Category Archives: renters

Politicians ignore renters at their peril, in election run-up

Politicians will need to finesse a housing policy that encourages supply, as they prepare their election manifestos ahead of the May general election. The trick will be in not penalising specific forms of provision following the election, as all forms of tenure need to be encouraged.

But, says Lucian Cook, director of residential research at Savills, the danger is that political expediency will get in the way of fundamental policies that are good for the country as a whole. “There is a strong argument that the maintenance of a consistent housing policy is difficult when, on the one hand, £1.4 trillion or 61% of all owner-occupied housing stock is located in Conservative constituencies while, on the other, 48% of the value of social housing is in parliamentary seats held by Labour,” he noted in Property Week.

“Let’s hope the political rhetoric does not cloud the underlying need to deliver much more housing across the range of tenures – particularly in the private rented sector.” Affordability is a growing problem and all parties agree that more housing is needed, notes Cook. “So the rapid growth of the private rented sector, the falling numbers in mortgaged owner-occupation, the restricted amount of new social housing being delivered and the value gap between London and the rest of the country are surely exercising policymakers in all parties.”

London rental market likely to see little inflation in 2015

Rental prices in London are set to stabilise through 2015, with a nominal 1-2% rise, according to agents Douglas & Gordon.

The company’s London Barometer predicts little real wage growth will mean consumer resistance to further increases in rents. However, looking back, their figures for 2014 show steady modest growth of London rents, showing strongest demand for smaller flats and larger houses.

One bed flats, for example, were costing an average £384 a week in the first quarter of last year, a rent that had risen to £403 by the year end. Two bed units had risen from £525 to £538. Three bed homes saw rents barely move, from £835 to £840 over the year – though they peaked in the third quarter at £858. Four bed homes also saw a an autumn peak, ending the year at £1,433 a week against a rent of £1,409 early in the year.

“Nearly double the number of new applicants were registered in December compared to twelve months ago, showing the rental market is very healthy,” said Virginia Skilbeck, lettings director. “As we go into an election year, generally people are inclined to put off major decisions until after the election so renting rather than buying for the time being is probably on the agenda for a large majority.”

“The number of properties we were instructed to re-let was twice as many compared to the same month last year, this is largely due to the fact that this time last year significant numbers of landlords were opting to sell up and cash in at a time many considered to be the “peak” of the market, whereas landlords are now electing to hold onto their investment properties.”

“We have had six months of consecutive growth in the size of our currently let property portfolio, which demonstrates that the lettings market grew consistently during the second half of last year, counterbalancing what was happening in sales.“

“Against this backdrop of a fairly volatile sales market, we believe that the rental market next year will be stable but with concerns over real wage growth our forecast is that rents in D&G Land as a whole will increase by a nominal 1% or 2%.”

In the sales market, worries over stamp duty costs are already having an impact, with the market for homes above £950,000 stalling. The agent says 2014 was characterised by vendors giving in to offers, with the result that more sales were concluded.

Genie heads to London with rent to buy plans

An innovative route through rental to home ownership is being launched in the south east, following success in the north east of England.

Gentoo’s Genie home purchase plan is being backed by £40 million of loan finance from the London mayor Boris Johnson. With the backing now in place, Gentoo is looking for development sites where it can create its first 500 homes under the new arrangement.

The project allows individuals who would not otherwise get the chance to buy, a way to purchase their own home. It does not require a large deposit, and allows long term renters to convert their interest into home ownership. It has already been tested in the north east, with 88 families now in homes provided under Genie.

“We set up Genie as a way to help those people who want to get onto the housing ladder but who haven’t been able to because of a number of reasons, including saving for a deposit while renting,” said Genie managing director Steve Hicks. “There has been a lack of innovation in the housing market which has left would-be homeowners feeling frustrated and unable to buy their own house.”

“This 10 year partnership with the GLA will help customers into a minimum of 2,000 new homes in the capital who otherwise would have struggled to own their own homes, because of the difficult market conditions in London.”

Genie is designed for first time buyers and long term renters. By overpaying on rent in a structured way, residents are able to buy a growing share of the home they live in, without the need to obtain a mortgage or find a deposit.

Funding is coming from the mayor’s Revolving Fund which gives recoverable loans to help fund new forms of affordable housing. Mayor Johnson commented: “This is one of a number of innovative schemes I’m funding to help the thousands of people looking for affordable properties in the capital. Plans like this provide more accessibility and flexibility for purchasers who may struggle to save large deposits and my funding will help accelerate the delivery of much needed new homes across London.”

