while those in the remainder of the south of England climbed 1.2 percent, according to Savills.

Homebuilders Rise 

U.K.’s homebuilders have been among the biggest beneficiaries of revived housing demand, with an index of the companies gaining 47 percent this year, compared with the 10 percent advance for the FTSE 100 Index. Persimmon Plc (PSN), the largest U.K. builder by market value, rose the most in almost two months on Oct. 9 after Goldman Sachs Group Inc. (GS) said the stock may increase by 70 percent within six months.

Homebuilders are increasing productivity to satisfy new demand, which may be a mixed blessing for country estates.

“Prices are moving up against a background of four years of low supply in the country-house market,” Bailey said. “If this positive sentiment pulls in more supply, that will hang a question mark over the sustainability of this growth.”

For Hudson, waiting to sell his London home proved fortunate as prices rose in the capital, while he said they fell last year where he was looking.

“You’d see a house listed and a few months later it would still be on the market and the price had dropped,” Hudson said. “When we finally bought it was more of a lifestyle choice, we were never sure it was going to be a good investment.”

After selling the home in Clapham for 1.3 million pounds, with an extra 475,000 pounds he could afford the six-bedroom country house with a cottage, swimming pool and eight acres of land.

“I had a feeling the time was right and London’s housing market was coming to a peak,” he said. “Maybe I was wrong on that point, because in fact that peak seems to go on getting higher and higher.”

Article Source: http://www.bloomberg.com/news/2013-10-13/london-wealthy-leave-for-country-life-as-prices-rise.html

Help to Buy Has No Safeguards to Ensure the North Feels the Benefit Too

This article by Graham Jones of The Northener Blog on October 10th, 2013 tells us that constituent's tax should not be used to give a leg-up to bankers who want a 95% mortgage on a £600,000 London townhouse.

This week the government launched the second part of the Help to Buy mortgage guarantee scheme – the means by which the state will guarantee 15% of the deposit on a mortgage.

The government claims this will help people who can't save for a deposit to get onto the housing ladder. Critics – everyone else from financiers to economists to housing specialists – claim it will create a new and unsustainable housing bubble; subprime lending that was the cause of the banking collapse.

For someone struggling to save, a reduced deposit is an easier route to home ownership.

But this has to be about more than one mortgage. It has to consider the cumulative impact and the colossal risks that brings to government finances should it all go wrong.

But the aspect of the policy I find particularly interesting is the huge and conflicting disparities between the housing markets in and around London, and much of the north of England; in particular in very low demand areas such as my constituency, Accrington. A quick glance at current average house prices on Prime Location shows a gigantic disparity between London (average price £491,000 – predicted to rise to £500,000 by the end of the year) and Lancashire (£141,000 to £157,000, depending exactly where).

The policy therefore runs the risk of pumping far more money into already super-heated housing markets in London simply by virtue of the cost of properties there. The policy has no mechanism to ensure a geographical allocation of the guarantees – there is nothing to prevent the majority of the £12bn being spent on fewer, more expensive mortgages.

Even in Lancashire this high bracket has seemingly perverse consequences – the £600,000 upper limit could purchase a very large property indeed. It is possible to buy five-bedroom properties with significant land with room for stables and horses. Should the hard-pressed taxpayer support the wealthy of Lancashire?

As the Guardian itself warned this week, City bankers were holding off buying a property and getting 95% mortgages instead in order to free up cash that would otherwise be locked into a property through the deposit. I do not think city bankers and those hoping to bump themselves up the ladder (up to a potential £600,000 house!) are particularly the people that we ought to be focusing on when it comes to housing aspiration – and it certainly wasn't the way the policy was sold to the public. My hard-pressed constituents are paying into a pool of money which could be being used to guarantee the mortgage of someone who gets very highly paid so they can buy a £600,000 house.

The reason we have low demand in East Lancashire is in part due to the economy, but that in turn is partly due to the housing market: we have an oversupply of houses that people don't want to live in (many of which as a result stand empty, boarded up). If the government wanted to improve the housing prospects of first-time buyers they would focus on building new houses across the country. £12bn to prop up mortgages could be spent to massively open up supply and build hundreds of thousands of new dwellings.

