Banks Dispute Immediate Future of Property Market

As previously reported on this blog, Nationwide recently released the results of a survey that clearly indicated we could expect a 10% to 15% rise in property prices in the UK in 2010. Quick as an eye blink, Halifax has taken the wind out of the sails of that good news by releasing their own survey that seems to say almost the opposite.

According to them, the growth we saw in January was around 0.6% down from a six monthly average of 1.1%. This leads them to get fairly gloomy and suggest that perhaps the increase in properties coming to the market will see pressure on prices stifling any rises.

It is true that houses are being bought to market fairly quickly as home owners are galvanized by what looks like a little light at the end of the tunnel. People have been stagnant for a long time now and many of them are desperate to take advantage of any improvement in property prices to sell up and move on.

The closure of the Bank of England’s quantitive easing program is likely to mean that UK base rate stays low for a further fairly prolonged period. The bottom line, however, is that if more properties become available but mortgage lending does not increase then we are likely to see a downward pressure on prices.

Consumers Supreme Confidence in Property Market

According to figures revealed in a recent survey taken by Rightmove Plc, Brits are confident that UK house prices will extend their gain over the next twelve months.

They say that 53 % of respondents predicted a rise in average house prices. This figure is most interesting when contrasted with figures for the same question a year ago. Only 10% indicated any confidence that there would be a rise in house prices.

There seems to be no doubt that we are on the rebound here in the UK property market, especially if consumer confidence is any measure (and as we know, with the economy, it is often the best measure).

Miles Shipside, director of Rightmove, said in a recent statement:

“Given the looming election and the talk of pending austerity packages ahead, this consumer survey highlights a surprisingly positive property price outlook. Consumers have the impression that we are over the worst of the recent price falls and that there is likely to be upward pressure on prices.”

Let’s hope we are all correct to be so optimistic, though the figures do seem to indicate that the worst of the recession is behind us with unemployment falling at the fastest rate last month since April 2007.

This kind of thing, combined with the low interest rates, is giving people cause to look forward to the future.

Is Skipton Pulling a Fast One?

I think all of us in the property game should be very interested in the goings on with Skipton Building Society this week, even if we do not have a mortgage with them. Just what the heck are they playing at?

It seems that the brains trust at Skipton has dreamed up a new clause for their SVR (Standard Variable Rate) loan. One that pretty much lets them do what they like under ‘exceptional circumstances’. The result is that they have decided to invoke this clause (not sure on what grounds) and bump up their rates on existing loans.

I am sure they have got very good lawyers who have been through this with a fine tooth comb but I am still somewhat incredulous. You have to wonder exactly how clear this tricky clause was made to the customer before they signed on the dotted line and what examples were given to illustrate ‘exceptional circumstances’.

It seems to me they could be treading a very fine legal line. If, however, it is ruled to be all above board, and surely someone must test it, then that is a deep concern. If they set a precedent with this, we could all face rate hikes.

It is certainly something that needs looking at very closely.

Accommodation Shortage Profits the Student Landlord

The boom in demand from student housing has landlords desperately trying to keep up. After a year or so of too many void properties it seems that landlords now cannot fill the demand, and in the student sector this is even more obvious.

In the current academic year, 2.4 million students enrolled in universities; that represents a 34% increase over 10 years.

This unprecedented figure has resulted in fewer voids and has seen an increase in rent. The estimated figure is a return on investment of 7%-10%

There are clearly benefits, then, of renting to a student market. Compared to other buy to let properties, the returns are much higher. It is said that the demand in these areas is only set to rise over the coming years which is another enticing element.

The added bonus is that the way student housing works, the property is tenanted for most of the year and landlords knows seven months in advance if the property is pre-let for the following year.

This kind of thing guarantees income and allows planning for the future which is often lacking in the regular buy to let market. It has to be said that student rentals have a lot going for them and are certainly something to consider, especially if you are interested in property in the big student cities of Manchester, London and Sheffield.

Demand Outstrips Supply for Rental Accommodation

We had the era of reluctant landlords and now it seems that the market is to be flooded with reluctant tenants. Further to yesterdays blog, the ARLA (Association of Residential Letting Agents) has released research which clearly shows the rise in people who are demanding rental accommodation, and a lot of them would rather be in their own homes.

This includes first time buyers, as I outlined yesterday, but also people who were forced to sell up at the height of the recession.

The ARLA is indicating that the situation is such that there is now a good chance demand for rental properties will soon outstrip supply. In fact, they ascertain that this has already started. During Quater Four, 2009, an average of 41% of members surveyed reported more tenants than properties – compared with just 24% last quarter.

A spokesperson for the ARLA had this comment on why this situation is occurring:

“New tenants include those homeowners who were forced to sell their home during the last year either due to financial instability or a job-move. And many people now in a position to buy are struggling to find the right property, as there is also a shortage of both properties for sale and realistic mortgages”

It is great for landlords to be in the driving seat after a very tough year but it is also a situation that the Government must keep an eye on. To not have enough housing for your population is a very serious problem, indeed.

Tenant Boom in UK!

