2008 rental demand “extraordinary”

Demand for rental property dipped slightly in October, with the number of leases commencing, down 2.35% on September, according to lettings agent Your Move.

The Your Move Rental Demand Index uses two-month rolling averages to measure demand for lettings in the UK and since the index cut-off date, Your Move has tracked a recovery in demand. The most recent weeks’ figures reveal the number of renters beginning new leases is up 6% from September 2008.

Managing director of Your Move, David Newnes, said: “The minor slowdown in demand for let accommodation in September was sparked by the global interest rate cut and resulting confidence boost – our sales side saw a small lift. But rental demand overall this year has been extraordinary – this is the busiest we’ve ever been in lettings.”

Demand for rented accommodation is growing strongly year on year, with the number of new leases beginning 53% higher than in October 2007.

Newnes added: “People don’t stop needing a roof over their heads because there’s a credit crunch. But the screws are tight in the mortgage market. We’re convinced the boom in demand for rented homes is a direct result of the lack of mortgage finance available. Despite the 1.5% cut in the base rate, you have to remember there are only 2,000 mortgage products on the market today compared with 16,000 this time last year and it’s all the best deals that have been pulled. People who would normally buy, are renewing their leases and staying put in rented accommodation until the market stabilises.”

Assetz sees window of opportunity for investors

Assetz believes that a brief window of opportunity is opening up for investors and homebuyers as lower interest rates take effect, coinciding with increasing pressure by banks on developers to sell existing stock and increase cash reserves.

The firm notes that there are now several buy-to-let mortgages available on the market at around 5.5%. With rates set on a downward trend and the cost of LIBOR continuing to fall, Assetz believes the cost of financing property purchases is set to dip even further in the run up to Christmas.

At the same time, banks are putting more pressure than ever on struggling developers to reduce housing stock, cut borrowing and boost cash flow as the recession takes hold. Consequently, professional bulk buyers are now securing discounts of 30 – 40% plus, off Royal Institute of Chartered Surveyors valuations. These valuations are themselves temporarily depressed on new build property whilst there is a stock overhang. These are likely to be the lowest prices for new build housing ever to be seen again in the UK.

Stuart Law, chief executive of Assetz, said: “The perfect moment has arrived for investors to re-enter the market, as developers rush to sell off stock at rock bottom prices, combined with a new lower cost of borrowing. This period will only last three to six months, before stock runs out, but it could work to kick-start the entire property market as competition among buyers returns.”

Lending up 7% in October

Latest CML data has revealed that gross mortgage lending totalled an estimated £18.7 billion in October, almost 7% higher than September’s £17.5 billion figure.

The monthly total was 44% lower than gross mortgage lending of £33.4 billion in October 2007.

CML director general Michael Coogan said: “While lending in October ticked up from a low figure in the preceding month, the outlook is one of continuing weakness for housing and mortgage markets in the coming months, despite the Bank rate cuts in October and November.

“Consumer confidence is now being affected by the worsening economic outlook. However, any recovery in lending is also being held back by the continuing shortage of mortgage funding. The government should therefore publish the delayed Crosby review as part of the forthcoming pre-Budget report and announce concrete steps that will enable and encourage firms to increase mortgage loans.”

Landlords urged to insure against defaults

Landlords may resist covering themselves against the risk of defaulting tenants, even as possessions rise, because of a fear of high premiums, according to Let Insurance Services.

It warns that this ‘strategy’ could prove to be a false economy now that the risk to the lettings market has increased driven by rising unemployment and, in some areas, falling rents. These lower rents are occurring where ‘reluctant’ landlords are causing a glut by letting properties they cannot move on the sales market.

Government statistics may show that rent possession cases reaching the courts are considerably lower than the peak reached in 2002. These statistics include both the private rented sector and social landlords. However, Let Insurance Services, which supplies tenant referencing, rent and legal protection insurances to letting agents, says they have fallen only because of the pre-action protocol for social housing.

It believes the reality is different. Rent possession claims have risen by nearly 10% from a year ago and are likely to increase further.

