Written By Em

Em Morley

Over Half of Homeowners Deterred by Interest Rate Rise

Published On: December 8, 2017 at 10:19 am

Over half of UK homeowners are deterred from climbing the property ladder as a result of last month’s interest rate rise, according to the latest research by hybrid estate agent eMoov.co.uk.

The firm surveyed over 1,000 UK homeowners, finding that, while this was the first interest rate hike for just 37% of respondents, 54% of those asked are now deterred from buying another property.

The respondents were asked the following questions:

As a homeowner, is this the first time you have experienced an increase in interest rates?

While it was the first increase for just 37% of homeowners, this climbed to 78% for those aged between 25-35.

London was home to the highest number of respondents seeing a rise for the first time, at 63%, with the North East being the highest region outside of the capital (55%).

Over Half of Homeowners Deterred by Interest Rate Rise

What impact did this have on your monthly payments?

Despite this first for many, when asked what impact it had on their monthly mortgage payments, 64% hardly noticed, while 33% saw a manageable increase. Just 3% believed that it had a serious impact on their monthly affordability.

45-50-year-olds were worst hit, with 5% experiencing a serious impact on their monthly payments, although this rose to 11% for those in both the South West and North East. The increase was least notable in Wales, where 83% of respondents said that they had hardly noticed.

Has the recent increase in interest rates put you off from buying another property?

Despite being the first interest rate rise in over a decade, 46% of those asked remained undeterred from buying another property, with 17% put off from a property sale and 13% putting the idea of a purchase on hold for the time being.

However, those in the first time buyer age bracket seemed more deterred from another purchase, with 56% put off from climbing the ladder – 40% indefinitely and 16% for the time being.

The rise was a put-off in the capital more so than anywhere, where the high price of property means that even a marginal increase can result in a large hike in unaffordability. 60% of homeowners in London were put off from another purchase – 50% completely and 10% for the time being.

How much would interest rates need to increase by to stop you buying another property?

The respondents were then asked how much rates would have to rise by to stop them from climbing the property ladder. With affordability still at an almost record low, nearly half (49%) of homeowners would have to see an increase of 2% or more before they were deterred. 15% would have to see rates climb by up to 1.5%, 18% by up to 1% and 12% by just 0.5%.

The 55+ age bracket is best placed as a result of years of continued house price growth, with 71% needing to see a 2% or more increase before being put off.

Mortgage length and fixed rate availability

55% of UK homeowners believe that the available length of mortgage agreements should be increased, while 45% also think that the variable rate mortgage should be scrapped.

Russell Quirk, the Founder and CEO of eMoov, comments on the findings: “Encouraging signs that, while many on the first rung or two of the ladder have only just experienced their first increase in interest rates as homeowners, the majority have weathered the financial implications, and the marginal hike has made it easy enough to do so.

“Market confidence remains high, but, understandably, there is some trepidation among the younger generation of homeowners, who will have heard horror stories of consistent hikes and double-digit rates, and, as a result, may be treading with caution after seeing their first increase.”

SaveSave

Open Banking to Disrupt the Mortgage Market

Published On: December 8, 2017 at 9:40 am

Author: Em Morley

Categories: Finance News

The arrival of Open Banking, the next phase of which rolls out in January 2018, threatens to disrupt the mortgage market by potentially turning existing lenders into commodities and leaving behind swathes of traditional mortgage brokers, warns Property Master, the UK’s first digital buy-to-let mortgage broker.

While Open Banking offers the potential to disrupt the entire banking market, it may well be the increasingly professionalised world of the private landlord that the effects are felt first, the firm believes.

Angus Stewart, the Chief Executive of Property Master, explains: “By forcing banks to lift the veil on their customers’ transaction data, Open Banking will facilitate the creation of exchanges that will bring together buyers and sellers in the world of finance. In the market in which we operate, I can foresee a time when the data about individual landlords’ portfolios, together with their credit history, is packaged in such a way by companies such as ourselves that individual lenders will be forced to bid for a landlord’s mortgage business, so pushing those lenders into the position of being a commodity item.”