Gentoo chief executive Peter Walls added: “We created Genie after asking ourselves the question where are our children going to live? We recognised that there is a large section of society who would like to own their own home but who have been unable to.”

“Genie is an ethical and unique product that helps people to access affordable homes in the locations they want to live. We’re thrilled that the GLA has recognised Genie is an innovative solution to help these people and we look forward to seeing people move into their own homes.”

PRS predictions for 2015 – part one: rents

What is the outlook for the UK rented sector in 2015? Following is a round-up of predictions from those in the sector, focusing on the likely direction of travel for rents.

The central London market, which operates in its own bubble due to a range of international influences, could see strong market growth. Some agents – but not all – are predicting strong rises. Marsh & Parsons predicts 10% growth in central London rents, while Knight Frank pencils in a more modest 3.5%.

Peter Rollings of M&P commented: “The rental market will be where much of the action takes place in 2015. Those relocating to the capital for work are now biding their time before purchasing their own portion of London property – until question marks surrounding additional property taxes are erased. This will push demand in the corporate lettings sector even further, and the biggest rental increases are predicted to be among one or two-bedroom flats.”

“Supply of rental properties looks set to be sustained, but any regulatory changes to tenancy fees under a new government could inflate rents artificially. The powers that be need to ensure that landlords are not spooked out of the market by unnecessary layers of legislation, and that aspiring property investors don’t take their money elsewhere.”

In contrast, Benham & Reeves predict that rents will stay flat in the central area, with those in outer zones rising, as renters migrate to more affordable areas that remain in easy commuting distance to central London.

At Jackson-Stops & Staff, the glass is certainly half full, according to chairman Nick Leeming. “For investors, the long-term outlook is bright for buy-to-let, particularly in and around city locations with good transport links. The demand from Generation Rent will continue to grow for high quality homes.”

Outside London and the south east, Knight Frank expects rents to average a 2.2% rise. And Sue Foxley, head of research at Cluttons, expects rents to rise across the country between  3 and 5%. Chestertons, meanwhile, expect a relatively flat performance from private sector rents across the UK.

In the wider UK housing market, the expectation is there will be lots of hot air and promises – and little activity – due to the general election. Members of the National Association of Estate Agents think demand will continue to advance modestly ahead of supply. Polled recently, 34% saw the base rate rise having the biggest effect on the housing market in 2015, while 32% put stamp duty changes top, and 32% believed the election will be the largest influencing factor.

“The General Election will be a pivotal event for the housing market next year, with all three main parties pledging to build more homes should they be elected. We have already seen the current government put policies in place in an attempt to tackle the problem, with the announcement of new garden city developments, as well as the reforms to stamp duty” said Mark Hayward, NAEA managing director .

“These changes are still not enough. The lack of capacity within the current market means that the gap between supply and demand probably won’t close for some time – we currently don’t have the resources to respond to the problem, and this is another issue that needs addressing.”

Private rental landlords enjoy steady returns as rents firm

UK residential rents slowed in November, falling for the first time in eight months. But the trend remains modestly upward, giving landlords a steady return on their property investments.

The seasonal slowdown saw rents drop an average 0.2% month on month, according to Your Move and Reeds Rains. The average monthly rent is now put at £768 per month, up 2% on the same time a year ago.

“Not only are wages higher than a year ago and wider inflation dropping rapidly, but now rent rises are cooling once again too,” commented David Newnes, a director at Reeds Rains. “For those tenants still reeling after half a decade of financial pressure, a more affordable rental market is another welcome boost.”

The East Midlands is the strongest region, seeing rents continue to rise – they were up 1.7% from October to November 2014. In the South East, rents fell 2.1%, while in the North West they also dropped, by 1.2% month on month. Landlords in the East of England have enjoyed the strongest local market, with rents up there 6.7% year on year.

Property yields are around 5.1%, while total returns improved during the month and are now calculated at 12.8% for the last year. “Property prices have shifted to a more sustainable pattern,” said Newnes. “And that is only a good thing for landlords, just as it is for those looking to buy their own home.  Rental income is also steady – with average gross yields hovering just above their long-term 5% average for over a year now.  This makes buy-to-let a haven from the insecurity stalking other investments – though careful attention to detail, local knowledge and an eye for cash flow on areas like maintenance are always essential ingredients in realising the best possible return on any investment.”

