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Budget Sparks Property Price Increase Fear

Budget Sparks Property Price Increase Fear

UK property prices set to soar by 30%
Says Office for Budget Responsibility

UK residential property prices could increase sharply over the next five years, fuelled by a rise in the number of savers choosing to invest in property rather than taking annuity.

The forecast comes from the Office for Budget Responsibility (OBR), following the changes announced in George Osborne’s latest Budget which means that people will not be forced to take an annuity when they retire and instead they can choose to invest their money as they wish.

Many people are expected to use their pension pot to invest in property, rather than in currently poorly performing pensions, driving up UK property prices in the process.

The OBR has revised its forecast for UK residential property price growth in the next five years from 27% up to 30.8%.

According to the Office for Budget Responsibility forecast, anticipated UK residential property price growth is expected to be:

  • 8.6% in 2014/2015
  • 7.4% in 2015/2016
  • 4.3% in 2016/2017
  • 3.7% in 2017/2018
  • 3.7% in 2018/2019.

The predictions are the OBR’s best guess, they are not accurate in any way shape or form and should be used as a guide only. These are not fact, just speculation.

The OBR are supposed to be an independent fiscal body, however, they estimate that by the end of their forecast period, UK property prices should be just 0.5% below their pre-crisis peak, and the property price to income ratio is estimated to reach 2.3% below its pre-crisis peak.

The OBR also expects transaction volumes will increase at a faster pace than originally forecast over the coming five years. Estimating 1.28 Million housing transactions in 2014/2015, some 6% higher than the previous OBR forecast in December 2013.

The OBR also predict that Stamp Duty receipts will rise 90% over the next four years from £9.5 Billion (GBP) in 2013-14 to £18.1 Billion (GBP) in 2018-19.

The OBR report said: “House prices have continued to accelerate since our December forecast with annual growth reaching 5.5 % in December 2013. We expect house prices to peak earlier than in our December forecast at 9.2% in the 3rd quarter of 2014, with prices rising by around 30% by 2018-19.”

Property price growth is currently being led by London where even large estate agency groups like Savills forecast property values to surge by almost a quarter over the next five years.

According to a five-year outlook recently published by Savills, a number of risks to the prime property markets, such as Eurozone default, have receded over the past two years and Inner London boroughs could see a growth of 23.1%, and property prices in other areas of the capital could also rise by 22.7%.

Council of Mortgage Lenders Give Reasons For Optimism In 2013

CML Give Reasons To Stay Positive About UK Property Market In 2013

CML Give Reasons To Stay Positive About UK Property Market In 2013

The UK Council of Mortgage Lenders (CML) are more positive about the UK housing market and the wider economy than they were a year ago, despite economic headwinds and downside risks.

A key reason is that mortgage lenders currently face few funding pressures, in part reflecting the governments funding for lending scheme.

Property purchasing activity was more robust than expected in the last quarter of 2012, on the back of better mortgage availability and more realistic property pricing, and the CML expect this to continue over the coming months.

2013 started on a more positive note than a year ago, even though the UK economy has barely grown.

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UK residential mortgage lending made a dramatic recovery in May 2012 after the sharp decline caused by the end of the stamp duty concession at the end of March.

The Council for Mortgage Lenders (CML) claimed that the amount of residential mortgage loans advanced to property buyers increased by 33% from in April 2012 to 48,300 in May 2012 resulting in overall mortgage lending being 25% higher than at the same point in 2011

The CML put the rise in first-time buyer activity down to the market bouncing back from the temporary slump that came with the reintroduction of 1% stamp duty at the end of March 2012.

CML’s Director General, Paul Smee, said: “The slump following the end of the stamp duty concession seems to have been short-lived. Lending is similar to late 2011 levels and showing a healthy improvement on the same time last year.”

Despite some 18,100 first-time buyer mortgage loans worth £2.3 Billion (GBP) increasing by more than 20% compared with May 2011.

Mr Smee urged caution amid the ongoing Eurozone crisis stating “Economic uncertainty could affect both the supply of mortgage lending and consumer confidence and we still anticipate a challenging lending environment for the rest of the year.”

New Measures Announced To Boost UK Cashflow

New Measures Announced To Boost UK Cashflow

Sir Mervyn King, Governor of the Bank of England, last week announced further measures to boost the UK’s economic recovery, in his Mansion House speech.

The BoE have launched a Multi-Billion (GBP) initiative to increase the cash flow of some of Britain’s biggest financial institutions.