Stewart claims that there are good reasons why private landlords may well be early adopters of such technological change: “The private rental market itself is undergoing a transformation, as landlords adapt to a range of regulatory changes and now rising interest rates. Taken together, these trends are bringing about a greater professionalisation amongst landlords and an appetite for faster, cheaper funding solutions. To date, private landlords have been served by a fragmented marketplace of more than 12,000 traditional brokers typically offering access to a limited panel of lenders. Such brokers have a high cost of doing business based on their lack of scale and expensive advisory staff. For landlords, this has meant a high risk of missing out on the best buy-to-let mortgage deal.”

He continues: “Landlords eager to reduce their costs in the face of challenging market conditions are creating a demand for a more technologically-based solution, making the supply of buy-to-let mortgages the next sector of the property market that is ripe for disruption. Our success to date rests on matching individual landlords’ funding requirements against the real-time lending criteria of every buy-to-let lender in the market. The new regulatory and technological changes we are now seeing will enable us to improve still further the service we provide.”

Make sure you are aware of the forthcoming Open Banking changes.

Tax Changes and Tighter Regulation Slowing the Growth of the Private Rental Sector

Published On: December 8, 2017 at 9:05 am

Author: Em Morley

Categories: Finance News,Law News

A series of tax changes and tighter regulation for landlords is slowing the growth of the private rental sector, despite its value hitting a new high, according to the seventh edition of Kent Reliance’s Buy-to-Let Britain report.

The value of the private rental sector in Great Britain currently stands at almost £1.4 trillion – an increase of 6.4% (or £82.6 billion) in the past year. Rising house prices have been the key driver of this growth, with the average rental property climbing in value by 4.2% in the last year.

The total number of households living in rental housing is growing much more slowly. There are nearly 5.6m households across Great Britain living in private rental homes – just 2.2% more than a year ago. This is less than a third of the rate of growth recorded in 2014.

Tax Changes and Tighter Regulation Slowing the Growth of the Private Rental Sector

Slower growth reflects landlords’ fragile confidence in the sector. Just 41% of landlords are confident about the prospects for their portfolios. While this is a slight recovery from the record low hit in the second quarter (Q2) of 2017, back to the level seen at the start of the year, it remains far lower than in recent years. Confidence has been hit by tax changes regarding the amount of mortgage interest that landlords can offset against tax, rising costs and new mortgage rules that have tightened criteria.

Tenant demand is growing more slowly too. Just 5% more landlords reported rising tenant demand than those reporting a decline – the lowest balance in at least five years.

This has been reflected in easing rent price growth. The average rent across Great Britain now stands at £895 per month. Although this is another new high, the typical rent increased by 1.5% annually – down from 2.4% a year ago – with sluggish growth in London weighing on the national average. Rents are likely to continue to climb, as 29% of landlords expect to increase rents over the next six months – ten times the number who expect to reduce them. As taxation rises over each of the next three years, buy-to-let landlords could look to pass on higher costs to tenants where possible.

Where supply is expanding, larger-scale landlords are driving it. In a survey of 856 landlords, carried out in association with BDRC Continental, among those that bought or sold properties in the last three months, investors with more than ten properties made a net addition of one property. There is no growth among those with fewer than five properties. Given that investors with just a single property account for 62% of the landlord community, a lack of growth in this segment of the market is dragging on the expansion of supply.

Those landlords still buying properties are increasingly doing so as a limited company, rather than as an individual, which allows them to continue to offset mortgage interest costs against tax. Kent Reliance’s data shows that, in the first three quarters of 2017, more than 70% of buy-to-let applications for property purchases were via limited companies – up from 45% in 2016. As the amount of mortgage interest that landlords can offset against tax progressively diminishes over the next four years, interest rates rise and tax bills climb, this will spur on demand for incorporation.

Professionalism in the private rental sector is also being driven by the Prudential Regulation Authority’s (PRA’s) recent intervention in the market. Since the end of September, lenders must account for much more detail of a landlord’s portfolio (if they have four or more mortgaged properties), their experience and track record, assets and liabilities, and business plan before lending. For many landlords, this means creating business plans for the first time and considering longer-term planning for their portfolios.

Andy Golding, the Chief Executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in buy-to-let, says: “Landlords are swallowing the unpleasant cocktail of higher taxation and tighter regulation, and this is undermining the expansion of the private rented sector. A fundamental shift in the landlord population is now underway, as buy-to-let moves from being a popular past time for hundreds of thousands of British amateur landlords, to the preserve of committed long-term investors with experience and expertise. The pace of professionalisation will only increase following the PRA’s latest moves, and incorporation continues apace.

