Rents to rise by 13.7% over next five years

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Rent Increases:  

International property consultants and agents Savills says affordability, not Brexit, will be the major factor in the future for the UK housing market.

The latest residential property market forecast from Savills has predictions for the UK mainstream property market 2019-23:

• UK house prices to rise 14.8% from 2019-2023, with significant regional variation Ranging from 21.6% in the North West to single digit growth in London (4.5%), SE and East (9.3%)
• London’s prime market will perform more strongly, with prime central London +12.4%
• Transactions to stabilise, with first time buyer and cash buyer numbers most resilient
• Rents to rise 13.7% over next 5 years; London rents +15.9%

UK house prices are set to rise broadly in line with incomes over the next five years, that’s the forecast from Savills latest study released 2^nd November 2018.

The traditional north-south divide will turn on its head, says the report, with the Midlands, North and Scotland expected to see the strongest increases, according to this new forecast from the international real estate adviser, Savills.

Brexit will continue to have an impact on sentiment over the short term, particularly in London and its commuter belt, but local market affordability is expected to be more of a determinant of the pattern of price growth over the longer term, says the high-end agent.

Savills predicts that between 2019 and 2023, UK house prices will rise an average 14.8 per cent, ranging from 21.6 per cent in the North West to single digit growth in London and the South, by far the strongest performers since the downturn, due to affordability constraints.  Values in the capital’s prime market will perform much more strongly, given price adjustments already seen in those market since 2014, thinks Savills.

Other regions were much slower to recovery post the 2008 recession and the global financial crisis (GFC), and some have only recently returned to peak values.  House prices are therefore more affordable, with greater capacity for loan to income ratios to increase.

Lucian Cook, Savills head of residential research, has said:

“Brexit angst is a major factor for market sentiment right now, particularly in London, but it’s the legacy of the global financial crisis – mortgage regulation in particular – combined with gradually rising interest rates that will really shape the market over the longer term.  “That legacy will limit house price growth, but it should also protect the market from a correction.�

Savills says that “transactions, rather than house prices, are often seen as the ultimate measure of market strength.  Sales volumes have fallen only -6.9 per cent since the Brexit vote to 1.145 million, demonstrating the resilience of the UK housing market.�

The firm expects that this figure will decrease by another 1.0 per cent over the next five years.  “But a continued re-balancing of the composition of the market is expected, with mortgaged buy to let investor purchases falling by -23 per cent.  This will add to upwards pressure on rents (see below), particularly in London, as investors look to lower value, higher yielding markets.�

The London market in detail:

• London house prices have risen by 72 per cent over the past ten years, well ahead of any other region. The average home buyer with a mortgage now pays just under £429,000 and has a household income of almost £76,000 (58 per cent higher than the UK average).  Even with borrowing at over four times that income, these households still need a deposit of £123,000.
• Small falls (-2.0%) are expected in London’s mainstream market next year, before values bottom out in 2020 and tick up steadily from 2021. Price growth over the next five years is forecast to total 4.5 per cent.
• The prime London markets are less dependent on mortgage borrowing and will outperform the mainstream, Savills says. The UK capital is expected to remain an attractive place to live, work and own residential assets, supporting12.4 per cent price growth in prime central London by the end of 2023.

The Regional story:

• At this point in the cycle, the highest price growth is expected in the lower value markets much further from the capital, which have seen nothing like the 10-year price rises seen in London – just 1.9 per cent in the North and 5.8 per cent in Scotland.
• The Midlands, the North of England, Yorkshire and Humberside, Scotland and Wales all have the capacity for borrowing to increase relative to incomes, even allowing for higher interest rates, and this will support price growth ranging from 17.6 per cent to 21.6 per cent across these regions.
• Key regional economies – most notably the metros of Manchester and Birmingham – have the capacity to outperform their regions attracting both local and investor buyers.
• Wales will perform in line with the Midlands as it has done in previous cycles, but it is a hugely diverse market. There may be increased housing demand crossing over from Bristol once the Severn bridge tolls are abolished.
• Scotland, which has only recently returned to pre credit crunch peak, is performing strongly, particularly Edinburgh and Glasgow, which have seen prices rise 8.9 per cent and 7.0 per cent over the past year, respectively.

Transactions – who is doing the buying?