It is shaping up as a great year for landlords as new tenants flood the market says James Davis, chief executive of online letting agent He goes on to add:

“The availability of finance for first-time buyers is still stifling the sales market, meaning would be first-time buyers are being reluctant [to purchase] or forced to rent.”

We all have a lot of sympathy for those people who are struggling to get onto the property ladder. It must be very frustrating especially with the actual price of property being so affordable at the moment. I can foresee a situation where banks finally decide to lend first homeowners money, right at the time of a property price hike, effectively making them much worse in real terms.

The point is, however, that with the attitude the banks have at the moment, a lot of people are unable to purchase their own homes and, of course, they have to live somewhere. This is set to prove a boon for landlords.

There is a bright side as Mr Davies pointed out. Renting is more flexible and at least you know what to budget each month as repairs to things like boilers are issues for the landlord.

From the landlord’s point of view it is great to not have the worry of so many empty properties.

Buy To Let Loan Situation Improving

According to the RLA the tables may be turning when it comes to Buy To Let loans. In fact, the RLA is making the bold claim that landlords may have the upper hand. Wouldn’t that be sweet?

In an article on their website this week the group claims that there has been a noticeable sea change in the attitudes of the financial lenders. They are showing a much greater willingness to entertain the idea of lending to landlords to extend their portfolios.

The RLA go so far as to say that one or two of their institutions are actively seeking out experienced landlords and targeting them with loan products. Apparently, their favourite among landlords is the type that has two or three properties and is looking to expand.

All that said, it is important to point out that the institutions’ focus seems to be very much on landlords that have quite a lot of experience and a proven track record. I guess they can be forgiven for having that attitude after the role that amateur landlords played in the last crisis.

If you fit their criteria though this is potentially very good news for you; with property at a fairly low price still this is your opportunity to grab a bargain. With loan products back on the table it is promising to be a very good year for some lucky landlords and one that they may benefit from for years.

Excellent Advice Regarding Sub Letting!

Mr. Paul Shamlina, of Landlord Action, has many years’ experience dealing with the issues of sub letting and overcrowding. They are often part of the same problem and he has some great advice for landlords on the subject…

His first recommendation is to foster a good relationship with neighbors and caretakers around the property. It is these people that will notice if there is anything fishy going on, and they are much more likely to keep you informed if you have a good relationship with them. Vigilant observers are your friend!

As I said in the last post, it is a very bad idea to approach the sub tenants for money directly but Mr. Shamplina has this to say on the matter:

“I would suggest that if they (landlords) are happy for them (sub tenants) to remain, they cut out the middle man by going through the proper procedures to have the tenancy negated, then draw up a new tenancy for each resident. Under no circumstances should they accept payment of rent until the matter is sorted.”

I could see the cutting out of the middleman part of that advice being very satisfying.

The last piece of advice that Mr. Shamplina has to offer concerns avoiding getting into this situation in the first place. Only deal with people with photo ID. This is not foolproof, of course, but a lot of these false tenants are involved in organised crime so they will not be keen for you to know who they really are.

Sub Tenants a Nuisance for Landlords

The recession sure has a lot to answer for in the property market. In the last 12 months there has been a fifteen percent rise in the number of overcrowding cases that Landlord Action have had to deal with. London is the worst hit and, not surprisingly, the director of Landlord Action is blaming the economic downturn.

Paul Shamplina says “The most common cases appear to be organised gangs looking for an easy money making scam. They take out a tenancy and then sublet to multiple occupants. The worst case we have dealt with was a three bedroom, one bathroom, semi detached house in North London which was found to have had 53 occupants, all illegal immigrants.

He goes on to describe frankly horrifying conditions including mattresses stretching from wall to wall.

Other terrible cases he talks about are enough to send a shiver down any landlord’s spine, with one woman finding that 18 bunk beds had been put into her lovely property and it was being used as a youth hostel. A website in China was advertising a space in the flat for £20 a night.

Mr. Shamplina highly recommends caution if you are a landlord who finds their property being put to these kinds of uses. Clearly you will be outraged but approaching the sub tenants themselves and asking for payment may open you up to a legal nightmare.

Mr. Shamplina has a lot of good advice for landlords on how to avoid this situation, and I think it is worth spending a little time on so I shall elaborate in my next blog.

Credit to Pay Monthly Rent

This is actually a quite alarming story. The Financial Times this week has reported that more and more tenants in the UK have been reduced to using their credit cards to pay their rent.

This problem is most prominent among blue collar, working class families with the figure standing at 8 percent of them having used a credit card to make a mortgage or rent payment in the last 12 months. The figure drops to 4% in the white collar sector.

It is in London where this is the most worrying with 12% saying that they have used a high interest credit card to pay their monthly rent or mortgage. The repayments on these can be quite crippling.

You do not have to be a rocket scientist to work out where the natural progression of this trend ends. Tenants who cannot afford their rent end up having credit card balances to deal with and eventually they are going to hit the wall. This leaves them in a very regrettable position financially and the landlord with a tenant that has no means of paying.

It seems inevitable then that if things continue this way, landlords are going to face a huge rise in rental arrears. A situation that none of us want to see.