“Creating a more professional sector is no bad thing, but there is a limit to the amount of change the sector can absorb before we see a damaging reduction in supply – an outcome that would see rents increase for tenants and reduce their ability to save for a deposit for house purchase. Landlords’ confidence is better, but still clearly fragile, and, as the new tax reforms gradually come into force, any further financial burdens may prove to be a tipping point.”

He continues: “The need for a strong and stable private rental sector has not changed, notwithstanding the Government’s housing announcements in the Budget. The removal of Stamp Duty for 95% of first time buyers should provide some help for those with savings, but it will also bolster house prices – the same side-effect Help To Buy is having. The housing market is significantly more complex than can be solved with some demand side stimulus. The private rental sector fulfils a vital role in our society and our economy, a role that needs to be reflected in an evolved housing policy.”

Will UK Follow Scotland’s Lead on Lettings Law?

Published On: December 7, 2017 at 11:25 am

Author: Em Morley

Categories: Law News

The UK Government has the opportunity to make the biggest change to lettings law for a generation, which could significantly affect the rights of millions of tenants, according to online letting agent ClickTenant.com.

The Conservative Party first announced that the private rental sector would become regulated in October 2017, following a speech by Sajid Javid, the Secretary of State for Communities and Local Government. This involves consideration as to whether to introduce a new regulatory body to handle managing and letting agents, to best protect and empower tenants.

The Government had previously taken steps to protect tenants with the introduction of redress schemes in 2013, which encouraged letting agents across the UK to join one of the three Government-approved organisations. However, the current lettings law has been widely condemned due to fundamental underlying problems; the tribunal system can be expensive, uncertain and intimidating for tenants, and agents who weren’t signed up to the schemes were only fined up to £5,000 when it became a legal requirement to be registered from October 2014.

The proposed changes to the sector will require all letting and managing agents to become members of a relevant professional body or organisation that has been approved by Government. Other measures to be considered include whether tenants should have a greater say over the appointment of managing agents, and making the system transparent so that tenants know what they are being charged for and why.

Danielle Cullen, the Managing Director of ClickTenant, says: “Greater regulation of the rental sector is something welcomed and long awaited.

“There has been growing scrutiny placed on tenants, landlords and letting agents in recent years. We welcome the changes, and a blanket regulation to the whole sector is the correct approach the Government should take. All parties deserve reassurance that they will be treated fairly throughout the process, no matter which agent they choose to use. The legislative process just needs to ensure that each party’s needs are properly considered.”

Will UK Follow Scotland’s Lead on Lettings Law?

She continues: “The property sales industry is based largely on the compliance of estate agents, and it’s about time we raise the bar for the lettings industry as a whole. We need to wipe out rogue letting agents who tend to give the rest of the industry a bad name. There are plenty of agents committed to providing a high quality service, but a more level field needs to be introduced, and trust put back into the public.”

There are predictions that the rest of the UK will introduce similar lettings law to Scotland, which includes following the Letting Agent Code of Practice and joining a Register of Letting Agents.

Applications to the Register of Letting Agents in Scotland will open in January 2018, with a deadline for all agents to comply by 30^th September 2018. Failure to adhere to the law could lead to fines of up to £50,000 and prison sentences of up to six months for those convicted.

The Scottish Letting Agent Code of Practice sets out lettings standards, making it compulsory to offer Client Money Protection (CMP) and professional indemnity insurance, and specifies how client money should be handled.

The Register of Letting Agents ensures that agents have adequate training and must undergo mandatory updates to comply with legal obligations.

We have a round-up of the new lettings law in Scotland here.

Cullen comments on the Scottish plans: “The changes in Scotland are probably the greatest step forward in terms of protecting private tenants in the last ten years. The inclusion of fines or prison sentences show how serious Scotland is for protecting tenants, and it’s certainly a good deterrent to potential rogue agents operating in the area. We should be seriously considering implementing similar legislation across the rest of the UK, to ensure our system is as transparent as possible.

“The Government has now finished collecting evidence on whether a new regulatory model is needed for agents in the private rental sector. We look forward to seeing what changes will be made, and certainly welcome them if they’re going to mirror the Scottish system.”

