Author: antonyantoniou

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Demand for London flats soars as more seek to buy first property

Flats are once again trendy as first-time buyers look to smaller homes in a bid to buy in the capital.

London flats are back in fashion after falling hugely out of favour during the pandemic “race for space”.

The release of pent-up demand from first-time buyers who put off buying decisions during Covid lockdowns, combined with spiralling rents as London fills up again with workers, has sent demand for smaller homes soaring.

According to one survey, flat prices are outpacing the overall property market in five London boroughs — Barking and Dagenham, Greenwich, Newham, Hackney and Tower Hamlets — in a striking reversal of the trend of the last two years.

In eight other boroughs — Wandsworth, Lambeth, Southwark, Waltham Forest, Lewisham, Islington, Hammersmith and Fulham and Westminster — flat price rises have almost caught up with the overall market.

 “London is on manoeuvres once again. There’s been no exodus. In fact, many younger buyers chose to rent while the dust settled on the pandemic, and that’s the main reason why the lettings market has been red hot.

“These buyers, who put their purchases on hold, are being confronted by the reality that borrowing costs are going up. Many of them are first-time buyers who are desperately playing catch-up. We expect the prices of flats in London to put in a robust performance in 2022 for this reason.”

Flats without outside space became increasingly hard to sell during the pandemic as buyers sought larger homes with gardens.

In the year to September prices of London flats only inched forward 0.74 per cent on average, compared with a 4.92 per cent rise for terrace houses, 7.33 per cent for semi-detached homes, and 9.18 per cent for detached houses.

However, Rightmove says it has seen the same marked flip-flop in the trend over recent months. It has seen a bigger increase in demand for flats — 27 per cent last month compared with last year — than for any other property.

Rightmove’s Tim Bannister said: “This coincides with the renewed demand to live in London, after it temporarily dropped due to restrictions this time last year.”

 

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Rightmove pushing reluctant sellers to come to market within weeks

The number one portal is making a big marketing and research push to get reluctant owners to put up the For Sale boards next month.

It says its own research shows that March is the strongest month of the year to sell a home, having the highest number of buyer enquiries per property for sale on average over the last five years.

While new listings are also highest in March, strong demand from buyers in the month means March sees the highest competition for the homes available on average.

It says data currently suggests a build up of momentum as March nears: for example listings are up 11 per cent in the last three weeks compared to the same period last year, while buyer demand is up 32 per cent over the last three weeks compared to the same time last year.

Home-valuation requests to estate agents are up 27 per cent since the start of the year compared to the start of last year, while searches for gardens have jumped 70 per cent in two years, as more people continue to look for outdoor space.

Tim Bannister, Rightmove’s director of property data, comments: “For any sellers who might be conscious of coming to market at a time when the number of new listings has traditionally been high, the data shows us that the level of demand in March means sellers are likely to met with multiple potential buyers competing for their home.

“Those thinking of selling are also likely to be aiming to buy a new property, and may be tempted to begin the search for their new home before listing their current one on the market.

“Due to the speed and competitiveness of the market, agents are reporting that it continues to be of high importance for those actively looking to become ‘power buyers’, to give themselves the best chance of securing their dream home.

“This means making sure they have their current property on the market or preferably sold subject to contract before beginning the search for their next home.

“This spring is certainly shaping up to be a busy one, with buyer demand, new listings coming to market for sale, and valuation requests to estate agents from future sellers all continuing to increase compared to last year.”

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Inflation wiping out house price growth in many areas – claim

Soaring inflation means that house price growth in much of the country is being wiped out, according to a leading housing market analysis.

The latest monthly market report from the Home website says that only four English regions, plus Wales, show annual growth over and above the latest RPI inflation figure of 7.7 per cent for November.

Home also warns that with RPI inflation – according to some analysts – heading for 10 per cent, “some regions are treading water while others are suffering significant price falls in real terms.”

The website cautions that with cannier buyers fixing seven year mortgage deals at as low a rate as two per cent, there are hedges against the growing inflation threat – so it is not expecting any significant impact on the number of buyers in the housing market in 2022.

