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Improved economy helps UK commercial property markets
The last year has seen a marked shift in the commercial property markets in the UK, powered by improved economic fundamentals which drive the underlying occupier base, according to new reports. The broad based improvement in economic growth, aided by low inflation, has seen improvements in both consumer and business confidence, which should lead to rental growth where demand outstrips supply, says the latest analysis from Cluttons. The firm’s Commercial Property Market Outlook report indicates that the industrial sector is now showing similar performance to offices, as Cluttons predicted last year. Office total returns for the past 12 months are at 23% with capital growth of 16.8%, compared to the industrial sector which has delivered a total return of 22.7% bolstered by capital growth of 15.1%, driven primarily by yield compression. ‘As we forecast last year, sheds are now matching offices for performance. One reason is that prime logistics take-up has improved over the past year, driven by manufacturers, especially in the automotive sector, and retailers with supply constraints in key locations,’ said John Barrett, head of valuations at Cluttons. ‘Apart from the strong supply/demand fundamentals aided by supply shortages due to a lack of speculative development in recent years, the case for investment in the industrial sector is helped by low obsolescence and the squeeze on land supply from higher land value uses. This is especially the case in London and the south east,’ he explained. ‘With prime yields now stabilising across most markets, income growth is replacing yield compression as the primary driver of future performance. Average income return is at 6%, so it's still a good time to invest in property,’ he added. ‘However this is not universal. Tricky' secondary property remains hard to sell across all market sectors and this may present opportunities for investors prepared to take risks for higher returns,’ he concluded. Meanwhile, the latest research from real estate advisor Savills shows that UK commercial property returns continue to remain attractive in comparison to other asset classes as average prime yields stay stable for the third consecutive month at 4.59%. Savills Market in Minutes report found that the average total return on UK commercial property stands at 18.63% to the end of the first quarter of 2015, in stark contrast to oil, copper and gold, which offer returns of -42.57%, -16.4% and -8.9% respectively. The firm predicts that due to the strong level of demand property should continue to outperform many other asset classes this year. The report suggests that against this backdrop of stability, a split between property asset classes is set to emerge over the next three months. At present, in the office market the gap between prime regional yields at 5% and prime city of London yields at 4.25% is historically narrow. Still, it is likely that central London office yields will harden in the near future, primarily due to the weight of money that is targeted at larger office lots in the UK, something… Continue reading
UK mortgage brokers report impact of rules change a year ago
A quarter of mortgage brokers in the UK say they have experienced a decrease in volumes since new mortgage rules came into being almost a year ago, a new survey shows. The self-employed and retirees are the most difficult to find a mortgage for and mortgage intermediaries are very much divided on the impact of the Mortgage Market Review (MMR) on business volumes. The research by Paragon Mortgages that covers the first quarter of sought to establish the impact of MMR in terms of intermediaries’ business levels as we reach the one year anniversary of the changes coming into force. Of the 200 intermediaries who took part in the survey, 43% said that in their view there had been no change to their business volumes as a result of MMR and 24% said that business had increased. However, some 25% of those surveyed said they had experienced a decrease and only 3% said there has been no change in business. The majority of intermediaries who said they had experienced a decrease reported this had been up to 30% and only 14% said the decrease in business had been any higher. Looking ahead, 15% of intermediaries said they did not know what the long term impacts of the new regulations would be. Intermediaries were also asked which of their customers are now the most difficult to find a mortgage for. Top of the list were the self-employed at 75%, followed by retired customers at 52% and 51% said it was those customers with complex incomes. ‘The research shows is there is still some uncertainty in the market about the long term impact the MMR changes will have on business volumes. This isn’t unexpected, as with any significant change in regulation there will always be a period of adjustment, but it is important the industry monitors this carefully,’ said John Heron, director of Paragon Mortgages. ‘Looking at the feedback from intermediaries on the underserved areas of the market also provides a valuable insight into what lenders could be doing better. We need to recognise that there is no such thing as the average mortgage customer anymore, people have a greater variety of circumstances and we need to be more innovative in order to meet increasingly varied demand from customers,’ he added. Continue reading
Landlords face bringing draughty UK homes up to scratch
New legislation will see landlords banned from renting out properties in England and Wales that are draughty as part of a drive to cut energy bills and carbon emissions. Landlords with properties rated F and G will be unable to let them out from 01 April 2018 and it also means that from April next year tenants living in F and G rated homes will be able to request improvements, such as more insulation. The landlord will then be legally bound to bring the property up to an E rating. According to government figures almost 10% of the 4.2 million privately rented homes in England and Wales currently fall below the E rating and it is estimated that the new legislation will help around one million tenants, who are paying as much as £1,000 a year more for heating than the average annual bill of £1,265. Experts say that these excessive costs are mainly down to poorly insulated homes, many of which are thought to be the oldest and leakiest rental properties in Europe. Under the new legislation, if a tenant requests a more efficient home and the landlord fails to comply, the landlord could ultimately be forced to pay a penalty notice. Landlords will be able to let out F and G rated properties beyond 01 April 2018 for the remainder of existing rental contracts, but will not be able to renew a contract, or let the property to someone else until it is brought up to an E rating. ‘This legislation will have a significant impact on landlords with older, draughty properties in terms of extra expense and lost rental income, while they improve their properties. However, there will be a range of support mechanisms, such as the green deal and ECO schemes, that could alleviate upfront costs for landlords,’ said Michael Portman, managing director of LetRisks. He pointed out that landlords with F and G rated properties face an increased risk unless they take action soon as buy to let providers will require borrowers to comply with the regulations and valuers are likely to amend their criteria in the run up to 2016, making buy to let mortgage applications more difficult. He added that most insurance policies require landlords to comply with ‘all relevant statutory requirements’ and this may mean that it could be more difficult to get insurance unless landlords comply with the forthcoming regulations. ‘Landlords and agents are running a risk if they have F and G rated properties and they need to manage this by upgrading and improving their properties. If Landlords are carrying out any work that is not routine repairs and maintenance, they should advise their insurers,’ said Portman. ‘Letting agents that have F and G rated properties in their portfolio should be urging their landlords to start work on the properties, to bring them up to scratch. Otherwise, they could face the risk of losing some of their landlords because their properties have… Continue reading
