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UK buy-to-let has ‘defied gravity’ through Covid-19, says S&P

The UK buy-to-let (BTL) market remained resilient through the Covid-19 pandemic and has features that could help it remain buoyant, says S&P Global Ratings in a new report.

Amid the pandemic-related lockdowns, private sector UK rental arrears reached 9.0 per cent by the end of 2020, but the S&P RMBS post-2014 originations buy-to-let (BTL) index recorded total delinquencies no higher than 0.5 per cent.

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“Diversification in terms of property and borrowers, the increasingly professional nature of BTL, and generally high debt servicing ratios has helped buy-to-let performance remain resilient,” says S&P Global Ratings credit analyst Alastair Bigley.

For post-2014 originations, approximately 50 per cent of properties at a portfolio level could be in rental arrears in the short term before it would affect debt service and cause a significant spike in arrears.

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Ultimately, Covid-19 represented a shock to only one risk factor that determines BTL performance – tenant affordability – while other factors such as the prevailing interest rate environment and house prices were supportive.

“Looking forward, although peak stress for landlords may be argued to be over, the recent prominence of 95 per cent owner-occupied lending may facilitate some renters to become buyers and change the supply-and-demand dynamics for certain properties, and make some properties harder to rent,” says Bigley.

Source: Property Funds World

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Remortgage completions fall 5% while instructions rise

The volume of remortgage completions fell by 5% in June, according to the LMS Monthly Remortgage Snapshot.

However, while remortgage completions slowed, instruction volumes increased by 16.% over the same timeframe.

The overall cancellation rate decreased by 0.45% to 6.01%, while pipeline cases rose by 11% in June.

The average monthly payment decrease for those who remortgaged was £200, and the average monthly mortgage increase was £261.

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A total of 42% of borrowers increased their loan size and 49% of those who remortgaged took out a 5-year fixed rate product, which was the most popular product length.

More than a third (36%) of remortgagers said their primary aim was to release equity from their property.

The average loan increase post-remortgage was £21,586, whilst the average loan decrease was £12,217.

The average remortgage loan amount in London and the South East was £283,685, while the average for the rest of the UK stood at £143,220; this puts remortgage loan amounts 98% higher in London and the South East than the rest of England and Wales.

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The longest previous mortgage length was found in the North East at 84.36 months (7.03 years) and the shortest was in the West Midlands at 62.59 months (5.2 years), meaning that the longest was 35% longer than the shortest.

Nick Chadbourne said: “Steady activity and easing restrictions continued to improve lender confidence in June which gave borrowers greater product choice and better deals.

“However, instructions were still not as high as we would expect in the lead up to the large number of [early repayment charge (ERC)] expiries in July.

“This means that many borrowers who are remortgaging are opting for a product transfer.

“As low interest rates are still in place across the board, staying with the same lender may give borrowers a cheaper rate than switching, but it is still important that borrowers shop around to ensure they are getting the best deal possible.

“As the purchase market continues to boom, supply is the only factor which might slow it down.

“The end of the stamp duty holiday will have had some impact, but the key drivers to move out of cities, find green space and upsize are all still there to drive demand.

“Until supply is properly addressed, inflated house prices and competitive mortgage rates are expected to stay.

“We expect to see more borrowers opting to stay put in this environment, boosting remortgage activity and contributing to a healthy pipeline in the coming months.”

By Jake Carter

Source: Mortgage Introducer

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Rightmove: 68% of homes have found a buyer

Nearly seven in 10 homes (68%) across Great Britain have found a buyer in the current market, the highest percentage recorded over the past 10 years, according to Rightmove.

The analysis of over 13 million listings tracked the journey of a property going up for sale to being marked sold subject to contract; sales that fell through and went on to secure a buyer again were only counted once.

Looking between 2012 and early 2020, 53% of homes found a buyer on average, with the other 47% either being withdrawn from sale or staying on the market.

Scotland has the highest sales rate in Great Britain at 89%, while London saw the lowest with just under half (48%) of homes being sold.

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The top 10 places where people were most likely to successfully sell their home are all in Scotland, with the top three being Falkirk (94%), East Dunbartonshire (94%) and South Lanarkshire (93%)

Outside of Scotland the top three are Sheffield (83%), Craven (81%) and Chorley (81%), while the areas with the lowest sales rate are Westminster (22%), Kensington & Chelsea (25%), and Camden (28%)

Tim Bannister, director of property data at Rightmove, said: “There’s been a much greater chance of a seller finding a buyer over the past year, which really highlights the sheer number of people who have been determined to move.