Home also quantifies the large gap between supply and demand.

It says agents’ inventories over the past 12 months have dropped 41 per cent – and actually 50 per cent less than in January 2019.

Supply in London is down 33 per cent year-on-year, sales stock is down 25% and prices are already up 1.3% over the last six months, making it one of the top four performing English regions.

Monthly supply of new sales listings remains comparatively low across the UK, down 18 per cent compared to the month of December 2020. Greater London shows the greatest contraction again this month.

Scarcity is also prevalent in the rental market and Home warns that it’s getting worse – the supply of rental properties is down 24 per cent on January 2021, making further rent hikes inevitable this year.

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Revealed – what customers REALLY think of estate agents

A new survey of people who have sold their home in the past six months has given a strong backing to the performance of their estate agents – with a few exceptions.

Some 1,159 owners who moved in the past six months were questioned in early January, and asked to rate their agent from 1 (top ) to 10 (bottom).

Over 50 per cent of respondents were within the top five scores, 15% rated their estate agent’s performance during their last sale as a five – the most prominent individual score. Exactly 30 per cent gave their agent one of the top three scores.

However, at the other end of the scale, eight per cent stated that they thought their agent’s performance was terrible.

When it came to the asking price achieved, buyers reflected roughly the split seen in wider market snapshots – 47 per cent said their agent didn’t achieve the asking price agreed, but 39 per cent did get the asking price and 14 per cent said they got above asking.

When requesting feedback on areas of improvement, the respondents listed:

– More proactive during the transaction in order to speed up the process;

– Better or more frequent communication;

– Better customer service in general;

– More information on how their sale was progressing;

– A higher percentage of asking price achieved;

– Better quality of property listing and/or photos of their home;

– More help on what was needed from the agent to progress the sale.

The survey was commissioned by online agency Nested, from which a spokeswoman says: “It’s clear that sellers view the added value of an estate agent above and beyond the price they achieve and constant, clear communication and a proactive approach to selling are some of the key areas they value most.

“This is hardly surprising given the fact that it takes an average of 320 days to sell a home and the vast majority of this time is spent progressing the sale to completion once an offer is accepted, during which time it’s still susceptible to falling through.”

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Tax clampdown on second homes announced by government

Owners of second homes who abuse a tax loophole by claiming their often-empty properties are holiday lets will be forced to pay under new measures announced by the government today.

The Department of Levelling Up, Housing and Communities says the changes will target people who take advantage of the system “to avoid paying their fair share” towards local services in popular destinations such as Cornwall, Devon, the Lake District, Suffolk, West Sussex and the Isles of Scilly.

Currently, owners of second homes in England can avoid paying council tax and access small business rates relief by declaring an intention to let the property out to holidaymakers.

However, concerns have been raised that many never actually let their homes and leave them empty and are therefore unfairly benefiting from the tax break.

Following a consultation, the government says it will now bring changes to the tax system, which will mean second homeowners must pay council tax if they are not genuine holiday lets.

From April 2023, second homeowners will have to prove holiday lets are being rented out for a minimum of 70 days a year to access small business rates relief, where they meet the criteria.

Holiday let owners will have to provide evidence such as the website or brochure used to advertise the property, letting details and receipts.

Properties will also have to be available to be rented out for 140 days a year to qualify for this relief.

Housing Secretary Michael Gove says: “The government backs small businesses, including responsible short-term letting, which attracts tourists and brings significant investment to local communities.

“However, we will not stand by and allow people in privileged positions to abuse the system by unfairly claiming tax relief and leaving local people counting the cost.

“The action we are taking will create a fairer system, ensuring that second homeowners are contributing their share to the local services they benefit from.”

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Property Wealth Tax proposed by former agency boss

A wealth tax on overseas owners of UK homes could raise £5 billion a year to help local people buy their first properties at reduced rates, a former estate agency chief has suggested.

Kevin Hollinrake – a former chairman of Hunters estate agency chain prior to its acquisition by The Property Franchise Group – is now Conservative MP for Thirsk and Malden.