Demand is growing significantly for specialist insurance to cover the loss of rental income and the legal expenses to pursue defaulting tenants, according to Michael Portman, managing director of Let Insurance Services.

He said:“However, remember that premiums may vary and landlords and their letting agents must be very cautious with cheap insurance quotes. You will get what you pay for and if you do not pay enough, the cover could fall badly short.

“Read the small print very carefully.”

Full insurance against potential loss is likely to average between 1.5% and 3% of monthly rental income. However, risk management begins with referencing as it is difficult to get full cover without demonstrating that proper tenant references were obtained.

Portman said: “Even in today’s climate, when change in a tenant’s circumstances can happen overnight, proper checks still help to reduce risk to a tenancy and to keep premiums down.

“The specialist insurance and credit referencing market is now a sophisticated niche market where the problems and opportunities are properly understood. This market has grown substantially over the past few years. As a result, it is well placed to alleviate loss of income and any expense caused by tenants who are victims of the credit crunch,” he added. “Many landlords understand this and are already covering themselves properly. Insurance should be high on every letting agent’s check list too, if they are to do their job properly.”

Premiums for rental guarantee and legal expenses are only payable on tenancies once they have been agreed and they are allowable for tax purposes.

Investors use bridging to finance bargain basement buys

Brokers have seen a 200% increase in demand for bridging finance in the last nine months as investors have been seeking bargains at auctions and through other distressed sales.

A number of smaller bridging firms have had to withdraw because of a lack of funding over the past year. However, unlike the mainstream market, the main bridging lenders have been able to offer a consistent supply of products without having to alter LTVs or rates dramatically.

Gary Booth, CEO at Tiuta, said: “Brokers that have adapted to the changing environment have been very successful in 2008. We are regularly seeing brokers place several cases a week as their more experienced buyers snap up bargains. With falling interest rates we expect this to continue as the primary residential market is still relatively static, but the demand for rental is increasing, which is creating a thriving market for brokers and their clients that can move quickly when opportunities occur.”

Inflation fall makes December rate cut more likely

The fall in the Consumer Price Index to 4.5% has led Mortgages for Business to believe that rates will be cut further in December.

The buy-to-let broker has also stated that it wouldn’t be surprising if the Bank of England slashes a further 1% off Base Rate before the end of the year.

While the spread between LIBOR and Base Rate remains wide – three month LIBOR currently stands at 4.15% – mortgage rates will be slow to follow suit although the market is starting to see some improved pricing in residential mortgage rates. A couple of lenders this week have launched fixed rate mortgages at 3.99% and tracker rate mortgages are available from 4.39%.

David Whittaker, managing director at Mortgages for Business said: “Buy-to-let mortgage rates will be slower to return and it may not be until early next year when confidence returns to the money markets and lenders set their targets for lending in 2009. Rest assured, at Mortgages for Business we are in constant contact with all the main lenders and will send updates out to our clients as soon as there is some positive movement.”

Face-to-face beats the web, say brokers

RBS research suggests that most intermediaries do not see the internet posing a threat to their businesses over the next five years.

In a poll taken at the most recent RBS Intermediary Roadshow held in Manchester last week, 15% of brokers thought that there was no threat at all because people prefer to arrange their mortgages face-to-face.

60% said that they felt that despite the increased competition coming from online sources, there will still be room for mortgage advisers. Only 6% felt the internet was going to be a big threat to their businesses. Around 1 in 5 (18%) said that they would embrace the web and ensure that their online presence takes advantage of the benefits the internet offers.

Chris Pearson, drector of Intermediary Mortgages, Royal Bank of Scotland commented: “It’s good to see that mortgage intermediaries remain confident that their specific offer of expert face-to-face mortgage advice will still appeal to consumers. The internet will undoubtedly play a significant role in the way people research mortgages but with it being such a fast-moving and sometimes complex marketplace, sound advice is something people should heed.

“Having said that, our research does indicate that many advisers have recognised that having a visible and informative online presence can have a really positive effect in their bid to attract new clients. Investment in search engine optimisation, online directories and web content can make a real difference to intermediary firms’ digital profiles.”