The Bank’s offer of £5 Billion (GBP) in six-month loans at a rate of only 0.75% has already been entirely taken up by major UK banks and it is understood that they were told to apply by Sir Mervyn himself.

The Governor of the Bank of England does not want the scheme to be seen as another ill conceived emergency measure, instead, he intends the money to be considered as a mainstream source of funding.

It is also widely rumoured that a similar loan process will occur on a monthly basis.

The facility announced by Sir Mervyn King is just one of several measures aimed at boosting the economic recovery and encouraging investment.

The BoE Governor also launched an estimated £80 Billion (GBP) policy with Chancellor of the Exchequer, George Osborne, intended to prevent a second credit crunch in the UK as fears surrounding the impact of the Eurozone debt crisis grow.

Gross mortgage lending declined to an estimated £10.2 Billion (GBP) in April 2012.

Mortgage lending fell by 19% from £12.6 Billion (GBP) in March 2012 but was 2% higher than the total of £10.0 Billion (GBP) in April 2011, according to the Council of Mortgage Lenders.

CML chief economist Bob Pannell comments:“Mortgage lending activity has been relatively buoyant in recent months, with stronger lending for house purchase underpinning the more upbeat lending picture. The underlying picture is likely to be a bit stronger than the April figure suggests, because some first-time buyers are likely to have brought forward their transactions to March 2012 to take advantage of the stamp duty concession that was coming to an end in March 2012. Eurozone developments remain highly uncertain and have the potential to undermine UK economic prospects and conditions in our housing and mortgage markets. The underlying picture is likely to be one of easing momentum in the housing market, but with potential for a sharper downwards correction on bad Eurozone news.”

The Bank of England said that successful mortgage approvals have dropped below the six-month average, according to new data.

The previous six-month mortgage approval average was 53,000 leading up to April 2012 but the figures only amounted to 51,823 successful mortgage applications being recorded, despite lending approvals being up by 1.5% from March to April of this year.

The stamp duty exemption that ended on March 24th 2012 is thought to have boosted the UK residential property sales market with many First-Time Buyers (FTBs) keen to snap up residential property and reap the benefits before the deadline date.

Figures also showed that more people remortgaged their homes in April 2012 with over 30,000 successful applications going through, which is above the recent average.

However, the UK property sales market is now expected to slow again, as banks become more reluctant to approve residential property mortgages and many have increased the criteria required for a successful mortgage application.

This has been put down to the difficult position the banks find themselves in amidst the current Eurozone crisis, the unstable UK and global economy and further regulations for the banks when it comes to lending.

Rent arrears fall again in 2012

More UK Landlords Using Rent Guarantee Products

Private Rented Sector (PRS) rent arrears dropped in February with 9.3% of all rent late or unpaid at the end of the month, down from 10.7% in January.

With household bills increasing, UK unemployment still rising and the whole country still struggling to avoid a double dip recession as a result of the Eurozone crisis, together with the government’s welfare reforms and public sector belt tightening, there hasn’t been a great deal of optimism around, especially from landlords.

However, figures released by LSL property services show that UK landlords have a little less to worry about, with the amount of rent arrears and late payments falling again.

Either private sector landlords are having an excellent run of good fortune, having tenants who are able, paying the rent in full and on time, or they have become smarter and are now utilising the range of Rent Guarantee products that are currently on the market, to ensure they get paid and their monthly cashflow doesn’t suffer.

Being a landlord and letting a property in the UK means there will always the risk of the tenant not paying the rent, (rent default).

Even the best tenant referencing service cannot predict if a tenant will lose their job and fall on hard times and not be able to pay their rent.

How do landlords cover their expenditure if this happens?

In today’s struggling economic climate, many UK landlords are finding their tenants struggling with rising unemployment and increased bills. Often leading to the rent not being paid and the tenant facing eviction when the amount of rent arrears exceeds 8 weeks.

Recovering arrears can be difficult and costly for landlords, without any guarantee of success.

At Legal 4 Landlords, our Rent Guarantee Insurance will cover landlords against their tenant defaulting or failing to pay the rent.

Institutional Investment is needed in UK Buy To Let Sector

Institutional Investment is needed in UK Buy To Let Sector

The Council of Mortgage Lenders, (CML), think the coalition Government’s Chancellor of the Exchequer, George Osborne should be doing more to encourage institutional investors to take a stake in Buy To Let property in the upcoming Budget.

The Council of Mortgage Lenders are the trade body for all the UK’s major bank and building society residential mortgage lenders.