He told a debate in the House of Commons that the government had to strike a balance between personal freedom to buy homes wherever an individual wanted, with the broader freedom of local people to afford homes in their own areas.

One suggestion he had was to increase taxes on non-resident purchases of additional homes, whether holiday properties or buy to lets or occasional residences.

He told MPs: “I do not think there is any argument for not taxing those people pretty heavily if they own property in the UK and are non-resident.

“We already have a two per cent surcharge, on top of the per cent surcharge, for overseas owners. These people are having a profound effect on some house prices in urban areas as well as rural areas.

“I think 28 per cent of properties sold above £2m are bought by overseas owners. Around 20 per cent of all properties in London—and probably a decent quantity in York and other cities—are owned by overseas residents. I do not see a reason why we would not seek to tax those people even more heavily than with a 100 per cent increase in council tax.”

Hollinrake went on to say that a one per cent wealth tax on UK properties —bought by non-UK residents – would raise up to £5 billion a year.

“There would still be an incentive for those people to invest their money in the UK, which I am not against, but the reality is that this would make it a fair and level playing field. They would still benefit from the very high house price growth.

“As we have heard today, house prices have been rising by around 10%, so it still makes sense for people to invest, but such a tax would mean that we could take a little bit out of the money they are making every year from house price inflation and put it elsewhere.”

The former agency chief said the revenue from such a property-related wealth tax could go into the government’s First Homes programme, which offers new-build discounted properties to local first time buyers.

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High loan-to-income mortgages: new home loans could give borrowers an extra £200k

Eligible homebuyers could get a mortgage worth seven times their salary for the first time in over a decade.

The new product from online mortgage lender Habito comes after the Bank of England separately announced plans to relax lending rules in December.

To qualify for Habito’s higher loan-to-income loan, applicants must have a basic salary of £75,000 or more per year.

Alternatively, one applicant in a joint application can borrow up to seven times their salary if they are qualified, practising and registered in one of 14 listed professions and earn a minimum of £25,000. Buyers must also have a 10 per cent deposit, and only one applicant in a joint application can borrow up to seven times their salary

The professions eligible for the mortgage are: police, firefighters, nursing, paramedics, doctors, accountants, barristers, teachers, engineers, lawyers, dentists, architects, surveyors and vets. Habito says this is because these professions offer a reasonable prediction of future earnings, job security and employability.

How much can I borrow for a mortgage?

Since the interest rate stress test was introduced in 2014 to make sure borrowers could afford to service their mortgage if interest rates rise, most lenders will only offer a maximum loan-to-income ratio of 4.5 times earnings. This has put buying a home even further out of reach for many buyers, especially in London where the average property costs 11.7 times the average salary.

Habito’s new lending rules could increase the amount a solo buyer earning £75,000 could afford to pay for a home by more than £200,000.

If their borrowing was capped at 4.5 times their income they could borrow £337,500. With a 10 per cent deposit this would get them a home worth £371,250. Borrowing seven times their income would offer £525,000. Adding the 10 per cent deposit would buy a home worth £577,500.

For joint applicants where one works in the specified professional fields and earns £25,000 and the other applicant also earns £25,000, their borrowing would be capped at 4.5 times combined salary, or £225,000. With the Habito One mortgage they could potentially get seven times one salary and five times the other, meaning they could borrow £300,000.

Is a higher LTI mortgage risky?

The online mortgage broker announced the enhanced lending criteria on its full-term fixed rate Habito One mortgage, which allows buyers to borrow at rates starting from 2.99 per cent for the entire term of their mortgage.

Borrowers on a fixed-rate mortgage usually need to remortgage after a certain period of time, often two, five or ten years, or else find themselves slipping onto their lenders standard variable rate, which can be expensive.

Habito says it is able to offer the higher loan-to-income mortgages because the interest rate on the loan is guaranteed for the entire length of the loan, reducing the risk of the borrower not being able to afford payments in future.

