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Rest of the UK catching London on rental growth

The average rent across the UK is now rising in line with Greater London for the first time and at the fastest rate since the start of the HomeLet Rental Index in 2008.

The latest data from the referencing firm shows that rents agreed on new tenancies in the capital over the three months to the end of April were 7.5% higher than in the same period a year ago. This is in comparison to a 7.4% rise across the rest of the UK. 

Following a year of London rents growing at over twice the rate of the UK average, growth rates have now come together. This demonstrates a slowdown in the growth of rents in the capital and a speeding up elsewhere in the UK.

From a regional perspective, 11 out of 12 regions experienced price rises in the three months to April 2015, highlighting the steady growth in rent prices across the country. HomeLet’s figures show that the average rent on a tenancy signed in the UK during the three months to April 2015 was £916, in comparison to £833 for the same period a year ago. Meanwhile, the average rent in Greater London currently stands at £1,436, compared to £1,336 for the same period a year ago.

“For the first time we are seeing rent price growth rates in Greater London converge with those across the rest of the UK,” Martin Totty, CEO of Barbon Insurance Group, parent company of HomeLet, said.

“During 2014, London rent price growth far outpaced other regions but in 2015 we are seeing the emergence of a different pattern. What this tells us is that the private rental market is experiencing demand nationwide and that it is not simply a London phenomenon that increasing numbers of people are requiring privately rented property.”

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Landlord mortgage arrears at lowest point since 2008

The number of buy-to-let mortgages over three months in arrears fell to 11,900 cases by the end of 2014, according to data from estate agency chains Your Move and Reeds Rains. 

The figure fell by 4.8% between Q3 and Q4 2014 – ushering in the ninth consecutive quarter of improvement and the lowest level of landlord mortgage arrears recorded since early 2008. 

The data also shows that on an annual basis, the number of such distressed loans to landlords has fallen by 27.9% since standing at 16,500 in Q4 2013.

Director of Your Move and Reeds Rains, Adrian Gill, says that positive figures will only be further enhanced by the surprise outcome of the general election earlier this month.

“Many landlords will be grateful that certain policies are no longer an immediate threat.  In particular, the long-term effect of rent controls would have only been to raise rents by squeezing supply, diminish the quality of rented homes and make life for tenants worse,” he says. 

However, Gill believes that in the longer-term tenant finances are the most effective limit on rents. “Tenants must be able to afford their rent for any landlord to realise their financial plans on paper.  In this way landlords depend more on the prosperity of their tenants than on any particular policy or political environment.”

He says that the overarching message for landlords is one of optimism due to high demand and improved household finances. 

“The only caveat must be that there is still a very small chance that tenants will fall into financial difficulties. Landlords can’t discount that completely – and need to keep all lines of communication open and investigate any potential problems at an early stage,” he adds.

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Prime Central London set to reap the benefits of shock election result

The surprise election result is set to boost transaction levels across Prime Central London, according to new research by high-end agency Knight Frank. 

Nevertheless, prices are unlikely to spike in the short-term as the market still comes to terms with the recent stamp duty modifications, the firm says.

The strongest growth has been witnessed north of Hyde Park and east of Mayfair as buyers seek more value for their money.

April’s annual rental growth of 4.1% in Prime Central London outdid price growth as the flexibility of renting continues to appeal to those living in affluent areas. Meanwhile, the number of viewings and new potential tenants went up by 16.1% and 24.1%, respectively.

“Following the Conservative Party general election victory, several short-term outcomes are likely in the prime London residential market,” Tom Bill, head of London residential research at Knight Frank, commented.

“First, numerous transactions put on hold pending the outcome of the vote will proceed as the risk of further property taxation appears less of an immediate threat. Other sales will progress simply because the election is over and a deeper sense of political uncertainty has receded.”

As the logjam unblocks, Bill predicts this is likely to be accompanied by a hardening of expectations on the part of vendors over asking prices. Some, he says, will anticipate prices immediately rising as a direct result of the Conservatives’ election triumph. 

“In the short-term, the impact on pricing is likely to be less marked than some expect,” he went on. “The first reason is the quantity of properties coming onto the market. Many vendors lined up sales for Monday 11 May, irrespective of the outcome of the election. The second reason is that this short-term increase in supply is likely to exceed any uptick in demand.”

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Reduced rates from Accord Buy-to-Let

This week Accord Buy-To-Let announced the reduction of rates on its two-year fixed rate mortgages by 0.15% for landlord borrowers with a 40% deposit.

The intermediary-only lender is now offering landlords fixed rates for two years from 2.44% at 60% loan-to-value (LTV) with a range of incentives.

