Commercial Insurance Articles
Landlord confidence boosted by favourable PRS conditions
08 Jun 2010
The buy to let market has been enjoying a successful few months, with plenty of positive signs emerging from industry reports.
Paragon Mortgages research has indicated that landlords feel relatively confident about their prospects for the coming months. A survey conducted in April found that 12 per cent of landlords plan to purchase investment property in second quarter of the year.
This represented a rise on the ten per cent who said they would buy in the first three months of 2010. The research also found that a quarter of landlords felt that tenant demand grew in the first three-month period of the year. This compared to just eight per cent who felt it was declining.
Buy to let owners expected tenant demand to strengthen considerably in 12 months' time, with almost four in ten predicting that it would be higher next year.
"Demand for property investment has remained strong during the recession and has improved since house prices stabilised," said Paragon Group chief executive Nigel Terrington.
"Landlords know that the long-term forecast for tenant demand is extremely healthy, with socio-economic and demographic changes leading to growth in the number of households calling the private rented sector home," he added.
In addition to the favourable market conditions, landlords are also finding that the value of their portfolios is increasing. According to Paragon's research, the average value rose for the second quarter in succession in the first three-month period of the year, increasing by 6.1 per cent to £1.52 million.
This figure takes into account both property values and sales and acquisitions, so Paragon said that it could be a sign of landlords adding to their portfolios, as well as firmer house prices.
Landlords anticipate that the average value of their assets will be 1.2 per cent higher in a year's time.
"Confidence amongst the landlord community has grown in recent months and that is reflected in portfolio valuations," commented John Heron, Paragon Mortgages' managing director.
"On the whole, house prices have been rising since the middle of last year and we know that landlords have taken advantage of a more fluid housing market to add properties to their portfolios," he added.
At the time, analysts and those operating in the market were concerned that a lack of financing was still holding back landlords from taking advantage of favourable market conditions. However, since April there have been some positive signs in lending.
The Mortgage Works (TMW) announced on May 10th that it was increasing the loan-to-value (LTV) on its buy to let mortgage products to 80 per cent, which was welcomed by landlords and commentators alike.
David Whittaker, managing director of Mortgages for Business, said: "Finally we're seeing a lender move the pieces on the chess board in a positive way. We've been waiting for two years for upbeat news in the buy to let market and TMW have made it clear they feel as optimistic as we do about buy to let's future."
Interestingly, he also said that many landlords had been unable to expand in the last 18 months as they had reached their maximum with the mainstream lenders. With Paragon finding that landlords were planning to purchase, the news of improved LTV mortgages could provide an extra boost to investment.
Lee Grandin, managing director at Landlord Mortgages, also welcomed the news, saying that it would put confidence back into the buy to let market and create competition among lenders, in turn driving down pricing and improving criteria.
He said that this could create a "better environment for landlords".
"It is a step in the right direction," he added.
The current low interest rates are also helping landlords. Research from the Council of Mortgage Lenders found that they were contributing to a modest improvement in buy to let arrears.
At the end of March, the number of loans with arrears of more than 1.5 per cent of the mortgage balance totalled 19,300, compared to 20,700 at the end of 2009 and 28,800 a year ago.
Private rental sector expert Malcolm Harrison said that lower interest rates were making it easier for landlords to pay off their mortgages, in turn benefitting tenants.
"There are various things that are happening, and it is all, in many ways, good news for both landlords and tenants. Landlords are able to let their properties, they don't have as many outgoings so they are in a better position," he continued.
"If interest rates remain low, and if more buy to let products come onto the market, it is going to be good for the private rental sector," Mr Harrison added.
Research by the National Landlords Association has also found that confidence among buy to let owners is at its highest level since the end of 2007. The report claims that 57 per of landlords believe the next three months will be positive for their business.
"Rents are fairly stable, if not rising, and demand is strong from tenants because first-time buyers are delaying purchases. Generally, with the stabilisation of the housing market, landlords are feeling reasonably confident," said Chris Horne, editor at Property Hawk.
However, there is potentially an upcoming sting in the tail for landlords in the form of capital gains tax. Mr Horne suggested that the increase in the duty could put off some new investors.
"They will see the potential headline tax rate and perhaps not realise that there are ways of reducing your tax burden when you sell and reducing the amount of capital gains tax [that you are liable for]," he explained.
The Residential Landlords Association (RLA) has called for landlords to be exempt from any change in capital gains tax, where money is being reinvested in other property. The organisation said that improvements to housing are a valuable economic stimulus.
"Increases in capital gains tax should also exclude landlords retiring from the business as they are often long-term investors with major capital gains after many years of business development," said Alan Ward, chairman of the RLA.
He added that any increase in the duty risks "undermining the current slow restoration of confidence in private rented sector investment".