Daniel Hegarty, founder and CEO of Habito, said: “Longer, fixed-rate mortgages mean that customers are completely protected against any threat of fluctuating interest rates, in a way that shorter fixes of two or five years mortgage deals don’t allow for.

“As a lender that considers every applicant’s case individually, we’re confident that with suitable criteria in place, in the right circumstances, eligible customers can safely and securely boost their borrowing to buy the home that truly suits their needs and their life plans.”

Full-term fixed rate mortgages are not common in the UK but are already popular in other countries including France, Denmark and the US.

This is partly because British buyers worry about hefty early repayment charges to get out of a mortgage during the fixed period, for example if they need to sell their home.

Will I be able to get a mortgage at seven times my salary?

Some mortgage brokers expressed doubts about how many buyers would actually be offered mortgages at seven times income.

Mark Harris, chief executive of mortgage broker SPF Private Clients said: “With current regulations restricting each lender to 15 per cent of applications at over 4.5 times loan-to-income, one wonders whether lenders can get the volume of borrowing to truly make a difference.

‘While seven times income sounds high, will borrowers be able to get to that level once existing affordability rules are enacted? Even at lower loan-to-values, borrowers do not always hit the theoretical LTI caps.

“For those with one of the professional vocations listed, existing lenders already offer enhanced LTIs, so it is worth shopping around to find the best deal.”

Habito said that due to longterm fixes not being subject to the same regulations as short term fixes, the lender has no percentage cap on the volume of lending it can do at seven times.

Colin Payne of Chapelgate Private Finance pointed out that key workers pay significant pension contributions each month, making larger mortgage repayments out of their take-home pay potentially unaffordable.

He said: “The irony is it adds fuel to the fire in terms of house prices making that ‘forever home’ more unaffordable for many. It feels like a headline to increase enquiries and then offer alternative lending options, a ‘sprat to catch a mackerel’, and that cannot be the best outcome for buyers.”

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Plans to force buy-to-let owners to pay up to £10,000 to boost energy efficiency

  • Campaigners are calling for plans to charge landlords up to £10k to be scrapped 
  • Plans are for all new rental homes to have an energy rating of C or above 

Campaigners are urging the Government to scrap proposals to make landlords pay up to £10,000 to improve the energy efficiency of their rental homes.

The National Residential Landlords Association suggested that landlords could not reasonably be expected to pick up the tab in the way that the Government is suggesting for stringent new rules affecting buy-to-let properties.

In an official statement, NRLA said that the plans were based on the ‘misguided assumption that all landlords are property tycoons with deep pockets’.

In a consultation that closed in January, the Government proposed that from 2025 where a new tenancy agreement is signed, the property will need to have an Energy Performance Certificate rating of C or above.

From 2028, all rental properties will need to meet the new standard, even where it is not a new tenancy agreement.

The Government has suggested that, in meeting these targets, landlords should be expected to pay up to £10,000 to make the necessary improvements.

However, the NRLA said that this imposed cap fails to accept the realities of different property and rental values across the country.

It follows research from NRLA that showed private landlords making an average net income from property of less than £4,500 a year. (Scroll down for more information about how this figure was calculated.)

The National Residential Landlords Association is calling on the amount that landlords should be expected to contribute to be linked to average market rents in any given area – known as broad rental market areas – as calculated by the Valuation Office Agency.

Under the NRLA’s proposals, this would mean the amount a landlord would need to contribute would gradually taper from £5,000 to £10,000, taking into account different rental values – and by implication, property values – across the country.

VAT and council tax reductions

Alongside this, the NRLA is calling for a package of fiscal measures to support property investment.

It said these should include the development of a decarbonisation tax allowance, where VAT would no longer apply to energy efficiency and low carbon work.

And it said council tax should not be charged where energy improvements are being made to rental properties when they are empty.

Ben Beadle, of the National Residential Landlords Association, said: ‘We all want to see as many energy efficient rental properties in the sector as possible.

‘Besides being good for tenants, improvements made to rental properties ensure they become more attractive to prospective tenants when being marketed by landlords and agents.’

However, he added: ‘The Government’s proposals for the sector are not good enough.

