Wednesday, July 23rd, 2014

London Investment property

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Improved Liquidity and rates of interest

Recent data from the council of mortgage lenders (Nov 13) reveals an increased availability and volume of lending across the United Kingdom.

 

In particular London, where the number of loans advanced to first-time buyers in reached a six-year high in the third quarter of 2013.

 

In total, £2.9bn was advanced to first-time buyers in the third quarter, a 42 per cent increase on the £2bn advanced in the same period a year earlier.

 

Landlords are also benefiting from the increased availability of lower rate interest mortgage products such as those from Natwest and Principal Building Society with rates as low as 2.79% and 2.99% respectively. Lower rates of interest means a higher rate of return.

 

Even the average loan to value has increased from 75% of the purchase price to almost 80% according to the Council of Mortgage lenders (CML).

 

Market Sentiment

The forecast number of repossessions of 35,000 has fallen to a projection of 30,000 for the year-end 2013 (CML).

 

The total number of repossessions in the third quarter fell to its lowest level since early 2008,  and the arrears in the buy-to-let market are lower than in the home-owner market.

 

Employment figures from the Office of National Statistics of Q3 2013 showed the sixth consecutive quarterly rise in employment with the employment rate now standing at 71.8%, up from 71.5% in Q2 2013. Over the same quarter, the unemployment rate fell by 0.2 percentage points to 7.6%.

 

The employment and repossession figures do not show a robust economic recovery but rather a slight improvement in market sentiment. This may be the appropriate time for buy-to-let investors to start to re-enter the property market.

 

Help to buy scheme

Financial Assistance provided to homebuyers through government incentives such as the Help to Buy scheme and proving to stimulate the housing market with 18,000 reservation being placed since its inception.

 

The most recent element called the mortgage guarantee scheme has had a particularly positive impact because it has made it possible for first time buyers to obtain mortgages with as little as 5% deposit.

 

The Homebuilders Federation recently interviewed a number of homebuilders that had similar comments as Jim Wren, Chief Executive of Strata Homes who said;

 

“We are pleased to report a significant upturn in sales numbers as a result of increased customer confidence, improved lending arrangements and particularly the introduction of the Government backed Help to Buy Equity Loan Scheme. We are confident of this increased demand continuing and have accelerated our build rates accordingly.”

 

Supply Shortages

The above factors have increased housing demand, but what about supply?

 

A report by CLG (21 Nov 2013) show how the Government’s Help to Buy Equity Loan scheme is driving new home building activity. There were 28,580 new homes started by private house builders in England in the July, August and September quarter this year – up 29% on the same period last year. It is the highest number of new homes started in a quarter since Q1 2008.

 

The London’s current residential construction pipeline equates to an average of just 28,500 new homes a year, suggesting an annual shortfall of 21,500.

 

Effect on House Prices

Halifax housing economist Martin Ellis says stronger demand, combined with an insufficient increase in housing supply, has pushed up house prices.

 

The average house prices rose by 7.7% year on year in Nov 2013.

 

Land registry data confirms that it is even more pronounced; in places like Wimbledon apartments for sale are more than 10% higher than the price paid in the previous year.

 

‘Rents went up by nine per cent for the most basic housing between over 18 months’ according to London Councils (March 2013).

 

‘It may be a good time to consider purchasing a London Investment Property says Arran Kerkvliet of One Touch Property.

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