Confidence up Amongst Mortgage Brokers, as Activity Increases

Published On: December 7, 2017 at 10:51 am

Author: Em Morley

Categories: Finance News

Confidence amongst mortgage brokers reached its highest level since 2015 in the third quarter (Q3) of the year, as mortgage activity increased, according to the latest Financial Advisers Confidence Tracking (FACT) Index from Paragon, which is based on interviews with 199 mortgage intermediaries.

The FACT Index, calculated as a percentage of a baseline figure and adjusted to account for the volume of business that advisers expect to complete over the following quarter, scored 105.9 in Q3 2017 – the first increase for a year, the highest score since Q4 2015 and the second successive quarterly rise.

This is in part due to increased activity in the mortgage market, with the average number of mortgages introduced per adviser’s office in Q3 at 24 – up by 9% on Q2 and 8% on an annual basis. This is the third highest figure recorded since the 2008 financial crash, and maintains the long-term recovery seen since a record low of 14 in 2009.

Remortgaging remained the most common type of borrowing, with a slightly reduced majority of 36%. There was little fluctuation in all other borrower types, with buy-to-let borrowing stable again at 17% (up by 1%), following a sharp decline in the previous year. First time buyers also saw a 1% rise on the quarter, maintaining a modest long-term upward trend over the past decade.

On average, mortgage advisers expect to do 2.4% more mortgage business in Q4 2017, with the expected number of cases in the next three months stable, at four, maintaining the reversal of a two-year downward trend between 2014-16.

Half (50%) of brokers said that, compared with the last 12 months, they expect buy-to-let business to stay the same in the next 12 months. On average, mortgage advisers expect to do 3% less buy-to-let business in that period. This is the same as in Q2, but remains comfortably higher than the historic low of 6% seen in Q1 2016.

In buy-to-let, 9% (up by 3%) of intermediaries described landlord demand as strong or very strong, while the majority (53%) described it as weak or very weak – the same as in Q2.

Remortgaging remained the most popular reason for obtaining a buy-to-let mortgage in Q3, accounting for a slightly reduced majority of 50% of all buy-to-let business. The steep upward trend in remortgaging since Q4 2013 has been matched by a long-term decline of first time landlords, which grew slightly from a near record low of 13% in Q2 to 14% in Q3.

Brokers reported a record number of landlords remortgaging to achieve a better interest rate in Q3, accounting for 56% of all cases, while a historic low of 33% of landlords remortgaged for the purpose of raising capital in the same period. This is the culmination of a long-term trend, and fewer landlords raising capital can be linked to the small decline in overall remortgage cases in Q3.

John Heron, the Managing Director of Mortgages at Paragon, comments: “A wide variety of recent data on housing has pointed to a market that has been finely balanced. Low transaction numbers have been bolstered by higher numbers of first time buyers, house prices outside London have been creeping up and landlord activity has stabilised.

“These trends are confirmed by our latest intermediary survey, with confidence now at the highest level for some time. Despite a rather uncertain environment, intermediaries are seeing higher levels of remortgage activity and at least stable demand from buy-to-let landlords.”

Annual House Price Growth Eases to 3.9%, Reports Halifax

Published On: December 7, 2017 at 10:31 am

Author: Em Morley

Categories: Property News

Halifax has released its latest House Price Index, for November, revealing that average house price growth has eased to 3.9% over the past 12 months. This is down on October’s rate of 4.5%.

On a quarterly basis, house prices in the past three months (September to November) were 2.4% higher than in the previous quarter – the fastest price growth on this measure since January.

Month-on-month, house prices rose by an average of 0.5% between October and November, following a 0.3% increase in October. This marks the fifth consecutive month of growth.

November’s average house price of £226,821 is 3.2% higher than January’s (£219,741).

The Managing Director of Halifax Community Bank, Russell Galley, comments on the figures: “Whilst the annual rate of growth eased in November, with the first decline in this measure since July, when looking at quarterly change, prices in the three months to November were marginally higher than in the preceding three months; the fourth consecutive quarterly increase.

“The imbalance between supply and demand continues to support house prices, which doesn’t look like changing in the near future. Further ahead, increasing affordability issues, as price increases continue to outstrip wage growth, are likely to curb housing demand and cause price growth to ease. We do expect the Government’s first time buyer Stamp Duty changes to provide some stimulus to demand, particularly in London and the South East, where the impact is greatest.”