‘They rely on a misguided assumption that landlords have unlimited sums of money and fail to accept the realities of different property and rental values across the country.

‘Ministers need a smarter approach with a proper financial package if they are to ensure their ambitious objectives are to be met.’

David Reed, of Richmond estate agents Antony Roberts, said: ‘We all want to see improvements to energy efficiency but If these proposals come to fruition, there’ll be a rush of landlords with property in vast swathes of suburbs – where older, less efficient properties make up a greater proportion of the stock – selling rather than incurring what could be considerable costs in retaining an investment in property.

‘With yields so low, returns barely meet costs as they are, especially as the latter have grown significantly in recent years either directly (Tenant Fees Act and electrical regulations) or indirectly (unable to offset mortgage interest).

‘Tenants love charming period conversion flats in good commuter territory and seldom is efficiency/an EPC rating at the forefront of the search criteria, whereas location and provision of attractive accommodation win hands down. There are simply not enough newer, in theory more efficient, properties being constructed to meet tenant demand.

‘The private rental sector vitally needs a healthy supply of good property and landlords who own one or maybe two rental properties make up a large sector of the market. Many are already disgruntled by recent changes and longer-term plans are under question. If they leave, the effect on tenants will be hard felt – a further restriction of supply giving more upward pressure on rental and lack of choice.

‘Hopefully consideration will be given to where there is no easy-fix or realistic programme of improvement to achieve grade C status or better.’

How much do landlords make?

Private landlords make an average net income from property of less than £4,500 a year, according to the The National Residential Landlords Association.

Here is how the NRLA reached that figure… 

The English Private Landlord survey said that the average – median – gross rental income for a landlord before tax and other deductions is £15,000.

 Average costs for landlords would be:

– Repair and replacement of furnishings – based on the previous tax exemption for 10% of annual rent (£1,500)

– Cost of a gas safety certificate (average £80 required annually – checkatrade average)

– Electrical safety check (average £265 performed every 5 years. £53 annually – checkatrade average)

– Deposit protection (£13 from TDS)

– Tenant referencing cost (for two tenants £49 NRLA tenant referencing)

– Interest-only mortgage for the average UK property (£250,000) with a 20% deposit (cheapest available £6,096 annual)

– Insurance (£531.15 for building and contents insurance from Hamilton Fraser using average floor space for PRS property https://www.statista.com/statistics/292206/average-floor-area-size-of-dwellings-in-england-by-tenure/)

– Agency fees (£1200 based on 8% agency fees)

The NRLA based its calculation on an average landlord of a house let to a couple with an interest-only mortgage, and assumed that tenants move annually.

Total gross rental income – £15,000

Repair and replacement costs – £1,500

Tenancy management costs – £726.15 (includes average cost of insurance, gas safety certificates, 1/5 of the EICR cost, deposit protection and tenant referencing)

Agency fees – £1,200

Total deductions before tax and mortgage costs – £11,573.85

Amount that can be taxed – £2,314.77 (£11,573.85 x 0.20)

Tax after mortgage interest relief accounted for – £1,095.57 (£2,314.77 – (£6,096.00 mortgage costs x 0.20)

Remaining balance after Tax – £10,478.28 (£11,573.85 – £1,095.57)

Mortgage costs – £6,096.00 (based on cheapest available 80% Loan to Value mortgage on the average property in the UK of £250,000)

Remaining balance after all average costs deducted – £4,382.28 (£10,478.28 – £6,096.00)

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No Impact: interest rate change not hurting housing market

The Bank of England has raised interest rates for the first time in more than three years, in response to surging price rises.

Most analysts believe the increase – to 0.25 per cent from 0.1 per cent- will make negligible difference to the housing market.

The decision by the Bank of England will add just over £15 to the typical monthly repayment for a tracker mortgage customer. A standard variable rate mortgage-holder is likely to pay nearly £10 extra a month.

Around 50 per cent of all homes are owned outright anyway, with no mortgage owed on them, and of the rest around three quarters have fixed rate mortgage deals, meaning their repayments won’t change until their current deal ends.