“At this time of year big picture improvements are always tested, as festive financial pressures mount. But as a whole, 2014 has been remarkably positive in terms of the affordability of renting – which is just as positive a note to end the year on for landlords as for tenants themselves.”

UK rents set for steady rise in 2015

Rental prices are expected to increase by around 2-3% during 2015 across the UK, underpinned by a continuing shortfall of supply against demand. Yet in central London, that rise could be as high as 10%, local agents in the capital reckon.

The countrywide prediction has been pencilled in by David Cox, managing director of the Association of Residential Letting Agents: “Simply put, we need more houses. Demand continues to outstrip supply.” He notes there will be some supply increase, with investors moving their focus from London and the south east towards the north of the country. Some “accidental landlords” – those who were forced to rent when homes they had bought slipped into negative equity – will be finally in positive territory, allowing them to sell.

In London, while the heat is coming out of residential sales, agent Marsh & Parsons believes it will instead be applied to rentals. “The rental market will be where much of the action takes place in 2015,” said the company’s chief executive Peter Rollings. “Those relocating to the capital for work are now biding their time before purchasing their own portion of London property, until question marks surrounding additional property taxes are erased.”

“This will push demand in the corporate lettings sector even further, and the biggest rental increases are predicted to be among one or two bedroom flats. Supply of rental properties looks set to be sustained, but any regulatory changes to tenancy fees under a new government could inflate rents artificially. The powers that be need to ensure that landlords are not spooked out of the market by unnecessary layers of legislation, and that aspiring property investors don’t take their money elsewhere.”

ARLA is also keeping a close eye on regulation in the sector. Cox said the outcome of 2015 general election could impact the private rented sector substantially. “The colour of the next Government will have a large impact on the rental market; particularly when it comes to regulation of the sector. ARLA would like to see a fully regulated industry to build a better, stronger private rented sector, which will help to eradicate the rogue agents who tarnish our industry. Labour is pro regulation but has also pledged to introduce three-year tenancy agreements with strict rules which will make it more difficult to evict tenants. This could see landlords pull out of the market.”

Cox sees some impacts from existing leglslative changes that still have to work through the market. “The recent Immigration Act requirements on landlords, which are being trialled in the West Midlands, may be rolled out more widely in 2015. Under the new Act, letting agents will be required to make ID checks to establish the immigration status of all prospective adult occupiers before a residential tenancy agreement is granted. Whilst establishing ID checks for all adult occupiers is effectively converting best practice to law, it may push some vulnerable tenants into the arms of rogue operators.”

New PRS developers to transform housing

Britain’s rented homes sector is about to enjoy a substantial transformation as newcomers to the market will, for the first time in a long time, construct blocks of accommodation specifically designed for rental.

In London alone, two million people live in rented accommodation, in 800,000 homes with rents totalling £300bn, noted Nick Jopling, executive director, property at Grainger’s recent results presentation. “That is a largely a portfolio that was never built for rent, it is a lot of it below standard and below quality.”

Grainger’s first new development is being built by Bouygues, in Barking, east London and will contain 100 flats. “There is considerable anticipation about this first build to rent project being handed over by Bouygues, six months early.”

“We think that when you put buildings like this that are designed for rent, and will be serviced for rent, they will not just be attracting new tenants in the market, but absorb existing tenants that are already out there.”

Grainger expects it will lease all the flats in the development over a three to four month period.

A second project, also in partnership with Bouygues will deliver 211 flats at a site in Pontoon Dock, in London’s Docklands. “It will be designed using the ULI design code, and there will be considerable attention to customer focus and to an effectively and operationally smart building, because that is what will drive the net incomes,” promised Jopling. He expects to be on site 2016.

Jopling said Grainger’s aspirations were to see the medium to long term growth of a market rented portfolio and “to be first and foremost truly national market rented landlord in the UK”.

One area where Jopling sees funding coming directly into the private rented sector is from the nation’s pension funds. At Pontoon Dock, the London Pension Fund Authority is backing the project. “There is an increasing attraction of funds like the London Pension Fund Authority,” said Jopling. “The local pension funds of the UK have over £180bn in reserve. I think you will see that on a more local level.”

The current issue in the market, he added, was the perception that the development stage different to that of the “stabilised stage”, when projects are completed and let. “There is plenty of appetite to own that stock once it’s up and built, but getting it up and built is quite a challenge. And that’s what many funds are looking at, at the moment.”

