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UK landlords seeing average yields falling, latest quarterly figures show
Average yields on residential rental properties in the UK have cooled across the board with landlords owning semi-commercial property sector the biggest losers, according to the latest buy to let index. Yields on semi commercial properties have fallen from 7.5% in the first quarter of 2015 to 5.9% in the second quarter, their lowest level in four quarters and a drop of 1.6%, the data from Mortgages for Business shows. Similarly, returns on houses in multiple occupation (HMOs) have dropped 1.3% to 9.3% between the first and second quarters of 2015 while average yields for standard buy to let have experienced a less marked decline, dipping from 6.4% to 5.8%. Multi-unit freehold blocks (MUFB) saw the only quarterly improvement with average returns up 0.8% to 7.1%. However, the second quarter MUFB yield rate is still below the 8.6% and 9.3% returns recorded in the third and fourth quarters of 2014 respectively. The data also shows that average loan to value (LTV) ratio has begun to fall. Average LTV rates for standard buy to let and multi-unit freehold blocks remained unchanged at 66% and 67% respectively between the first and second quarter of 2015. The LTV ratio for HMOs fell 1% over the quarter to 69% but the largest drop was in semi-commercial property, down from 65% to 54% over the first two quarters of this year, a drop of 11% and the lowest LTV rate for four quarters. ‘LTV ratios and yield rates have slid. While rental yields are still robust they seem to have lost the momentum they were gathering between the end of last year and the start of this one. That said, multi-unit freehold blocks seem to have avoided the yield downturn, demonstrating once again that complex property types produce higher yields because they offer tenants more features and facilities,’ said David Whittaker managing director of Mortgages for Business. ‘While many landlords had hoped that the improving economic climate may have pushed loan to value ratios even higher, the figures appear to have stalled. Property values dipped in the second quarter, but so did average loan amounts, suggesting lenders are waiting for more signs of economic improvement before they lend any more relative to the value of a property,’ he explained. He also pointed out that the General Election campaign impacted on LTV ratios. ‘With the pundits repeatedly predicting chaotic political horse trading after 07 May, many lenders thought it best to not give too much too early. They feared a change in the policy status quo that would hit BTL landlords and, with it, their ability to make mortgage repayments,’ he added. The report also shows that the proportion of HMO loans for remortgaging reached 90% in the second quarter of 2015, a 17% on the previous quarter and the largest proportion of any rental property type in four quarters. Conversely, the proportion of SCP loans for remortgaging has fallen back from 87% to… Continue reading
Prime London property prices up 1.6% in second quarter of 2015
Values across London’s prime housing market grew by an average of 1.6% in the three months to the end of June, but remain 0.7% below where they were a year ago. Increased stamp duty rates and unsold stock levels restricted a bounce in property values after May’s general election, according to the latest analysis from real estate firm Savills. The report also says that buyer caution has been most evident at the top end of the market, with prices in the prime central London market barely showing any net house price growth over the quarter with a rise of just 0.3%. This means that house prices in this market are down by an average of 4.3% year on year. According to Lucian Cook, head of UK residential research at Savills, there was a feeling prior to the autumn statement last year that the prime markets of London were looking fully priced following a sustained period of growth. ‘The stamp duty increases introduced in December 2014 mean they now also looked fully taxed, despite mansion tax fears being confined to history,’ he explained, adding that this effect has not been confined to prime central London. Indeed, across the remainder of the prime London market homes worth over £2 million saw values fall by an average of 0.9% over the past year, despite rising by an average of 2.4% in the quarter. Across London, the market below £1 million, where buyers benefitted modestly from the stamp duty reform, recorded annual price growth, albeit of just 2.4%, as the mortgage market review continues to restrict the amount people can borrow, whether because of the stress testing of affordability or the income upon which this is judged. ‘In the early part of the year we could put buyer reluctance to commit down to political uncertainty pre-election. Only now is the dual effect of taxation at the top end of the prime market and mortgage regulation at entry level becoming clear,’ said Cook. ‘These constraints are keenly felt by buyers, while some sellers are clinging to expectations that values can keep on rising. That has created a gap in price expectations in parts of the market which is likely to hold back any recovery in transaction levels,’ he pointed out. ‘With those transactions having been suppressed prior to the election, it seems inevitable that high value sales will have peaked, at least in the short term, in 2014. That means current constraints on the market could have a negative on impact on stamp duty receipts from most expensive housing upon which the Treasury has become increasing reliant,’ he concluded. Continue reading
Tax change could result in higher residential rents in the UK
Landlords in the UK’s private rented sector could be forced to put up rents if their buy to let mortgage interest payments are made non tax deductible, it is claimed. The National Landlords Association (NLA) is warning that costs in the UK private rented sector (PRS) could rise by up to £2.6 billion if tax changes are made, as has been hinted. In a letter to the Chancellor ahead of Wednesday’s Budget, the NLA’s chief executive officer Richard Lambert says that making mortgage interest payments non tax deductible would be the last thing the UK economy needs and would only put greater pressure on the cost of housing. The letter also outlines the contributions that landlords make to the UK economy by means of their support for the housing industry and through direct contributions in the form of tax. ‘It has been suggested that private landlords receive too many perks or reliefs which give them an unfair advantage compared to owner occupiers, but this ignores the fact that letting residential property for profit is a business,’ said Lambert. ‘No business pays tax on their gross turnover alone so why should landlords be treated any differently. Removing their ability to deduct legitimate costs before declaring their taxable profit would essentially force them to suck up one of the most significant expenses they face in being able to provide homes for others,’ he added. Using figures from the Council of Mortgage Lenders reported at the end of 2014, the NLA estimates that costs in the PRS could rise by as much as £2.6 billion if mortgage interest payments were to be reclassified as non-deductible, a move it warns would leave landlords with no other option than to raise rents. Lambert concluded the letter by seeking ‘an unequivocal reassurance that the Government will continue to regard buy to let mortgage interest payments as a legitimate business cost, and give landlords the confidence and certainty to invest for the future’. Continue reading