• Transactions have fallen from 1.619 million in 2007 to around 1.145 million this year, but are forecast to remain stable over the next five years, though the market mix has changed.
• Cash remains king and cash buyers now account for almost a third of all sales (31%). The bank of mum and dad has provided important support to first time buyer numbers and, judging by receipts from the three per cent surcharge for additional homes, cash is also an important component of investment demand, Savills says.
• Mortgaged first time buyers, the only buyer group to have expanded since 2007 – from 359,000 to 370,000 this year – continue to be supported by Help to Buy and the bank of Mum and Dad. Numbers are expected to remain robust despite the prospect of a less generous, more targeted Help to Buy, with a fall of just -2.7 per cent anticipated by 2023.
• Mortgaged home mover numbers have fallen dramatically since 2007 as existing home owners move home less frequently. Numbers are down from 653,000 to 370,000, but having adjusted for stress testing of borrowing, are expected to remain constant over the next five years.
• Buy to let buyer numbers will continue to come under pressure. Stamp duty and mortgage-interest tax relief changes have led those highly leveraged investors to rationalise portfolios or pay down debt.

Rental growth will outpace Income growth:

Rental growth is expected to track house price growth, averaging 13.7 per cent over the next five years.   Tightening access to mortgage finance and limited social housing supply is driving demand for privately rented homes at all price points.  This is particularly true in London, where rents will rise by 15.9 per cent.

Lucian Cook concludes that:

“Until the market sees a significant injection of build to rent stock, rental demand will outstrip supply and rents will rise.  Investor buyers requiring borrowing are expected to focus on higher yielding markets and this will put further upwards pressure on rents in some of the most expensive rental locations.�

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Landlords’ Association dispute with Brighton & Hove Council

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Selective Licensing:

The iHowz Landlords’ Association has been in dispute with Brighton & Hove City Council (BHCC) regarding their proposed Selective Licensing scheme (see background – below).

As part of the process, BHCC had to apply to the Secretary of State for Housing, Communities and Local Government (SoS) to obtain his confirmation for the scheme.

The SoS gave confirmation to BHCC on September 10^th 2018, but iHowz objected and wrote to both BHCC and the SoS stating their reasons why this confirmation was unlawful.

After appropriate thought and consideration on October 31^st 2018 the SoS has notified iHowz that he has now withdrawn his confirmation and has agreed to reconsider the matter.  This will also require BHCC to re-consider their position.

iHowz have released the following statement:-

‘We took this action because we felt the decision to license some 27,000 rental properties was unlawful, unnecessary and not justified by the evidence provided, and would almost certainly lead to rent increases for many private sector tenants in Brighton.

Licensing was brought in 2006 to allow local Councils to control a small area of rental properties being poorly managed bringing that area into disrepute.   We support licensing when used for that purpose.

We cannot, and have never supported the carte blanche licensing of large areas.

We have previously offered to work with the Council to help improve rental conditions for private sector tenants in the City; improve property conditions in a cost effective manner where required; and most importantly identify the possibility of criminal landlords, and we repeat that offer.

Furthermore we urge the Council to work with us to extend our existing programme of landlord training in the City to improve landlord knowledge so they can give the best and most efficient service to their tenants.’

iHowz are writing to BHCC urging them to work with local landlords through its office.  Additionally iHowz have urged the SoS to consider the future of mass licensing schemes.

iHowz have also offered to meet both BHCC and the Government for further discussions.

However, if BHCC persists in seeking SOS’s confirmation for its scheme, iHowz will continue to oppose the application on the grounds that it would be unlawful.

Background:

BHCC have all three licensing schemes:-

1. the national mandatory schemefor any HMO with 5 (or more) occupants – city wide – commenced October 1^st 2018;
2. Additional Licensing, for HMO’s of two (or more) storeys occupied by 3 (or more) occupants – city wide – commenced March 1^st 2018;
3. Selective Licensingfor any non-HMO in 12 wards in the city – was due to commence Feb 4th 2019.

iHowz objected to the need for the Selective Licensing of some 27,000 properties in the nominated 12 wards.  We attempted to discuss and negotiate the situation with BHCC but they took the decision earlier this year to proceed.

The only way to object to such a scheme is by a Judicial Review (JR) of the decision.  The rules regarding a JR application are complicated, but it is important to make the initial application (it is a two stage process) as soon as possible, and definitely within a three month window of the decision being made.

Because it is such a large scheme BHCC had to apply to the Secretary of State for Housing (SoS) for permission to continue.  It was unclear to the legal fraternity whether we should await the SoS decision, which might have taken us outside the three month window, so we applied early to the High Court.  The High Court subsequently informed us that we would have to await the SoS decision.