Annual House Price Growth Eases to 3.9%, Reports Halifax

The index also reveals that home sales grew by a modest 2% to 105,260 in October (for which the latest data is available), to hit their highest monthly level in 2017. Sales have remained above 100,000 in all months of this year. In the three months to November, home sales were 7% higher than in the same period last year.

There were 64,575 mortgage approvals recorded in October – a leading indicator of completed house sales – down from 66,111 in September – a decline of 2.3%. Since reaching the second highest monthly level this year in July, approvals have dropped in three consecutive months.

Following a couple of months in which new instructions had held broadly stable, the most recent figures show that the supply of homes for sale is sharply deteriorating. On this measure, supply has now fallen in 20 consecutive months to October. On the demand side, new buyer enquiries weakened in both September and October, marking the seventh month in a row that this measure has decreased.

The value of the UK’s private housing stock in 2017 is estimated at £6 trillion, according to Halifax. This compared with £4.1 trillion in 2007 – a £1.9 trillion increase (or 48%) over the past decade. This rise is equivalent to almost £70,000 per household in the owner-occupier and private rental sectors.

Comments

Russell Quirk, the Founder and CEO of online estate agent eMoov.co.uk, responds to the index: “A fifth consecutive increase in monthly house price growth certainly makes positive reading, given the current market climate, particularly during a traditionally slower time of year as we approach the festive season.

“That said, the market is showing signs of winding down, with a decline in mortgage approvals and sale instructions. This would suggest the last call for property sales in 2017 has been made, but with sales reaching their highest level this year, there are still plenty looking to complete this side of Christmas, which will keep things ticking over.

“The market should continue to build on this momentum after the December lull and the outlook is promising for the coming year.

“As the issue of supply is unlikely to be addressed in any meaningful way, the lack of stock to meet housing demand should keep prices buoyant, aided by the recent changes to first time buyer Stamp Duty, although this will bring a marginal influence much further down the line than widely expected.”

The Director of Marketing at Foundation Home Loans, Jeff Knight, also says: “November saw the Chancellor scrap Stamp Duty for first time buyers, a move the OBR [Office for Budget Responsibility] predicts will push prices up by 0.3%. Increased demand will certainly place upward pressure on the market – at least until reforms to the planning system start to have an effect and more land is made available for the promised thousands of new builds. However, stalled Brexit negotiations will dampen confidence, as uncertainty takes its toll. This, alongside the age-old tale of weak supply, continues to subdue to market’s full growth potential.

“In the meantime, a concerted effort to progress and improve the rental sector is crucial. Affordable homes do not have to equal ownership, so we also need to focus on developing high quality properties for tenants until they are in a position to buy.”

Ishaan Malhi, the CEO and Founder of online mortgage broker Trussle, adds: “The picture has been fairly blurred in recent months, but all indicators now seem to agree that prices are creeping up again. This is clearly good news for existing homeowners, who will see more than just the value of their home increase. Their share of equity will also grow, meaning they could be eligible for more competitive mortgage deals when they come to remortgage in future.

“The news is more mixed for first time buyers. Those who are ready to buy will likely see the growth in house prices more than made up for by the new Stamp Duty savings. For those unable to buy just yet, the prospect of further interest rate rises won’t help.

“With this in mind, buyers should use the New Year as an opportunity to put a saving plan in place, cutting costs where possible. Once in a position to apply for a mortgage, there are further ways of bringing down costs, such as using an online broker that doesn’t charge fees. Brokers are typically able to access a far wider range of deals than going directly to a lender, so it’s more likely they’ll be able to find a more competitive rate.”

Finally, the Founder Director of independent estate agent James Pendleton, Lucy Pendleton, comments: “Despite the first rate rise in over a decade, there is no batting collapse in the UK housing market. Buyers still put on their cricket guards and marched out towards the crease.

“That’s most likely because rates are still very attractive by historic standards, even if they have edged up. So we’re not seeing the Big Dipper-style change in direction some might have predicted.

“Monthly UK home sales reached their highest level, which is positive, because it’s not unusual to see supply levels dwindle in the latter part of the last quarter, as some vendors weigh up whether or not to launch now or hold off until the New Year.

“The gauge to watch is the Halifax consumer confidence index, which recently slumped to multi-year lows.”