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“While the long-term average shows that typically around half of properties sell, the increase in 2021 reflects the frenzied buyer activity we’ve seen in the current market, driven by multiple factors such as pent up demand and changing priorities.

“This efficiency in the market means agents are operating on limited stock, and they need more homes to satisfy all types of buyers.

“We’ve seen from previous research that Scotland often contains the most likely areas to find a buyer, and London the least, however the broader numbers are reflective of the trend we’ve been seeing all year, which is that buyers have widened their scope, and the popularity of every area in Great Britain is increasing.”

By Jake Carter

Source: Mortgage Introducer

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UK mortgage borrowing hits a record in June

UK mortgage borrowing hit a record £17.9bn in June as homebuyers raced to complete purchases before the stamp duty holiday started to taper off, Bank of England figures showed.

The net figure was well ahead of the previous record of £11.5bn set in March. There was no large increase in the number of mortgage approvals in recent months, suggesting a shorter time between a lender approving a mortgage and completion.

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Approvals for house purchases fell in June to 81,300 from 86,900 a month earlier. June’s figure was the lowest since July 2020 when the housing market reopened and Chancellor Rishi Sunak announced a sharp, temporary cut in stamp duty for house purchases in England.

Sunak’s cut, which finishes completely at the end of September, helped fuel a frenzy in the housing market as buyers scrambled to capitalise on the reduction. However, the resulting increase in property prices meant most of the gain went to sellers. Households have also been moving house after rethinking their needs with working from home becoming the norm for many.

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The interest rate paid on newly drawn mortgages rose to 1.95% from 1.9% a month earlier and 1.72% in August 2020.

Consumer borrowing remained low as individuals took on £0.3bn of debt in June. Households repaid an average of £1.9bn a month from March 2020 to February 2021. Households deposited an extra £9.8bn with banks and building societies in June, down from an average of £14.7bn in the six months to May and a peak of £27.4bn that month.

By Sean Farrell

Source: ShareCast

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UK house prices fell slightly in July, says Nationwide

House prices in the UK experienced a 0.5% fall in the month to July, following the record highs seen in June.

The Nationwide House Price Index for July shows annual growth was still significant at 10.5%, but down from the 17-year high of 13.4% a month earlier.

The average UK house price now stands at £244,229, compared to £245,432 in June.

Nationwide chief economist Robert Gardner says the modest fallback in July was “unsurprising given the significant gains recorded in recent months”, adding that house prices increased by an average of 1.6% a month over the April to June period – more than six times the average monthly gain recorded in the five years before the pandemic.

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Gardner says higher priced properties have been driving the increase in housing market activity, with Land Registry data indicating that the number of transactions involving properties bought for £500,000 or higher increased by 37% over the 12 months to March 2021, compared to a rise of 2% for all properties.

“As a result, between Q1 2020 and Q1 2021 the share of transactions involving a property valued at £500,000 or above has increased from 12% to 18%,” says Gardner.

While stamp duty was a significant contributor to UK house prices, the Nationwide data finds the main driver of transactions was from those who would have moved regardless of whether the tax holiday had been in place.

“Amongst homeowners surveyed at the end of April that were either moving home or considering a move, three quarters said this would have been the case even if the stamp duty holiday had not been extended beyond the original March 2021 deadline,” says Gardner.

“Shifting housing preferences appear to have been the more important factor in driving the increase in housing market activity, with people reassessing their housing needs in the wake of the pandemic.”

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Together director of sales Sundeep Patel says: “Despite house price growth slightly cooling off, we’re still seeing double digits. Indeed, while the stamp duty holiday and cheap mortgage deals boosted prices, the growing shortage of available stock, and the fact that property continues to be sold for more than the asking price, threatens the opportunity for those not already on the ladder to find something affordable this year. There is a concern that first-time buyers may struggle to even get a look in, as deposit-rich buyers such as landlords and home movers snap up properties.

“There’s an increasingly a race for space as well, as we see potential buyers are also showing more of an interest in houses over flats and apartments – largely triggered by the desire to have more living space and a garden as we settle into hybrid working, and come to realise the fact that many of us will be spending significantly more time at home for the foreseeable”.

By Bek Commane

Source: Mortgage Finance Gazette

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Buy-to-let remortgaging is on the up

As we emerge out of the latest Covid lockdown we are seeing an increase in interest around remortgaging in the buy-to-let market.

BTL is a buoyant sector, you only have to look at the number of lenders who specialise in it as a well as most mainstream lenders. There is certainly choice for borrowers and rates are competitive.

