Tag Archives: europe
Bank of England closely monitoring UK buy to let lending
The Bank of England has confirmed that it is closely monitoring the buy to let sector in the UK following changes announced in the sector in the autumn statement. Its latest Financial Stability Report says that the buy to let sector continues to drive growth in the UK mortgage market and the Bank of England believes it is more interest rate sensitive than the owner occupied sector and warns that strong growth may have implications for financial stability. It means that more buy to let lending controls may therefore be on the cards. That would be another blow to the sector. Landlord wishing to enter the sector and those looking to expand their portfolios already face paying an extra 3% in stamp duty from next April and there have also been changes to tax on earnings. The Financial Stability Report says that since 2010, credit loss rates incurred on buy to let loans in the UK have been around twice those incurred on lending to owner occupiers. It points out that the buy to let sector continues to drive growth in the mortgage market and while greater competition in this sector has not to date led to a widespread deterioration in underwriting standards of UK banks, strong growth in buy to let lending may have implications for financial stability. ‘The FPC remains alert to financial stability risks arising from rapid growth in buy to let mortgage lending and notes the difference in underwriting standards in the owner occupier and buy to let mortgage markets, in particular in the typical interest rates used in affordability stress tests,’ it says. ‘New loans to buy to let investors are often subject to less stringent affordability tests than loans to owner occupiers. According to industry standards, the affordability of a buy to let loan is typically tested by ensuring that the rental income exceeds 125% of loan interest payments at a mortgage interest rate of 5% to 6%. In contrast, and in accordance with the FPC’s June 2014 Recommendation, the affordability of loans to owner occupiers is tested by ensuring that the borrower has sufficient income to cover their mortgage payments at a more stringent mortgage interest rate of around 7%, despite owner occupier mortgage rates tending to be around 0.7% lower,’ the report continues. ‘Assessed against these affordability metrics, buy to let borrowers may be more vulnerable than owner occupiers to an unexpected rise in interest rates or a fall in income. For example, if mortgage rates rose by 300 basis points, the increment by which the FPC recommended the affordability of mortgages to owner occupiers is tested, nearly 60% of buy to let borrowers who took out loans recently would see their rental income no longer covering 125% of their interest payments. By comparison, only 4% of recent owner occupier borrowers would see their mortgage debt costs rise to above 40% of income, a level above which households… Continue reading
US home prices growth set to send first time buyers into the suburbs, says new research
Deteriorating housing affordability will the main drive factor of residential property trends in the United States in 2016, according to a new analysis report. A lack of affordable homes near city centres will push new and first time buyers to suburbs that feel like walkable, amenity rich mini-cities, says the study from real estate form Zillow. It also explains that rising rents will force more young renters to wait longer before buying a home. And the looming threat of rising mortgage interest rates will slowly erode some of the terrific mortgage affordability the market has enjoyed for the past few years. Zillow's 2016 Housing Market Predictions report says that the median age of first time buyers will reach new highs in 2016 as millennials put off home ownership and other major life decisions. Growth in home values will outpace incomes, especially for low income Americans. In 2016, those whose incomes fall in the bottom third of all incomes will be priced out of home ownership and unable to afford even the least expensive homes on the market, it suggests. Rising rents won't let up in 2016, and will continue to set new records. The next year will bring the least affordable median rents ever, the report also predicts. As affordable housing close to city centres grows increasingly scarce, people will move farther out. Dense, walkable suburbs with an urban feel, especially those that offer good access to the city will be 2016's new hot spots. The median expectation of more than 100 economic and housing experts surveyed in the latest Zillow Home Price Expectations Survey suggests that home values are set to grow about 3.5% in 2016. ‘Rents will continue to increase at a brisk rate in 2016, but many potential first-time buyers are living in hot markets where buying a home is really expensive,’ said Zillow chief economist Svenja Gudell. ‘In 2016, we'll start to see more people in hot coastal markets forced to move farther from the core of the city to find housing. When they get there, they'll be looking for amenity rich suburbs like mini cities, with walkable cores and an urban feel,’ she explained. ‘As renters gradually transition into homeowners, the historically low home ownership rate should stop falling quite as quickly as it has been. However, the median age of first time buyers, already the highest it has ever been at about 33, will climb higher. Millennials want to buy, but they are waiting longer than previous generations,’ she pointed out. ‘All of this will happen against a backdrop of slowly increasing interest rates. That will make some homeowners think twice about selling, and many of them will decide to remodel their current homes instead,’ she concluded. Continue reading
Report identifies 18 areas in the UK with new home development opportunities
There are 18 areas in the UK where economic fundamentals suggest there are good opportunities for developers at a time when the government wants to build more homes than ever. An analysis from international real estate firm Knight Frank and planning consultancy Barton Willmore names them as Leeds, Manchester, York, Durham, Birmingham, Nottingham, Warwick, Leicester, Brentwood, South Cambridgeshire, Bristol, Bath and North East Somerset, Exeter, Cherwell, South Oxfordshire, Guildford, Reigate and Banstead and Tunbridge Wells. Factors examined included economic growth, employment growth, stock to sales ratios, affordability and liveability. These rankings were then placed alongside the latest conditions in the local planning environment as well as local knowledge, to highlight areas which suggest there is the possibility for outperformance for developers, not only in terms of pricing but also market absorption. Justin Gaze, joint head of residential development at Knight Frank, said developer interest is now much wider than just London. ‘Increasingly, our clients are looking at regional cities and districts for future potential and the report demonstrates from an economic and planning perspective where these development opportunities are likely to be,’ he explained. According to Iain Painting, planning partner at Barton Willmore, these opportunity areas are aligned with the increased emphasis on urbanisation, focusing on many of England’s key cities, but also demonstrate that development opportunities are not purely based in the South East. In the North of England it is Manchester and Leeds that are expected to be among the areas which will experience the strongest rates of household growth over the next 10 years, while York scores particularly highly on liveability rankings. The report suggests that the green belt will pose constraints for developers in and around Durham and York but at the same time, there is a need for more site identification, as these two areas do not yet have a five year land supply. York boasts policies to boost housing supply as it has been identified as one of the first Housing Zones in England. Meanwhile, Leeds plays host to an Enterprise Zone and the North East Combined Authority, of which Durham is one of the constituent boroughs, has also bid for 175 hectares of Enterprise Zone over 10 sites. The report points out that this new combined authority has just been granted extended powers over housing. Of the four Development Opportunity areas, only Leeds has an approved local plan and as policymakers push ahead with the ‘Northern Powerhouse’, especially the transport infrastructure to support this, the opportunities in the North of England will widen, it adds. The report explains that not only does Birmingham have an Enterprise Zone, but also a planning department committed to large scale regeneration of many parts of the city. Nottingham is also an Enterprise Zone area and has a local plan and five year land supply in place. ‘However, our data shows that the current pipeline supply of schemes in this local authority may fall short of household growth projections,’ the… Continue reading