The remaining two million owners are on standard variable rate mortgages or tracker mortgages so their repayments will go up as individual mortgage lenders increase their rates in response to the Bank of England announcement.

Cory Askew, head of sales at Chestertons, says: “We expect the Bank of England’s decision to increase the interest rate to 0.25% to have very limited impact on property buyers and existing homeowners. Further indicating that buyer demand remains strong, is the fact that we have seen no seasonal slowdown this year.”

Simon Gammon of Knight Frank adds: “By raising the base rate it’s clear that the Bank of England believes the economy will shrug off most of the effects of Omicron. Getting a grip on rising inflation appears to be the number one priority.

“Mortgage rates on the high street have been edging upwards during recent weeks in anticipation of this moment and it’s clear the lenders believe there could be at least one more hike in the base rate next year.”

“This rate rise may not be significant but it is a clear statement of intent” says Vanessa Hale, head of insights and residential research at Strutt & Parker.

“The rise has been a long time coming, and with inflation now at decade high levels, there really is little alternative. The rate rise has been priced in to mortgages, and with fixed mortgages making up around 80% of the current market, the housing sector is unlikely to be impacted too dramatically.

“The reality is that demand for housing continues to outstrip supply which will sustain prices for 2022. But with the cost of living continuing to rise, this could have an impact on the housing market for the medium term.”

Eleanor Bateman, policy officer at Propertymark, comments: “The increase in base rate to 0.25 per cent is a small and necessary step and one that most had anticipated for some time.

“Mortgage rates have been creeping up over the past few months, and while those on variable rates will see payments increase, the cost of borrowing remains low relative to historic levels.

“Though, traditionally, the winter months see a decline in activity, our housing market report shows sustained demand with average sales agreed maintained to the end of October.

“With indications that lifestyle factors are continuing to prompt many into making a move, we do not expect the announcement to have a significant, negative impact on the market.”

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Green Mortgages linked to EPC ratings set to soar in number

Around a quarter of mortgage lenders currently have ‘green’ products promoting improved EPCs – and the vast majority of the rest say similar mortgages are on their way.

The Mortgage Advice Bureau tested 64 major lenders – some 25 per cent currently offer green or net zero mortgages, and of the others 88 per cent say they have plans to do so.

MAB also sought to uncover how many consumers are being offered green mortgages. Of those who have either bought a property or remortgaged in the past 18 months, just 14 per cent had been offered a green mortgage product.

Research amongst borrowers has found that 69 per cent of respondents have not heard of a green mortgage, despite it potentially reducing monthly mortgage payments based on how eco-friendly their property might be.

When asked if they would pay more for a green mortgage, knowing they would be helping with sustainability and the environment, nearly two in five (38 per cent) said they would.

Two in five said they would not pay more for a green mortgage, even knowing it would help the environment. Delving into the reasons why, 24 per cent said they can’t afford to pay any more, 20 per cent don’t want to have to pay any more for their mortgage, and 12 per cent said they already pay enough.

A further 16 per cent said they shouldn’t have to pay more to help the environment and 13 per cent said they don’t know how it will help.

Ben Thompson, deputy chief executive officer at Mortgage Advice Bureau, comments: “Green mortgages are a well-intended product, but they’re only scratching the surface in terms of helping to make the housing market more energy efficient. Existing borrowers, homeowners, and landlords who have properties below a C rating are encouraged to invest their own money to make their homes more efficient and less polluting. However, grants and incentives being offered by government is comparable to a drop in the ocean.

“Retrofitting a property could cost thousands of pounds which most homeowners may not have at hand to call upon. They’re therefore reliant on potentially borrowing against their property, which is where issues bubble to the surface.

“We welcome recent moves by lenders to look more favourably upon borrowers’ affordability based on them buying more energy efficient homes. This makes good sense and we’d like to see more of this positive action.

“However, we need combined industry thinking and innovation to work out how best and who best can influence those properties not meeting A, B, or C ratings to make sure the challenge is being properly tackled. Only then will the real benefits start to be felt.”