The highlights are: 
- 2.44% two-year fixed rate mortgage with £2,495 product fee and £500 cashback on completion
- 2.44% two-year fixed rate mortgage with £2,495 product fee, free standard valuation and free standard legal services
- 2.44% two-year fixed rate mortgage with £2,495 product fee, free standard valuation and £300 cashback on completion

Brokers and borrowers looking for a lower up-front product fee can apply for a two year fixed rate mortgage at 60% LTV with a rate of 2.59%. This has an £800 product fee and comes with £500 cashback in completion.

There are now also two mortgages with a rate of 2.74% at 60% LTV fixed for two years. Both mortgages come with an £800 product fee and landlords taking out these mortgages can choose between free standard valuation and free standard legal services or free standard valuation and £300 cashback on completion.

Chris Maggs, Commercial Manager at Accord Buy-To-Let, commented on the reduction: “These mortgage rate reductions represent our ongoing commitment to providing value for money for borrowers and brokers looking at buy-to-let mortgages.” 

“As well as offering competitive rates fixed for two years these mortgages come with varied incentives to allow borrowers to find the deal that suits them best to help reduce the initial outlay of buying a property,” he added.

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Charity claims half a million children living in unsafe private rented homes

Rogue landlords are raking in £5.6billion a year for unsafe homes that fail to meet legal standards, a report by Citizens Advice claims.

The study says that 740,000 households in England live in privately rented homes that present a severe threat to tenants' health.

The report, A Nation of Renters, says these properties have category 1 hazards – the most serious of problems. These can include a host of dangers, such as: severe damp, rat infestations and risk of explosions.

The charity says that latest available data shows these properties contain 510,000 children and 180,000 have a disabled person. It also says that landlords are receiving £5.6bn a year on rent for homes with category 1 hazards, which includes £1.3bn of housing benefit.

Gillian Guy, chief executive of Citizens Advice, said: “Rogue landlords are putting profits before safety. With a growing private rental sector, increasing numbers of people – including more than 500,000 children – are falling prey to landlords who fail to meet decent standards.

“The Government has rightly said it wants to tackle the country’s housing crisis – it must make targeting dodgy landlords, giving tenants better rights and driving up standards a major part of that effort."

Citizens Advice says private renters are woefully under-protected and have to navigate through numerous pieces of complex legislation to seek legal redress from landlords.

It says that taking court action against a landlord can be long, complicated and expensive. This is compounded by the fact many complaints have to be made to local authorities, which often do not have the capacity to act quickly.

Responding to the report, the Residential Landlords Association (RLA) said better enforcement is needed of laws and regulations to protect tenants in private rented housing.

Figures from the Institute for Fiscal Studies show that during the last Parliament, the budgets of local authority enforcement departments were cut by over 37% per head of population in England.
Recent research conducted by the Local Government Information Unit and Management Journal has also found that 54% of local authorities believe that they are in danger of being unable to fund their statutory services which include Environmental Health Services.

The RLA claimed that with landlord investment running at £50 billion a year, the standard of private rented housing has improved by 36% between 2006 and 2013.

Chairman of the RLA Alan Ward said: “No tenant should ever have to put up with unsafe housing, and those landlords that wilfully provide such accommodation have no place in the market.

“Today’s report highlights the growing need for better enforcement of the wide range of powers already available to local authorities. The hazards identified by CAB are already illegal and calls into question the use of housing benefit for unfit properties.

“With council enforcement departments under serious pressure we are calling on the Government to review the capacity and resources available so that we can crack down on the small minority of criminal landlords that are causing misery for their tenants.”

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Paragon doubles business pipeline

Paragon Mortgages has enjoyed a successful year, increasing its mortgage pipeline by 101% in the 12 months to 31 March.

New lending hit £446 million in the first six months of the year, a rise of 66% year-on-year.

The group also reported a 10.4% increase in underlying profits for the first six months at £63.9 million, up from £57.9 million in 2014.

The pipeline of applications indicates further strong growth ahead and at 31 March stood at £701.4 million, against £348.1 million one year earlier.

John Heron, director of Paragon Mortgages, said: “It has been a fantastic start to the year for our mortgage business and we are very well-placed for the months ahead.

“We have seen a marked increase in our application levels as a result of Paragon delivering a broader and more competitive proposition to the buy-to-let market.

“This has been fuelled by the success of our strategy to expand and diversify our funding capability.

“Our latest mortgage securitisation tapped into the Euro market for the first time since the crisis, which provides the Group with access to a much deeper investor base than is available in sterling alone.”

The group has also launched Paragon Bank, which has given it access to the retail savings market.

Heron said: “This has helped deliver improved products across the loan-to-value spectrum, a much stronger longer-term fixed rate proposition and the re-launch of Paragon buy-to-let lending in Scotland.

