Monthly Archives: January 2014

Landlords struggle to raise rents

Just 42% of residential landlords expect to raise rents in 2014 as they look to keep up with inflation and look to recover the costs of necessary maintenance. One third will lift rents by 1% or more, with an average estimate of a 3.7% increase, according to research by LSL Property Services. According to the company’s buy to let index, rents are rising at an average 1.5% currently, barely keeping pace with retail price inflation.

“Even with an increase in rental properties available, demand in the private rental sector continues to outstrip supply in many areas, especially in London,” said David Newnes, director of LSL Property Services. “In the months ahead, this will enable landlords to push up their rental prices when letting their properties, putting a stop to inflation from eating into their rental income.”

Landlords cite inflation, maintenance costs and rising insurance premiums as items putting pressure on their returns from renting a property. On average, rental properties yield around 5.3%, with an additional element of capital appreciation, as property sale prices advance ahead of inflation rates.

LSL, the company behind e.surv, Your Move, Reeds Rains and several other estate agency brands, also note that voids are falling. New tenancies agreed in December were up 7.7% on a year previously, helped by solid tenant demand and meaning that tenants are now having to compete and take quick decisions to secure the best rental properties. “Landlords can minimise void periods by talking openly with their tenants about their future plans, in order to prepare for when the property might be empty,” said Newnes. “Overall, there’s an air of optimism surrounding the rental market, now that inflation is firmly back on track as wage expectations start to improve.”

Newnes sounded one note of caution about the current market, though, and in particular the level of new build supply in the market. “With demand rising, greater emphasis must be on the supply of homes. While the government plans outlined are a welcome move, this is only the start of the long term solution.”

Buyers failing to prepare for Help to Buy

More than a third of 20-40 year olds are hoping to tap the government’s Help to Buy scheme this year, but many of them are ill-prepared to meet the initial requirements of the scheme.

Basic errors such as not being listed on the electoral roll are common, according to research by Experian CreditExpert. A lack of savings or poor payment history on something as inconsequential as a mobile phone account can also contribute to a weak credit record, affecting applications for a mortgage negatively.

The Experian CreditExpert research found just 40% of Help to Buy hopefuls were registered on the electoral roll at their current address. A quarter have never reviewed their credit record, while 7% have saved nothing towards a deposit. Less than three quarters have actually saved the minimum £5,000 required to get into Help to Buy.

“Help to Buy has brought home ownership within touching distance for thousands of younger buyers earlier than they may have dreamt possible,” said Peter Turner, managing director of Experian Consumer Services. “But it’s important to remember that the deposit is only part of the equation and consideration must be given to how much you can afford to borrow – and crucially, repay, in the years to come.”

The research discovered that 25% of the hopefuls have never checked their credit report; however, 31% are switched on to the issue, and have checked their file in the last three months. One in seven admit they have been managing their current credit accounts poorly.

Interestingly, men are likely to have saved more – 47% have more than £10k in savings, compared with just 33% of women. Unsurprisingly, Londoners have the biggest deposits saved, more than half having more than £10k and 19% having double that ready to put down. Currently, the hopefuls have an average £4,600 in other borrowing already against their name.

Turner also warned: “Anyone looking to make the most of Help to Buy would be well advised to check their credit report to better understand their credit history, and ask for help if needed, to ensure your credit report pains the best possible picture – before you make your application. Hopefuls should also note that in the short term, future applications for credit could be negatively affected as lenders may want to see how well you are repaying your current credit commitments, before offering you any more credit.”

Take a closer look at the Experian report here.

London records minimal rent rises in 2013

Despite the spike in London property prices, private sector rents grew very little across in the capital, or across the wider UK last year. 

Rents rose 1.0% in England, 1.2% in Wales and 1.3% in Scotland during 2012, according to figures produced by the Office for National Statistics. London registered a 1.6% rise, according to the regional splits of data provided.  

However, research by inner London agents Hurford Salvi Carr, points to specific issues around the market in central London, where foreign investor interest has helped to drive up prices for apartments offered for sale. 

“The story that is rarely heard in discussions about London’s housing markets is that there has been no inflation in rents for central London residential property. Rental values have been broadly flat for the past two years,” said the company in its 2013 review. And the agent predicts little growth in rents for the forseeable future. 

The contrast is that, while sale prices are paid by foreign buyers, or domestic buyers looking to put cash into something that returns more than the pitiful returns on a savings account currently, rents are paid by real people, out of their wages. And those are not, in general, rising very much. As the agents put it;” There appears to be a ceiling on rental values – which we attribute to affordability – above which, many tenants decide to move further away from the centre of London, to get better value, in the form of a lower rent, or a larger space.”

For buy to let landlords, that means short term they should expect low returns from the rent their tenants pay. All hope is heaped on the property market continuing to rack up in value – providing a capital gain that will put the rental return in the shade over the medium to long term. 

Prudential to invest £156m in UK housing market

Insurance giant Prudential has announced it will help fund the delivery of 1,000 homes across Wales. The company will lend to up to 17 housing associations, allowing them to start building new projects with the support of long term finance. The projects will also receive £120m of government backed construction grants.

The funds will be administered through Prudential’s asset management subsidiary, M&G and are part of a commitment made by major insurance companies to plough significant investment into Britain’s infrastructure, in a project agreed last December. The insurers are acting since a European Union ruling that allows them to widen the types of long term investment vehicles they can put funds into.

The Coalition government announced last summer that it would spend £3bn to deliver 165,000 new homes by 2018, through housing associations. But while heralded as a major commitment from government, the plan does rely on other, private sector sources also committing funds to ensure schemes go ahead.