I hope this policy works for the people who take part in it, and anything that helps (or could help, as long as the budget isn't swallowed up on a smaller number of expensive properties) young people should be welcomed – however it is a short-term solution to the problem of undersupply of housing in parts of the country, and undersupply of quality properties in others.

My constituents' tax is being used to guarantee these mortgages – they ought to benefit from it (I hope the Treasury is at least monitoring where the money is going, though I am not optimistic). There are better policies the government could have pursued, but this is the one they chose – the least they could do is guarantee my constituents have an equal opportunity to take part.

• Graham Jones is the Labour MP for Haslingden and Hyndburn

Article Source: http://www.theguardian.com/uk-news/the-northerner/2013/oct/10/help-to-buy-scheme-north-safeguards

UK's RBS Denies Residential Property Sale Report

This article by 4-traders on October 9th, 2013 reveals a newspaper report that Britain's Royal Bank of Scotland denied in selling property portfolio.

(Reuters) - Britain's Royal Bank of Scotland on Wednesday denied a newspaper report it was planning to sell a portfolio of more than 1,300 UK residential properties owned by its property arm, and was considering floating them on the stock exchange. 

The Guardian newspaper said the properties were worth around 200 million pounds and owned by RBS through a subsidiary called West Register, which held assets valued at more than 3 billion pounds, mostly in the UK and Germany. 

"There are no plans to sell off a portfolio of properties or to float it on the stock exchange," a spokesman for state-backed RBS told Reuters.

The Guardian said the move would be seen as the creation of a mini "bad bank" and the offshoot would almost certainly form part of the potential bad bank that Chancellor George Osborne was considering hiving off from the rest of RBS.

Reuters reported in September that RBS could create an internal bad bank to house its problem loans, even if the government decided not to enforce its breakup.

(Reporting by Tasim Zahid in Bangalore; editing by David Evans)

Article Source: http://www.4-traders.com/news/UKs-RBS-denies-residential-property-sale-report--17338062/

One city's house price surge

This article by Kevin Peachey of BBC News Business on October 6th, 2013 reveals data from NBS that house prices has doubled in the past 10 years.

Two cities in the UK - one is a centre of commerce, has runaway house prices, and welcomes a constant stream of overseas property buyers. The other is London.

House prices in and around Aberdeen have more than doubled in the past 10 years, according to data from the Nationwide Building Society.

That increase is only matched by the trendy north London borough of Islington, and by Westminster in the heart of the capital of the UK.

Recent figures show that Scotland's third city is recording a fresh surge in property prices. One estate agent describes the area as a property force field.

"Everywhere outside is doom and gloom, but it is boom time here," says Brian Sutton, of James and George Collie solicitors and estate agents.

Silver city
 
Take a closer look at Aberdeen, and its picturesque, shimmering granite homes, and you can see the complexity of the UK property market.

The city has demand from first-time buyers willing to pay above valuation levels, interest from workers moving to the area, investors keen to get in on the act, and a lack of homes for sale.

All this pushes up prices. Yet, in Scotland as a whole, prices are only creeping up after years of stagnation.

It shows that averages can be misleading and that local areas can have very different trends to neighbouring regions, for reasons ranging from the quality of local schools to employment levels.

It also questions a widely held belief that the London property market is unique - that soaring prices in the south-east of England are unequalled in the rest of the country.

Oil money
 
At the mouth of Aberdeen Harbour, next to the fishermen's village of Footdee, is a landmark called the Roundhouse.

The Shoremaster's accounts for 1797-98 show that more than £225 was spent on the new house and telescope on the site.

Nowadays, first-time buyers in the city can expect to pay up to £140,000 for a one-bedroom flat, or up to £500,000 for a bigger property.

Competition for homes means many buyers are paying 5% to 10% over valuation at the moment, says Bill Barclay, partner at Raeburns solicitors and estate agents.
Often sales go to sealed bids, with first-timers stretching their savings to compete with buy-to-let investors.

Spend a few minutes standing by the harbour and the reason for this active property market is clear - North Sea oil.

"It drives the local economy," says Mr Barclay. "Big companies are making long-term financial plans for the area, so we are not going to see much changing."

