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Buy to let landlords face paying more for a mortgage in the UK, it is claimed
Buy to let investors could face paying an extra £10,000 to get a mortgage after a crackdown on dangerous debts by UK lenders. Watchdog the Prudential Regulation Authority is concerned that some landlords are overstretching themselves and will face difficulties when interest rates rise and it is expected that the banks and building societies will start making new hefty charges from September 2016. As a result, it is forcing lenders to run stricter tests to see whether an investor can afford the loan. Currently, investors have to prove they would earn enough from the rent to cover their repayments, but the new plan demands proof they would still be covered if rates rose by at least 2%. Under the new tests, banks and building societies will want evidence of a yield of at least 5.2% to qualify for a 25% deposit loan. This would mean earning £7,800 a year from rent on a £150,000 home before paying the mortgage. To pass the tests, investors will have to either raise rents to ensure they would be covered if interest rates soared, or reduce borrowing. However, according to Peter Armistead of Armistead Property, savvy investors can absorb these new charges by buying cheaper property with higher yields. ‘Clearly the investors most at risk are those with smaller deposits who buy property in parts of the UK where rents are low compared with house prices. This is a particular problem in places such as London and the South East where the average annual returns between 2010 and 2015, was just 4.86% in outer London and 4.71% in the City, according to LendInvest,’ he explained. He pointed out that house prices in London are about five times what they are in parts of the North West, but salaries are only 30% higher. Manchester and Liverpool deliver some of the best rental yields, with Manchester recording average annual rental yields of 6.02% over five years, followed by Liverpool with 5.15% yields. He also said that an average residential property in Manchester is just £155,000, while a flat in a good area, costs as little as £120,000. A property in Manchester can provide a 5% minimum cash rental yield and a typical 12% total cash yield, including 7% capital appreciation. Demand for rental accommodation is strong and by comparison with other regions, housing is cheaper. ‘Landlords will find the best returns in urban areas, with a concentration of students and young professionals. If investors can purchase cheaper properties with better yields, they will have the opportunity to protect and boost their profits in the longer term,’ added Armistead. Continue reading
Outlook for investment in Scottish commercial property market positive
With talk of another referendum in Scotland if the UK votes later this month to leave the European Union new research has found that Scottish independence is not a priority for UK property investment. Investors believe that they will still invest in commercial real estate in Scotland as long as yield outperforms other regions as the issue of Scottish independence ranks lower in importance than rental yield, capital growth and a stable tax environment. Just 21% of property investors said independence was an important factor, less than half the 46% who mentioned rental yield, according to the Morton Fraser survey. Overall one in four property investors is open to investing in Scotland with 11% actively monitoring or currently pursuing opportunities. Proportionately, this is above the nation’s 8.9% share of the UK commercial real estate market. It also shows that 85% believe that leaving the EU would have no impact at all on their likelihood to invest in Scotland and 79% of property investors claimed Scotland separating from the UK would not affect their decision to invest. ‘It is easy to overestimate the potential impact of Scottish independence on the property market. Investors are ready to enter the market if the right opportunity arises, regardless of the political status of the country,’ said David Stewart, commercial real estate partner at Morton Fraser. ‘That gives us optimism for the future of the Scottish real estate industry. If the price is right and the market conditions are at least on a par with other regional areas across the UK, investors will follow the returns. The prospect of a neverendum in Scotland may drag investment, but it’s not the deciding factor for many,’ he added. With rental yield the number one criteria for potential British property investors looking to enter the Scottish market, Morton Fraser has uncovered the ‘tipping point’ at which a yield premium would encourage investment. Of the property investors likely to invest in Scotland if there was a higher yield premium, 70% said a benchmark of more than 3% or higher would encourage them to invest, with 31% saying more that 5%. That figure should be viewed in the broader context of many respondents being initially cold on investing in Scotland, so the true figure for active investors is likely to be sharper. ‘Many investors are prepared to overlook ideological or political issues to run the rule over Scottish property investments. The yield gap between Scotland and other regional cities in the rest of the UK can always be met with a quality opportunity whether you are looking to invest in Edinburgh or Manchester, Glasgow or Bristol, a high quality asset will always stand on its own merits,’ Stewart added. Continue reading
Apartment rent growth slows in the United States
Apartment rent growth in the United States has slowed nationwide over the past year, with the higher end of the market most affected, new research shows. After growing at a blistering pace for much of 2015, apartment rents across the county are growing at a slower pace thus far in 2016, according to the data from real estate firm Zillow. Overall, apartment rents nationwide grew by 3.6% for the year ending in April 2016, almost 2% points slower than the 5.4% pace reported for the year ending in April 2015. And in 23 of the nation’s 35 largest housing markets, the slowdown in rent appreciation has been more acute in luxury ZIP codes area than metro-wide. In four additional markets of Washington D.C., Sacramento, Miami-Fort Lauderdale, and Kansas City broader apartment rent growth has accelerated from 2015, but it has accelerated less in luxury ZIP codes than in the metro as a whole. Aaron Terrazas, a senior economist at Zillow, said that substantial investment in new construction, particularly at the high end of the market, has contributed to some of this pattern, although in some areas weak labour markets may also be a contributing factor. The research also shows that in the Houston metro, essentially all ZIP codes where the median rent per square foot is above $1.10 have experienced a deceleration in apartment rents. In the New York metro, the natural cut off appears to be closer to $2.30 per square foot and in the San Francisco metro, it appears to be around $3.80. The exception is the Seattle metro, where higher apartment rent growth continues to accelerate in luxury ZIP codes, although the acceleration has perhaps not been as dramatic as lower priced ZIP codes. Terrazas explained that part of this is due to rapidly rising rents in neighbourhoods north of Seattle’s Lake Washington Ship Canal. Meanwhile, the latest national index produced by Florida Atlantic University and Florida International University shows that housing market as a whole is moving deeper into buy territory, suggesting that, on average, residential housing markets around the country are sound. The Beracha, Hardin & Johnson Buy versus Rent (BH&J) Index measures the relationship between purchasing property and building wealth through a build-up in equity compared renting a comparable property and investing in a portfolio of stocks and bonds. It says that in terms of wealth creation the US housing market, when considered as a whole, has swung marginally more in favour of home ownership over renting a comparable property and investing monthly rent savings in a portfolio of stocks and bonds. Overall, 16 of the 23 metropolitan markets investigated moved in the direction of buy territory. The metro areas of Boston, Chicago, Cincinnati, Cleveland, Detroit, Milwaukee, Minneapolis, New York, Philadelphia and St. Louis remain solidly in buy territory. ‘These cities should have room for price growth without much worry of overheating,’ said Eli Beracha, co-author of the index and assistant professor in the T&S Hollo School of… Continue reading