Speaking at the World Economic Forum in Davos – and as reported by the Daily Telegraph – Prudential’s chief executive Tidjane Thiam said: “The deal is a tangible sign of Prudential’s commitment to the long-term funding of the new housing and infrastructure we need to deliver sustainable growth for the UK.”

Prudential is a major lender to the social housing sector. It remains to be seen whether it will be so keen to back involvement in the private rented sector in the UK.

Grainger wins Kensington consent

Listed residential landlord Grainger has won consent for two housing developments in the London borough of Kensington & Chelsea. A total of 84 new homes will be built across two sites in the borough, with at least 50% of the homes constructed specifically for the private rented sector.

The sites, in Young Street and Hortensia Road, are both currently council owned car parks. The council selected Grainger in 2012 to act as developer and manager of the new homes, which it will run under a 125 year management agreement; the long term rental income will be shared between Grainger and the council.

Homes planned for Young Street, designed by Assael architects

Homes planned for Young Street, designed by Assael architects

Construction is expected to start this year. Currently, Hortensia Road is used for surface car parking, while the Young Street site is occupied by a multistorey car park, which will come down to be replaced by the new block of flats.

“I believe this could become an appropriate model for other local authorities and developers to adopt, who are looking to provide homes for the private rented sector,” said Grainger chief executive Andrew Cunningham.

New entrant to private rented sector in London

A new entrant to the London property market, In-place, is promising to deliver well-managed new homes to London’s private rented sector. And with strong credentials, the company is set to deliver high standard new apartments in London Underground zones 2 and 3, at the same time helping to grow institutional interest in the sector.
Giles Clarke is the man leading In-place. Clarke spent the last few years at major London landlords the Grosvenor Estate, and Crown Estate; two examples of organisations that manage their properties responsibly, with an eye on long term value rather than short term profit. He is backed by unnamed investors who will give him backing to buy two or three development projects each year.
Clarke says there is currently a gap in the market, between investors who see the sense in getting into the residential rented market in London, and developers seeking an opportunity to profit from building.
“What seems to be missing are businesses or people that understand how the two can be properly joined,” Clarke told Property Week in an interview, “so you have a single approach to creating high-quality residential investment stock – not as a developer, not as an investor, but as a business that can join the two things and do both at the same time.”
In-place will look for sites with between 100 and 200 units, aiming to develop them in joint venture, or acting as a funder to help unlock projects held by hard-up development and building companies. Such properties will rent typically for £3-400 per week for a one bed flat, or £4-600 for a two bed.
Clarke has said he will not be looking to do projects right now in the central area of London. Here, he says, most developers are currently exploiting overseas investor demand by selling individual units off-plan in Asia, and with that option, In-place will not get a look-in.
In-place has promised two or three deals during 2014, to get the ball rolling. It will be looking to grow a long term portfolio, as well as offering medium term investment assets to the market, that are well managed and provide long term rented homes for the UK’s mass of urban workers.

Dev Secs seeks resi partner

Listed property developer Development Securities is seeking a partner to help develop five sites it owns in greater London, with the potential to build more than 700 homes for rent.

A report in Property Week says Dev Secs has hired agent Jones Lang LaSalle to look for a partner, which could help develop, then manage, the homes. The sites include one in Romford, another on Edgware Road, north London where permission has been granted for 183 homes, and Valentines House in Ilford, where one option is a mixed use redevelopment to include 110 homes.

Insurance giants eye residential market

Insurance company Legal & General has said it may be prepared to invest in whole new towns, in a bid to help meet the UK’s housing needs.

The pension fund has said it could see itself investing as much as £5 billion in new towns over the next decade, as part of a push to see Britain’s housebuilding crisis solved. Chief executive Nigel Wilson said such projects would depend on supportive local communities, and a planning system that allows such bold steps to be taken. “We’re already developing towns within cities, in partnership with enlightened local authorities and boroughs,” he told the Sunday Times in an interview.

Such projects could see the insurer investing in private rented housing, social housing and student accommodation. L&G is already involved in major developments, investing in property and infrastructure. It has also bought a stake in UK housebuilder Cala Homes.

More on the story in the Guardian here.

Fizzy Living adds fourth project

Fizzy Living has launched its fourth private rented project in London. The company, which specialises in private rented flats, has taken on 63 flats in the Vivo project in Stepney Green. Just a short walk from Stepney Green underground station, the flats will undoubtedly appeal to young professionals who work in the City of London.

Rents at the Stepney flats will start at £1,350 per month for a one bed, rising to £2,600 for a three bed.

Vivo project, Stepney

Vivo project, Stepney

Fizzy already has two projects live, in Canning Town and Epsom, and is preparing a third in Poplar, east London, which will allow tenants to move in during February. According to industry journal Property Week, Fizzy is in discussions with the Abu Dhabi Investment Authority, a major investor in London property, about providing additional funds to help it expand its portfolio of private rented flats across the capital.

New flats for Elephant & Castle

Tribeca Square, a new development in Elephant & Castle, will provide 373 new homes for rent. The project, being developed by Delancey and Dutch pension fund backers APG, recently secured finance to start work, and will make flats available to the private rented market on one, two and three year tenancies.

Tribeca Square redevelopment, Elephant & Castle

Tribeca Square redevelopment, Elephant & Castle

As well as the homes, Tribeca Square will include 272 units of student accommodation, a Sainsburys supermarket, four screen cinema, shops and restaurants.

The completed flats are likely to be managed by Get Living London, a company set up to manage homes in East Village, part of the development around the former Olympic Village in Stratford, also involving Delancey.

Alongside this project, the Delancey-APG pairing also plan to redevelop the nearby Elephant & Castle shopping centre, a longstanding eyesore that has been the site of a promised redevelopment for many years.

Flats at Tribeca Square are expected to be available for rent in 2016.