Overheating market?

The area was not immune to the financial crisis. Banks were not lending at the levels they had been before 2008, but Mr Barclay says Glasgow and Edinburgh suffered much more.

Now, he says - using a phrase apt for an oil-producing region - the banks are "starting to open the taps" again to fund mortgages.

Figures published by the University of Aberdeen show a 25% increase in the volume of sales in the second quarter of the year compared with the same three months in 2011. Prices were up by 5.5% in the city and its suburbs over the same period.

Sales volumes of flats were up by 53% in that time, as buy-to-let investors find the finance and predict demand from tenants
.
All this is gloomy news for potential first-time buyers. One 32-year-old tells the BBC he has been renting on the south coast of England and then Aberdeen over the past 15 years and is unable to save anything close to what is needed as a deposit.

You hardly see a sale sign erected within the city's sought-after areas, with supply low and competition picking up. But the market is far from overheating, as it was in 2007, according to estate agent Brian Sutton.

"We had people in their early 20s buying property, with 10 to 20 bidding for one property. Competition has come back, but it is three to four people bidding," he says.

"First-time buyers are in their early 30s, not their 20s, often with their parents helping."

Bubble fears?

He predicts the housing market will continue to rise at a "sustainable rate", especially as the oil companies build headquarters in the area and continue to relocate staff to the region.  

Prices may grow by single figures year-on-year, he says, but nobody wants to return to the days of 20% a year increases.

Much the same point was made by Business Secretary Vince Cable when he raised concerns about a property bubble potentially being inflated by government schemes to kick-start the market.

"In London and the south east, in the north-east of Scotland, in other areas, there are serious housing inflationary pressures," he said.

Despite his warning, the second phase of the Help to Buy scheme has been brought forward by three months in England, and the Scottish government has announced the start of its own scheme.

The UK and Scottish governments both argue that Help to Buy, which includes allowing buyers to apply for a shared equity loan for part of the property, are vital to give people the chance to secure a mortgage from risk-averse lenders.

Buyers only qualify under the Scottish scheme if they are buying a newly built property.
Critics might argue that they should encourage the developers to follow the example of the fishermen's cottages at Footdee - where the front doors face inwards to protect occupants from incoming storms.

 Article Source: http://www.bbc.co.uk/news/business-24348196

Help to Buy: Let the Property Scramble Begin

This article by Rupert Jones of theguardian on October 5th, 2013 tells us the criticism from experts regarding the second part of the government's help to buy scheme.

A range of government-backed 95% mortgages are set to go on sale next week after ministers fired the starting gun on a new property scramble.

Two partially state-owned banks, Royal Bank of Scotland and the Lloyds Banking Group, will offer the loans initially, and millions of people will potentially be eligible to sign up.

Under the controversial Help to Buy scheme, homebuyers will only need to put down a 5% deposit – and it is open to existing owners as well as first-time buyers. What is more, there are no limits on how much you can earn and it applies to both old and new-build properties costing up to a generous £600,000.

RBS and its NatWest arm seem to think this second part of the Help to Buy scheme, which is being launched three months earlier than planned, has the potential to be the financial equivalent of the Harrods sale. They say customers will be able to visit any of their 2,000 branches or ring up, and add that opening hours will be extended at peak times "to help with customer demand".

Homebuyers were this week awaiting details of the deals – in particular, how attractive the pricing will be – amid speculation that the scheme could push down rates on 95% mortgages from their current levels of between 5% and 6% to perhaps as low as 4.5%, as well as increasing the choice of products available. That could lop almost £100 a month off the typical payments of someone taking out a £160,000 mortgage.

RBS and NatWest say they will offer "a range of competitive 95% mortgages" to first- and next-time buyers. These will initially be available in branches and over the telephone, and later via mortgage brokers. Halifax, part of the Lloyds group, will also be offering deals from launch; these will be available via branches and brokers. Lloyds Bank will participate from January, while other lenders such as Santander and Nationwide have yet to confirm whether they will take part.

While the scheme won't become fully operational until January, people will be able to start applying from next week, and once their mortgage is approved the funds will be available straightaway – they won't have to wait until the new year to complete on their home purchase.