“Overall, this has allowed us to present a much more comprehensive proposition to our intermediary partners where we have relationships going back some 30 years.

“The intermediary market has responded well to this and we have seen a marked increase in application flows which has started to drive higher levels of completions.”

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Letting agent fee rules just a week away

New rules about letting agents’ fees contained within the Consumer Rights Act 2015 come into effect next week on 27 May.

The new rules require letting agents to clearly publicise their fees and state whether or not they are a member of a client protection scheme and which redress scheme they are signed up to.

David Cox, managing director of the  Association of Residential Letting Agents (ARLA), said: “We are reminding all our members to comply fully with the new measures; relevant information should be placed prominently in offices where letting agents have face to face contact with clients, as well as on their websites.

“Any costs to landlords and tenants must be clearly defined and comprehensively outlined, including all fees, charges and penalties that may be charged before, during and after a tenancy.

“We urge all our members to make the necessary changes now before next week’s deadline, to ensure that they do not fall foul of this new legislation.”

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Tenant arrears and evictions up

The latest Tenant Arrears Tracker from Your Move and Reeds Rains shows that the first quarter of 2015 saw the number of tenants owing more than two months’ rent up 4% on a year ago.

Currently 70,900 households face severe rent arrears, as of Q1 2015, up from 68,200 cases in Q1 2014

Eviction orders have also increased, with 28,900 facing losing their home, up 2.3% on the final quarter of 2014.

Despite a lack of progress on arrears since the end of 2013, the chance of a given tenant falling so far behind on rent is extremely low. As a proportion of all tenants, just 1.4% owed more than two months’ rent in Q1 2015, the same as in Q4 2014. This compares to 2.9% in Q1 2008 (twice the current proportion) even before the worst of the financial crisis and recession.

Adrian Gill, director of estate agents Your Move and Reeds Rains, said: “Tenants are now far less likely to be out of work than at this point last year – a low-paid job is clearly better than no job at all, and this has had a massive effect on tenant finances as a whole. But the easy progress from a lower unemployment rate may now have been made.

“Earnings are a crunch point too. Many tenants are still struggling to keep up with household expenses in the face of extremely modest wages. There are some signs on the horizon this will improve, but in the meantime a small but significant minority of households are facing a real challenge to find the rent every month.

“Other factors are at play too. There are also more cases of severe arrears, in absolute terms, because there are more people renting their home overall. The chance of a given tenant failing to pay the rent within a couple of months is extremely low – and falling. The flipside to these figures are that more than 98% never get into serious arrears.”

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Index highlights record amount of buy-to-let mortgage products

There was an average of 839 buy-to-let mortgage products from 31 active lenders on the market in Q1 2015, up 21 products on the last quarter.

The latest data from Mortgages for Business shows that although the rate of growth in the number of buy-to-let products has fallen, there is no doubting the general upward trend.

The first quarter of 2015 has witnessed the launch of Foundation Loan Homes and the State Bank of India, with products from these two lenders accounting for all of the growth in product numbers in the quarter.

The latest index data showed that there has been growth in product numbers across all loan to value bands, as well as growth in numbers by type and term. 

In Q4 2014 Mortgages for Business reported on the phenomenon of fixed rate mortgages commonly being offered at lower rates than their equivalent tracker products. This has, if anything, become even more noticeable in the first quarter of this year as tracker products have generally gone up in price (except at high LTV) whereas fixed rate products have stayed at much the same price (again excluding high LTV which has also drifted down).

Two year fixed rate mortgages are now roughly half a per cent cheaper than trackers (more at low LTV, less at high LTV), while both 3 and 5 year fixed price mortgages remain priced similarly to trackers. 

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Prime rents soar in the Home Counties

Prime rents in the Home Counties grew by 3.5% in the first quarter of 2015, the highest rate of quarterly growth in nearly four years, according to Knight Frank’s Home Counties Lettings Index, 

Between January and March rents in the Home Counties went up by 3.5%, while annual rent growth was 4.7%. In the run-up to the election, Q1 2015 saw a rise in the number of ‘try before you buy’ tenants’. 

There are a number of things which have moved more ‘try before you buy’ renters into the Home Counties rental market this year, according to Oliver Knight, Editorial and Research Executive at Knight Frank. Typically, these tenants harbour long-term ambitions to buy property in the local area they are currently renting in.

Amanda Driver, Partner at Knight Frank, believes that the majority of private tenants in rented accommodation are choosing to renew their tenancy for another 12 months, delaying a house purchase so they can monitor the housing market over the coming year. 

“We have one family who have been renting in Oxshott for the past two years to be close to the private Danes Hill School there, and are still planning to continue renting until such time as there is certainty in the housing market,” she concluded.

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