Uk
Investment in rural land in the UK seeing weakening returns
A weakened investment performance suggests that confidence in the rural land market in the UK is cooling after years of great returns. The IPD UK annual rural property index shows that total return recorded in 2015 was 5.5%, down from the 10.4% recorded in 2014. It is the most subdued return since 2008 and reflected a market cooling after several years of very robust returns in line with other investment classes. Sentiment was tempered by weakening commodity prices, and more recently by political discussions around Britain exiting the European Union. The report says that this caution around future market uncertainty was most reflected in rural land capital growth, which slowed to 4.1% in 2015 from 8.9% in 2014. This marked the lowest growth since 2008 when values depreciated. The decrease in the rate of capital growth contributed the most to the decline in the total return. The restraint in capital value growth was most pronounced in South East, where growth declined to 5.8% from 17.9% in 2014. There was also significant moderation in capital value growth across Eastern England, East Midlands, and Yorkshire and Humberside regions. Northern England and Scotland recorded the slowest value growth at 1.1%. Rural income return, however, held relatively steady at 1.3% compared to 1.4% in 2014, the figures in the annual index also show. ‘The weakened investment performance suggests confidence in the land market is cooling down after years of great returns,’ said Colm Lauder, MSCI vice president. ‘Moreover, the uncertainty created by discussion over Brexit and the potential effect of such a move on agri-food exports hit the confidence of farmers to increase rental holdings or invest further,’ he explained. He added that investors were concerned that it will be some time before there is a clear picture for the agricultural economy. MSCI also recorded a total return of 10.8% in 2015 in the IPD UK Annual Forestry Index, which marked a decline from a total return of 18.6% in 2014, the most subdued return since 2008. The index report points out that the decline is despite healthy demand for timber and wood products. However, a strengthened pound sterling versus euro and Scandinavian currencies put British wood products at a disadvantage in export markets. And it explains that British timber is heavily dependent on the exchange rate value of the pound. The significant gap between Euro and Swedish Krona denominated import prices and home grown prices denominated in the British pound narrowed significantly, which rendered Scandinavian exported sawn timber more competitive in 2015. Consequently, imports from mainland Europe rose at the expense of UK timber growers, whose timber sale returns in turn declined due to weakening saw-log prices. Subsequently the medium term run of forestry property price returns were impacted as investors and analysts made the adjustment. ‘The total return from UK Forestry of almost 11% is… Continue reading
Buy to let landlords face paying more for a mortgage in the UK, it is claimed
Buy to let investors could face paying an extra £10,000 to get a mortgage after a crackdown on dangerous debts by UK lenders. Watchdog the Prudential Regulation Authority is concerned that some landlords are overstretching themselves and will face difficulties when interest rates rise and it is expected that the banks and building societies will start making new hefty charges from September 2016. As a result, it is forcing lenders to run stricter tests to see whether an investor can afford the loan. Currently, investors have to prove they would earn enough from the rent to cover their repayments, but the new plan demands proof they would still be covered if rates rose by at least 2%. Under the new tests, banks and building societies will want evidence of a yield of at least 5.2% to qualify for a 25% deposit loan. This would mean earning £7,800 a year from rent on a £150,000 home before paying the mortgage. To pass the tests, investors will have to either raise rents to ensure they would be covered if interest rates soared, or reduce borrowing. However, according to Peter Armistead of Armistead Property, savvy investors can absorb these new charges by buying cheaper property with higher yields. ‘Clearly the investors most at risk are those with smaller deposits who buy property in parts of the UK where rents are low compared with house prices. This is a particular problem in places such as London and the South East where the average annual returns between 2010 and 2015, was just 4.86% in outer London and 4.71% in the City, according to LendInvest,’ he explained. He pointed out that house prices in London are about five times what they are in parts of the North West, but salaries are only 30% higher. Manchester and Liverpool deliver some of the best rental yields, with Manchester recording average annual rental yields of 6.02% over five years, followed by Liverpool with 5.15% yields. He also said that an average residential property in Manchester is just £155,000, while a flat in a good area, costs as little as £120,000. A property in Manchester can provide a 5% minimum cash rental yield and a typical 12% total cash yield, including 7% capital appreciation. Demand for rental accommodation is strong and by comparison with other regions, housing is cheaper. ‘Landlords will find the best returns in urban areas, with a concentration of students and young professionals. If investors can purchase cheaper properties with better yields, they will have the opportunity to protect and boost their profits in the longer term,’ added Armistead. Continue reading
New combined index for the whole of UK shows prices up 0.6% in April
Property prices in the UK increased by 0.6% in April month on month and by 8.2% year on year, according to the first single index for the whole of the country. It merges previous indices that were published separately for England and Wales, Scotland and Northern Ireland taking data from the Land Registry, Registers of Scotland, Land & Property Services Northern Ireland and the Valuation Office Agency. It shows that the average price of a property in Scotland in April was £138,445, up 3.3% year on year and 1.5% month on month while in Wales prices increased by 1.7% year on year and 1.9% month on month to an average of £139,385. In England, the April data shows an annual price increase of 9.1% and a monthly rise of 0.7%, taking the average property value to £224,731 while in London prices increased by 14.5% year on year and 0.6% month on month to an average of £470,025. A breakdown of the figures show that the North West of England saw the greatest monthly growth with an increase of 2.3% and the North East saw the lowest annual price growth with an increase of 0.1% while the South West saw the most significant monthly price fall with a fall of 2.8%. The number of UK home sales continued to grow in the three months to April 2016, rising by 8.3% relative to the preceding three months although sales fell by 45.2% in April 2016 compared with March 2016. The number of completed house sales in England increased by 1.1%to 56,884 compared with 56,261 in February 2015, the number of completed house sales in Wales increased by 4.1% to 2,796 compared with 2,686 in February 2015 and the number of completed house sales in London fell by 10.5% to 6,926 compared with 7,740 in February 2015. Due to a period of two to eight weeks between completion and registration of sales in Scotland, volume figures for the most recent two months are not yet complete, so they are not included in the index report. The creation of a single index for the UK has been widely welcomed but there is still concerns that the time lag amounts to six weeks. According to Rob Weaver, director of investments at property crowdfunding platform Property Partner, on first viewing, the new single index looks like a fair representation of the market and consistent with current sentiment. But he pointed out that with transaction volumes at historic lows, the sample size for April will be smaller than normal and added that the next one will give a better indication as to whether or not this month’s referendum on the future of the UK in the European Union has affected sales and prices. But with historically low interest rates, strong employment and the continuing chronic undersupply of housing, he believes that the upward trend in prices looks set to continue later in the year. He also pointed out that one official… Continue reading