There has been fierce debate about whether the scheme will hand a vital lifeline to homebuyers or simply drive house prices even higher, but what is undeniable is that this is a huge and potentially risky venture for the government. It is partially guaranteeing £130bn of low-deposit mortgages, which ministers have claimed could translate into assistance for well in excess of 500,000 homebuyers over three years.

That is a lot of people potentially being helped but, even so, there are fears demand could massively exceed supply. Santander issued research yesterday claiming 10% of Britons – equivalent to 5.1 million people – believe they are likely to buy a property in the next 12 months. A third of these, 1.7 million, said they planned to use Help to Buy.

In reality, some of these people would be locked out of the scheme because, for example, they are buying a property to rent out, or a second home, both of which are excluded from Help to Buy, or they don't meet the requirements on income and past credit history – but this still suggests that fears of a stampede of applicants may not be misplaced.

Phase two of Help to Buy is about encouraging banks and building societies to offer more mortgages that only require a small deposit (at least 5%) by giving them the opportunity to buy a guarantee on the "top slice" of the home loan – the bit between 80% and 95%. If a borrower gets into financial difficulty and their property is repossessed, the government will cover a chunk of the lender's losses.

Ministers are making available £12bn of guarantees to lenders, but the latter will have to pay a fee for each mortgage underwritten.

The scheme has come in for harsh criticism from some commentators. On Thursday, Howard Archer, chief UK economist at IHS Global Insight, warned: "There is a mounting danger that house prices could really take off over the coming months." He was speaking after figures from Halifax revealed that house prices are rising at their fastest annual pace for more than three years.

• A free Help to Buy show is taking place today (5 October) at the Glow events venue at the Bluewater shopping centre, Kent, between 10am and 4pm. The event is aimed at people in Essex, Kent, Sussex and south London. Go to glowbluewater.co.uk for more.

Article Source: http://www.theguardian.com/money/2013/oct/05/help-to-buy-property-scramble

The Cost of Renting in the UK is Nearly at a Record High

This article by the Landlord Expert on October 4th, 2013 tells us that private rents are just £1 short of record highs as an effect of rising house prices on rental market.

The lettings network LSL Property Services said rents had reached their second highest level since 2008 - largely because of a shortage of property to buy as Government schemes help people onto the ladder.

LSL, which owns the Your Move and Reeds Rains chains, reported that at £743 on average, monthly rents in August were just £1 less than the all-time high recorded in October 2012.

The pace of rent increases stepped up to 0.7% month-on-month in August.

It said rents were 1.3% higher across England and Wales than a year ago - less than half the rate of inflation - but London's rental market was soaring.

At £1,126 typically, rents in the capital have risen at a much faster rate than inflation and are up by 4.8% year-on-year.

Earlier this week, official figures showed that house prices in London were up by nearly 10% year-on-year , indicating the strength of demand.

Wales saw the second biggest annual increase in rents, with a 2.3% uplift taking average rents to £561.

The South East recorded the strongest month-on-month growth, with a 2% rise pushing monthly rents to £762.

By contrast, rents in Yorkshire and the Humber are 1.6% lower than last year, at £536 typically, followed closely by a 1.5% annual fall in the North West, taking average rents to £582.

The North East saw the biggest month-on-month drop in rents, with a 0.8% fall taking average rents to £523.

Across the country, rental inflation had been cooling off for much of this year following the launch of Government schemes to give people with low deposits a chance to buy.

First-time buyer numbers have reached their highest levels in more than five years following the initiatives such as Funding for Lending and Help to Buy, which have widened access to mortgages and allowed some people who were previously trapped in renting to break free.

But David Newnes, director of LSL Property Services, said that weak income growth, which has an impact on households' ability to borrow, and a lack of housing supply meant that the private rental sector was continuing to see strong demand from new tenants.

Mr Newnes said: "Better availability of finance has allowed some households to leave the rental market. And rents certainly felt the short-term impact of that.

"But releasing a blast of pent-up pressure to buy a home is unlikely to change the long-term trend in renting.

"Although Government schemes are helping, buying a first home is still extremely hard on the back of low salary growth."

 Article Source: http://www.landlordexpert.co.uk/index.php/news-centre/6222.html