FSA bans broker for life assurance fraud

The FSA has banned Peter King and his Bournemouth-based firm New Forest Mortgage Company Ltd for knowingly submitting applications for fraudulent life assurance policies.

The regulator found that, since June 2007, King submitted applications for 39 fraudulent life assurance policies – 30 of which were in the names of applicants whose personal details were either wrong or who knew nothing about the applications – in order to benefit from commission payments in excess of £250,000.

King, the sole director of New Forest Mortgage Company, admitted that his plan was to submit the policies, claim the commission and use the money to settle substantial outstanding debts.

Margaret Cole, FSA director of enforcement, said: “Peter King acted dishonestly and without integrity and posed a risk to consumers and to confidence in the financial system as a whole. The FSA will not hesitate to take action against individuals or firms who break our rules and put customers at risk of fraud.”

Scotland preparing for Home Reports

From the 1st of December, all houses marketed for sale in Scotland will need a Home Report. This is a pack of three documents: a Single Survey, an Energy Report and a Property Questionnaire. The Home Report will be made available on request to prospective buyers of the home.

The Single Survey contains an assessment by a Chartered Surveyor of the condition of the home, a valuation and an accessibility audit for people with particular needs.

The Energy Report contains an assessment by a Chartered Surveyor of the energy efficiency of the home and its environmental impact. It also recommends ways to improve its energy efficiency.

The Property Questionnaire is completed by the seller of the home. It contains additional information about the home, such as Council Tax banding and factoring costs that will be useful to buyers.

Richard Sexton, director of business development at HRS, a brand of e.surv Chartered Surveyors, said: “Home Reports will take some of the pressure out of buying or selling a house which as we all know can be a highly stressful time for everyone involved. Buyers will be reassured that they have been given all of the facts available to make an informed decision in their purchase and as a result sellers can feel more confident that the buyer is less likely to pull out.

“Despite the property market in Scotland falling, thus far, it has not been as severe as the English property market and house sales activity continues in Scotland, albeit at below average levels. Home Reports will be a big boost to the Scottish property industry and will encourage faster transactions and stronger relationships between all of the interested parties.”

Rents down as supply increases

Rents dropped across the residential lettings sector during the last quarter due to the increase in unsellable properties put onto the rental market.

The latest RICS Lettings Survey reports that the net balances of surveyors reporting new instructions to let both flats and houses (an indicator of supply) are now at historical highs.

50% and 68% more Chartered Surveyors reported a rise than a fall in new instructions to let flats and houses respectively.

The influx of supply onto the market has forced downward pressure on rents. The net balance of Chartered Surveyors reporting rises or falls in rents fell from a positive 31% in Q2 to a negative -12% in Q3, the lowest level in the survey’s history.

London and the South East have been hardest hit with the net balance of surveyors reporting rises or falls in rents for London houses falling from a stable 0% in the second quarter to negative -53% in the third quarter, while flats fell from a positive 5% to a negative -33%. However the biggest turn around was in the South East, with the net balance of surveyors reporting rises or falls in rents for houses plummeting from 53% to -33%. Equally, expectations for future rises in rents turned pessimistic for the first time since July 2002.

Demand for rental property remained positive in Q3. Housing transactions are at the lowest level since records began as banks continue to limit the availability of finance to the vast majority of buyers. 27% more Chartered Surveyors reported a rise than a fall in rental demand compared to 36% in the previous quarter.

RICS says the falling pace of demand can be attributed to the fact that many have now accepted their lot in the current climate and are sitting tight until the housing market picks up.

RICS spokesperson James Scott-Lee said: “The lettings sector has witnessed a boom in 2008 as sales in the housing market continued to slow. Many have been able to take advantage of rising rents to secure good returns. However, the market place has become more and more competitive as many vendors have been forced to become amateur landlords, creating an inevitable downward pressure on rents where supply has matched demand. With national average house prices set to weaken in 2009, yields may increase for those investors who can provide the right product for the right market place.”