The CML claim encouraging pension funds and corporate investors is a neglected policy that could provide the cash for more UK homes that can be made available to rent.

The suggestion is part of a wide-ranging Budget review aimed at influencing the Chancellor to ease the mortgage market. The submission also criticises current housing policies, including:

• Stamp duty holidays for first time buyers, which the CML claims creates a boom and bust market around deadline dates
• Paying housing benefits direct to claimants may damage landlord cash flows and lead to unnecessary mortgage arrears and repossessions
• Making better use of housing stock as, the CML states, most of the homes available over the next 20 years have already been built

The CML has told the Chancellor that given the vulnerabilities and uncertainties, it is important to make sure that all avenues, for strengthening and diversifying funding structures, have been explored.

The CML have also noted that the government continues to explore the obstacles to greater institutional investment in the supply of private rental property, but, strangely, the further scope for promoting domestic institutional investor interest in mortgage assets seems to be a neglected area of policy.

The Budget report also points out that UK banks and building societies rely heavily on raising funds from wholesale markets which are currently challenged by the Eurozone debt problems.

“Funding costs remain higher than a year ago, and the UK remains vulnerable to future eurozone developments. Given that current market conditions are somewhat fragile, it is very important that other government policies do not undermine housing market sentiment more generally. We believe that there are a few areas where policies are not as well aligned as they could be.” says the CML.

The CML’s calls echo the sentiment of many existing UK landlords who have had to search for a variety of additional landlord services such as insurance, tenant referencing and tenant eviction services from private sector specialist suppliers, in order to remain in a profitable situation.

With institutional investment into the UK private rented sector (PRS) specialist products and services for landlords will be enhanced for the corporate market and derivatives would be more affordable and even more readily available.

With the continuation of the record low Bank of England interest rates (0.5%) there has been very little movement in UK property prices for more than 8 months.

However, UK mortgage lender Halifax reckons there was a 0.6% increase in UK property values in January 2012.
The UK’s largest mortgage lender found that despite the month-on-month increase in January, on average UK property prices were still 0.9% lower over a rolling three-month period.

The average price of a UK residential property in January 2012 was £160,907.

This has resulted in a 14-year low, in terms of payments in proportion to household earnings, for new borrowers looking to invest in UK residential properties.

Martin Ellis, housing economist at Halifax, said: “If the UK can avoid a prolonged recession, we expect broad stability in house prices in 2012.”

The prospects for UK property prices in 2012 will depend on many facors, including the fallout and repercussions from the Eurozone debacle and its effect on the struggling UK economy.

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Property investors need to research before they buy in 2012

UK BTL property investors urged to be thorough with Due Diligence

Property investors are being urged to thorough research in order to be very selective about the areas they choose to purchase investment property in during 2012.

Poor returns from savings and the continuing strong demand for rental property will be the driving factors behind an increase in property investment in the UK buy to let (BTL) market.

However, taking a gamble on certain locations could be risky for would-be Buy To Let landlords with unemployment rising, Government welfare reforms and the fallout from the Eurozone crisis still looming.

UK property investors are urged to seek to purchase Buy-To-Let properties in popular residential areas with a good infrastructure and a strong employment market, such as upmarket commuter hotspots around all major cities.

Buyer and tenant demand will continue to outstrip the current supply of UK housing stock, supporting property price growth.
Property investors should avoid areas that are reliant on manufacturing or the public sector, during 2012 as these areas may face high levels of unemployment, and with the cap in housing benefit payments now in effect, rental yields may not be as healthy. Such areas are expected to see relatively low property transaction levels in 2012 and a fall in house values that could be more than 5%.

By conducting thorough Due Diligence property investors can purchase Buy-To-Let properties in strong locations that will deliver a reliable rental incomes and a good supply of quality tenants, in addition to a modest capital growth

A list of useful Due Diligence sites to aid property investors in their search for the best areas can be found here

Private Rental Sector property rents are expected to continue growing strongly in most areas, hopefully, in the region of +5% this year, due to continued restricted mortgage lending and poor employment prospects leaving a whole generation of potential first time buyers (FTB’s) with little prospect of buying a home.

To ensure rental income remains constant throughout the duration of a tenancy, landlords can utilise Rent Guarantee insurance to keep a regular income coming in from their buy-to-let property.

Policies offered by Legal 4 Landlords include 6 and 12 Month Rent Guarantee insurance policies designed to protect landlords whose tenants default on rent payments.
Rent Guarantee insurance can also provide additional cover to meet the cost of legal proceedings for the eviction of defaulting tenants from rented properties.

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