The BTL sector has increased every year from 2009 to 2019, representing a decade of growth following the global financial crisis.

In 2008 there were 114,740 BTL remortgages but in 2009 cases fell sharply to 32,850 as a result of the GFC. In monetary terms the drop off was £14.61bn down to £3.39bn in 2009.

The figures from UK Finance show how the BTL market has grown since then and in 2019 remortgaging peaked at 187,900 loans with a value of £31.1bn.

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Then the Covid pandemic came along and led to a fall in all lending with BTL remortgaging numbers going down to 163,300 in 2020 and a subsequent fall in value to £27bn.

But we are seeing a pick-up now with Q1 2021 rising compared to the previous quarter as 39,700 loans were issued at a value of £6.9bn.

Remortgaging for equity

These figures resonate with us as we are also seeing a rise in remortgaging especially for people wanting to take out more equity.

Talking to our underwriters, most borrowers want to use the extra money for further property investment. I would say this applies to around 70% of our landlord customers. A large chunk of our mortgage book is portfolio landlords, but it is also smaller landlords who are wanting to grow their investment property business.

There is a combination of factors here as to why that is. The stamp duty holiday has had an influence on landlords buying more property as there has been less tax to pay. Some landlords brought their buying plans forward to take advantage of the tax break.

Another influential factor is that house prices have been rising, therefore LTVs are lower, and more equity can be taken out. Coupled with the fact that many five-year fixes maturing this year, we expect remortgaging to continue an upward trajectory going forward.

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Home improvements

The other reason for borrowers taking out equity on their remortgage is for home improvements, and this applies to around 20% of our customer base. Some are using void periods to spruce up their properties, others are making repairs, but a newer reason has been to make properties more energy efficient.

Since 2018 all rental properties must have an Energy Performance Certificate (EPC) rating of at least E, but the government has its sights on all homes being rated C or above by 2030.

Astute landlords have been making improvements with changes such as cavity wall and loft insulation and installing new condensing boilers. But others are going further by replacing windows with double or triple window glazing and even installing solar panels.

We expect more landlords will want to improve their EPC ratings and quite a few lenders now are offering green mortgages as an incentive for them to do this, including ourselves. In our case, discounted rates are given for properties with EPC ratings of A, B or C.

By Paul Brett

Source: Mortgage Strategy

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House prices set to continue rising as supply shrinks

Residential house prices will increase by 9% this year as the market is driven by the extended stamp duty holiday and the impact of repeated lockdowns, Savills has predicted.

The estate agent has upgraded its expectations from the 4% annual price growth it predicted in March, prior to the chancellor’s stamp duty holiday extension.

Savills still expect property values to rise by 21.5% over the next five years, in line with previous forecasts, as price inflation eases following the removal of incentives.

Price growth continues to be fuelled by historic low mortgage rates, along with greater demand from buyers for properties with more space and greenery following months of lockdowns.

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However, the company says that the shape of growth over the next four years is more difficult to forecast precisely given the extraordinary conditions of the past 18 months.

“Some of the growth generated by the extraordinary market conditions of 2020 and 2021 could unwind at times during 2022, but we see nothing on the horizon that would trigger a major house price correction,” said Lucian Cook, Savills head of residential research.

Savills mainstream house price forecasts and economic assumptions:

202120222023202420255yr Total
UK9.0%3.5%3.0%2.5%2.0%21.5%
London7.0%2.0%1.5%1.0%0.5%12.4%
Base rate0.1%0.1%0.1%0.3%0.5%
Unemployment (UK)6.0%4.6%4.0%3.7%3.6%
Annual Income Growth (UK)0.8%0.0%4.1%3.9%3.8%17.2%
Source: Savills, Oxford Economics

Cook continued “New buyer demand continues to outweigh supply despite the potential stamp duty saving falling from £15,000 at June 30 to just £2,500 until the end of September, and this against low levels of supply.

“This imbalance looks set to continue,  underpinning further price growth over the near term, particularly as people look to lock into current low interest rates.  But such strong growth in 2021 will leave less capacity for growth over the next few years, particularly as interest rates are expected to rise a little earlier than leading commentators had previously projected.

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“The rate at which interest rates rise will also shape price growth. A steeper than anticipated jump in rates would restrict growth, although it would have to be severe to lead to actual falls in values – an outside risk in our view.”

Interest rate rises are critical to the forecasts, Savills says. The forecasts assume a Bank of England base rate no higher than 0.5% by the end of 2025.

