Tag Archives: real estate
UK buy to let landlords face tougher lending rules
Some buy to let landlords in the UK face tougher regulation when it comes to getting a mortgage for expanding their portfolio, the Bank of England has announced. In what may be seen as another blow to the buy to let market but the Bank’s Financial Policy Committee (FPC) says that some lenders are applying ‘weaker’ standards when it comes to applications in this sector. The FPC also believes that the rapid rise in buy to let lending, while likely to slow when the new stamp duty levy comes into play on 01 April, the sector is still not without potential threats in terms of financial stability. So there will be stricter affordability checks. Landlords with four or more properties will be expected to declare the rental income they expect to receive from tenants and also their own income and spending habits. This is to ensure they can still afford the mortgage if a tenant defaults on their rent or the property is left vacant. Landlords will also have to prove they can cope if interest rates rise sharply and can afford all the costs associated with renting out a property. This includes tax, which will rise on buy to let properties from next year. ‘The FPC remains alert to potential threats to financial stability from rapid growth in buy to let mortgage lending,’ the statement says, showing that the outstanding stock of buy to let mortgages has risen by 11.5% in the year to the fourth quarter of 2015. ‘The macro prudential risks centre on the possibility that buy to let investors could behave pro-cyclically, amplifying cycles in the housing market, as well as affecting the resilience of the banking system and its capacity to sustain lending to the wider real economy in a stress,’ the FPC explains. ‘The FPC welcomes and supports the Supervisory Statement issued by the Board of the Prudential Regulation Authority (PRA) to clarify its expectations for underwriting standards in this market, including guidelines for testing the affordability of interest payments,’ it points out. ‘The PRA's review of lenders' plans revealed that some lenders are applying standards that are somewhat weaker than those prevailing in the market as a whole. The PRA's action is a prudent supervisory measure intended to bring all lenders up to prevailing market standards. It will guard against any slipping of underwriting standards during a period in which rapid growth plans could be challenged by the impact of forthcoming tax changes,’ it adds. The FPC statement also points out that the growth of buy to let mortgage lending is likely to slow in the second quarter of this year as changes to stamp duty take effect and that forthcoming changes to mortgage interest tax relief and the implementation of the PRA Supervisory Statement will probably dampen growth further. ‘The FPC will continue to monitor closely these developments and potential threats to financial stability from the buy to let mortgage market,’ it adds. The… Continue reading
UK new house building target not over ambitious, analysis suggests
The UK Government’s target of building a million new homes over the next few years is not as ambitious as some may think, according to a new analysis from the Royal Institution of Chartered Surveyors (RICS). The individual components of the goal includes 200,000 Starter Homes, an initiative still working its way through parliament, and 135,000 shared ownership properties about which little has been said to date. Trying to access the success of such a programme it about the official data on housing starts, according to RICS chief economist Simon Rubinsohn, and these show that a mere 144,000 new units were begun through the course of 2015. But he points out that other data produced by the Department for Communities and Local Government (CLG) casts some doubt on the accuracy of the quarterly figures which are produced on a high frequency basis and released within a short period following the end of the quarter. He explains that there is arguably more value to be gained by focusing on the less frequently released net supply numbers, which are based on completions rather than starts, as they reflect the additions to the stock of housing units for habitation. The quarterly completions series showed an additional 125,000 homes built in 2014/2015, the last full year for which data is available, while the annual net supply series puts completions at 155,000. Rubinsohn adds that net conversions added close to nearly 5,000 additional units over the period and this was supplemented more than 20,000 units from ‘change of use’. The latter figure has increased sharply over the past few years as a result of Permitted Developments Rights enabling the shift from office class to residential. And then demolitions amounted to just over 10,500 in 2014/2015. ‘So pulling this altogether, in the last financial year, there may have been 125,000 housing completions in England, 155,000, just over 180,000 or, after demolitions, 170,000. And on the basis of the higher number (gross additions to supply), the government doesn’t appear that far off its ambition for 2020,’ Rubinsohn argues. ‘None of this is designed to minimise the fundamental nature of the housing crisis which reflects the fact that household formation is still projected to comfortably outstrip projections for the supply of new units even on the most generous calculations,’ he says. ‘This is also clearly visible in the estimates by our professionals for medium term growth in house prices and rents. The February Residential Market Survey suggested both are likely to increase by at least another fifth over the next five years comfortably outstripping the probable rise in wages,’ he adds. Continue reading
Housing affordability falls in Scotland for third year in a row
Rising house prices in Scottish cities has led to a further deterioration in affordability with average values up 3% from £176,009 in 2015 to £181,077 in 2016. This has resulted in average affordability in Scotland’s cities worsening in the last 12 months from 5.25 to 5.36 times gross average annual earnings, the third successive annual decline in affordability. The data from the Bank of Scotland Affordable Cities Review also shows that on average, affordability in Scottish cities is now at its lowest level since 2009 but is still 12% lower than the peak of 6.12 times earnings in 2008 at the height of the last housing market boom. The overall improvement in affordability across Scottish cities as a whole over the past eight years has been driven by a combination of an increase of 10% in the gross average annual earnings and an average house price decline 3%. Edinburgh is Scotland’s least affordable city where the average house price is 6.12 times the gross average earnings in the city. With an average price of £220,099, houses in Edinburgh are more expensive compared with average earnings than in any other Scottish city. Inverness at 6.03, Aberdeen at 5.72, Dundee at 5.38 and Perth at 5.24 make up the top five least affordable cities in Scotland while Stirling is the most affordable city and the second most affordable in the UK with an average property price of £165,658 which is 4.11 times the gross average annual earnings. Glasgow is the second most affordable city in Scotland and 10th in the UK, with an average house price of £159,580, which is 5.07 times the gross average annual earnings in the city. House price growth has been highest in Aberdeen over the past decade and since 2011 Aberdeen has recorded the biggest price rise of any Scottish city over the past decade and with a gain of 58%, is the only Scottish city to appear in the top 10 UK cities with highest house price growth in fifth place. The report explains that this is as a result of rising housing demand due to the strong performance of the oil and gas sector over most of the period. More recently, Aberdeen has seen a 22% rise since 2011 but prices are not declining due to a decline in the resources sector. ‘The rising house prices over the past three years have resulted in a deterioration in home affordability in Scotland’s cities. Although affordability is at the lowest level since 2009, it is still much lower than the height of the last housing market boom in 2008,’ said Nicola Noble, mortgages director at Bank of Scotland. ‘Aberdeen has recorded Scotland’s highest house price growth over the past decade and more recently during the economic recovery, due to strong performance in the oil and gas sector,’ she added. Continue reading