Rental prices outside London now higher than in capital

Areas in the Home Counties are now more expensive for those renting their home, than areas of Greater London. A new survey reveals that four districts in the South East see private renters typically paying more than half of their income out in rent.

Three Rivers, South Bucks, Oxford and Forest Heath top the ranking of the 20 most expensive locations outside London. In Three Rivers, north of London, renters typically pay 54.3% of their income out on an average monthly rent of £1,372 per month. Even in East Dorset, ranked twentieth in the league table drawn up by the National Housing Federation, renters are paying out 43.1% of their income in rent.

rentercosts

The figures provide a contrast to those recently drawn together by Homelet, which showed how some cities away from London still provide great rental value for tenants. Private renters in Plymouth, for example, pay just 27% of their income in rents, while Welsh capital Cardiff offers good value with rents typically 29% of incomes.

NHF works to support housing associations, and blames the increasingly unaffordable rent levels on a fundamental shortfall in housing provision. It is lobbying the government to solve the shortfall in housing construction in the UK. Unless something is done, rents will continue to rise, it warns.

“Private renters today are getting a raw deal and are paying the price for a housing crisis that’s been decades in the making,” said NHF chief executive David Orr. “Unless we build the affordable homes we desperately need, ordinary working families and young people will continue to struggle to pay their rent, and will have less and less money left to cover basic bills like food and heating.
“We need a long term plan from politicians to put this right. We’re calling on all political parties to commit to end the housing crisis within a generation.”

Renters keen to deal direct with new PRS brands

With new brand names starting to emerge in the rental market, evidence is emerging that tenants are already seeking them out, in a bid to find their new home in London.

The news will provide a boost for new PRS operators, who are refining their offer for tenants and working out what additional services to include in their rental packages. What is immediately clear is that established names such as housing associations are trusted, and their new PRS brands stand to be well received by private renters.

Notting Hill Housing has reported a spike in inquiries via property listing websites such as Zoopla and Rightmove, since launching its new Folio private rental brand.

Folio London will take forward Notting Hill Housing's PRS activities

Folio London will take forward Notting Hill Housing’s PRS activities

The new PRS landlords all deal direct with their prospective tenants, preferring not to use traditional letting agents. And their rental deals typically avoid the additional costs that letting agents often add, such as referencing fees, check-in fees, and administration fees. Some letting agents in London have also attracted criticism for the small print in their agreements which allow them to charge a substantial fee when a tenant signs to continue renting the same property under a fresh agreement. Both Foxtons and Felicity J Lord have been criticised for charging fees of up to £500.

In contrast, most PRS landlords charge no sign-up or reference fees, and do not charge for tenants choosing to lengthen their rental period; some offer a longer tenancy agreement with the option for earlier termination.

The news lays down a challenge to letting agents and smaller buy to let landlords, as they will increasingly need to be transparent about additional fees charged, or do as the new PRS landlords do, and include them in the rental charged. What is clear, is that tenants prefer no surprises and no upfront payments, when renting – and they are now looking for a brand they feel they can trust.

Survey reveals relative rental costs around UK cities

Provincial cities around the UK are providing best rental value for tenants in the private rented sector. Plymouth, Cardiff and Leeds are the cities with the least expensive properties for renters, compared with average local monthly income.

The figures will give investors in the private rented sector a feel for their options, if investing in rental property across the UK. While there are other factors coming into play, such as the local balance of supply and demand, the relative costs of renting in different locations will show how much scope the market may have for future rental increases.

The analysis by insurance provider HomeLet ranks Plymouth as the best value rental location, with a home there costing just 27% of net income in monthly rent. Next cheapest is Cardiff, at 29% while Leeds is priced at 34% of net income. Following in fourth equal are Norwich and Glasgow, where rents are measured at an average 35% of local monthly incomes.

The most expensive location is, unsurprisingly, London, where rents are typically 49% of net income. But not far behind them are Edinburgh and Birmingham, where rents still absorb 47% of incomes, while university cities Cambridge and Bristol are not much cheaper, with rents at 43% of income.
“Our analysis of the affordability of renting in the UK’s major cities has produced some surprising results,” said Martin Totty, chief executive of HomeLet group’s parent Barbon Insurance.

Evidence has been mounting in the greater London area that rents have reached an affordability ceiling in some areas but Totty said the findings show this to be a wider issue. “In some parts of the UK, such as Scotland and East Anglia, where rental prices are now falling or stagnant, the data tells us that renting in some cities in these regions is still stretching tenant affordability.”