BHCC applied to the SoS on two perceived problems in the designated area, both of which BHCC stated were within the potential to be managed by the landlord:-

1. anti-social behaviour (ASB);
2. poor property conditions.

We wrote to the SoS countering these claims.

The SoS responded that BHCC could continue, but only on the basis of poor property conditions, because there was insufficient evidence to justify ASB problems.

Naturally we disagreed with this and continued to fight this case.  We decided to challenge the SoS’s decision and asked the SoS for the justification for this decision, repeating our objections.  The SoS gave this appropriate consideration and decided to withdraw the original decision.

This leaves BHCC in the position to either abandon Selective Licensing altogether; appeal the reversal; or to start the process again, possibly with a smaller area not requiring SoS permission.

[Image shows Brighton Pavilion]

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The Alliance is Launched

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Let me Preface this by thanking Property118, Mark and Neil on behalf of all our members. Without Property118, it would not have been possible.

The New Landlords Alliance, against all the odds has been launched. We were told that it would not be possible

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Direct Line Renewal?

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Just a heads up to others…. Approx 30 days before renewal I received my renewal documents through the post and email , the renewal cost was within a few pound of last year (£428) and it explained I needed to do nothing if I was happy

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Another Budget, another Tax hit for Landlords?

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Capital Gains Tax:

A seemingly innocuous point made by the Chancellor in his Budget speech last week could be a lot more important to landlords, or property sellers, than might seem at a first glance, of all the budget summaries.

It has previously been the case that landlords can claim private residence relief (PRR) if they let out a home they have lived in, when they sell. This might be for example when they can’t sell when moving out to a new home, when they move away with work, or they simply want some income from the vacant property.

It seems that from April 2020 PRR will apply only where the owner is sharing occupancy of the home with a tenant. It’s a situation that will apply to very few people, so effectively the PRR second home benefit is being removed altogether.

It currently provides for up to £40,000 of relief (£80,000 for a couple) to people who let out a property that is, or has been in the past, their main home.

As it stands at the moment landlords do not pay any Capital Gains Tax (CGT) for the time they lived in the property, plus an additional exemption period of 18 months (this was three years until reduced in a previous Budget) that they owned it. But according to Mr Hammond, this final ownership period exemption will now be reduced even further, to 9 months.

So, it would seem that effectively this benefit is being removed entirely and could lead to a situation where owners will be reluctant to leave before selling their own home, possibly slowing even further an already stagnant housing market, or encouraging people to leave homes vacant for extended periods.

It is also likely to lead to a situation where more landlords will decide to sell properties now. When they have lived in the property themselves, and where there is likely to be a large capital gain, there is likely to be a strong motivation to sell, before the imposition of the new rules.

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Gas safety check flexibility?

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One of the changes is:- “introduce a degree of flexibility to the timing of landlords’ annual gas safety checks. This change means that landlords can carry out the annual gas safety check in the two months before the due date and retain the existing expiry date.

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Beautiful build complete 3 & 4 bed houses with up to 6.2% yields

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We are delighted to offer Property118 readers this fantastic opportunity to purchase these beautiful build complete 3 & 4 bed houses within this lovely new development in Kirkby, Liverpool.

We have managed to secure exclusive discounts for our clients with prices starting from only £148,000 for a 3 bed house and £170,000 for a 4 bed house. 

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Exonerated after 5 years – Fergus Wilson

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Following 5 1/2 years we have a Judgement which entirely exonerates the landlord, Mrs Judith Wilson, who was accused of 1) Harassment 2) Unlawful Eviction and 3) Disrepair. This is a very important judgement and the transcript is to be published on the Internet for the benefit of all landlords.

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Greater support needed for Landlords with low EPC ratings

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Responding to the announcement today that those landlords in properties with an energy performance rating of F or G will be expected to pay up to £3,500 to improve the energy efficiency rating of the property, David Smith, Policy Director for the Residential Landlords Association said:

“The proportion of private rented homes with the worst energy efficiency ratings of F or G has fallen from 39% in 1996 to 7% in 2016.

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How does housing policy and choices affect intergenerational fairness?

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The House of Lords Committee on Intergenerational Fairness will take evidence from experts in urban planning and housing policy as it continues its inquiry.

The Committee will hold two evidence sessions hearing from The Royal Town Planning Institute (RTPI) and The Associated Retirement Community Operators (ARCO) followed by the Intergenerational Foundation and academics from the University of St Andrews and the London School of Economics.

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