A number of other key factors point to what Cook describes as a ‘soft landing’ for the market, rather than any dramatic correction in property values. 

Since the market reopened last year, price growth has been driven in large part by more affluent buyers, less reliant on mortgage debt and able to lock into low fixed interest rates. More generally, the pace of economic recovery has helped reduce unemployment levels, stress testing of lending is now embedded in the system, while interest rate rises are still expected to be slow and modest by the end of 2025, meaning a gradual squeeze on affordability.

These factors underpin Savills five-year forecasts, but they also indicate limited capacity for further price growth at the end of this period, without substantially affecting who is able to buy and the number of potential transactions. 

First-time buyers are likely to be increasingly reliant on government schemes and, where available, on the generosity of the bank of mum and dad, according to Savills. 

After a strong start to the year, and over 200,000 transactions in June alone, transaction volumes are projected to total 1.62m this, more than a third – 35% – higher than the yearly average over the five years pre-pandemic.

Savills continues to expect the markets of the Midlands and the North of England to show the strongest house price growth, due to greater capacity for growth before hitting affordability ceilings.  In the short term, however, buyer attention is expected to turn back towards urban markets, including London, as social distancing restrictions and international travel restrictions ease.

This will see the ratio of regional to UK average values slowly converge over the next five years, as the lower value regions see stronger growth, “catching up” with the rest of the country.

 202120222023202420255 years to 2025Av value* Dec 2020Forecast value end 2025
UK9.00%3.50%3.00%2.50%2.00%21.50%£230,920£280,568
North West10.50%4.50%4.00%3.50%3.00%28.00%£176,925£226,464
Yorkshire & The Humber10.50%4.50%4.00%3.50%3.00%28.00%£172,326£220,577
Wales10.00%4.00%4.00%3.50%3.00%26.80%£169,846£215,365
Scotland9.50%4.00%3.50%3.00%2.50%24.40%£156,768£195,019
North East8.00%4.00%3.50%3.50%3.00%23.90%£137,531£170,401
East Midlands9.00%4.00%3.50%3.00%2.50%23.90%£200,951£248,978
West Midlands9.00%4.00%3.50%3.00%2.50%23.90%£207,603£257,220
South West8.50%3.50%3.00%2.50%2.00%20.90%£264,512£319,795
South East9.00%3.00%2.50%2.00%1.50%19.10%£336,984£401,348
East of England8.00%3.00%2.50%2.00%1.50%18.00%£310,240£366,083
London*7.00%2.00%1.50%1.00%0.50%12.40%£486,562£546,896
Source: Savills (*Nationwide)

By MARC DA SILVA

Source: Property Industry Eye

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IMLA: “Housing and Mortgage Recovery Will Remain Robust.”

The Intermediary Mortgage Lenders Association (IMLA) has today published its report on the impact of Covid on the UK housing and mortgage market – one year on. This latest report notes the continued strength of the housing market, despite the challenges presented by the pandemic, and predicts that gross mortgage lending will reach £285 billion this year.

In January, IMLA’s New Normal report predicted a rise in gross mortgage lending to £283 billion in 2021, with a swift return to household spending as Covid-19 lockdown restrictions were eased. However, IMLA’s latest report has revised this figure, increasing it to £285 billion – the highest level of mortgage lending since 2007.

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The predictions follow data which show a surge in mortgage lending, stimulated by the strength of the housing market. During the first five months of 2021, lending for house purchase was not only 87 per cent above the same period the previous year, but 51 per cent above the same period in 2019. And while remortgage activity has been weaker, the number of product transfers has risen to record levels.

In light of the high levels of market activity brought forward by the Stamp Duty holiday, however, IMLA has also revised its forecast for gross lending in 2022, reducing it slightly from £286 billion to £280 billion.

The report, which makes a series of predictions about the market over the coming year, forecasts that house prices will be broadly flat in the second half of 2021 but will rise 1.6 per cent in 2022. House prices have risen as a result of the Stamp Duty holiday, but the report predicts that a more subdued picture can be expected after the holiday fully ends in September.

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Kate Davies, executive director of IMLA, said: “Following a difficult period in the wake of the coronavirus crisis, it is very encouraging to see yet another positive prediction for the remainder of 2021. Our findings forecast that 2021 will see the highest level of mortgage lending since 2007 and, with a combination of Government support helping to underpin new purchases and a bumper year for product maturities, we expect this high demand to continue. However, with the Stamp Duty holiday soon coming to an end, and the Help to Buy scheme due to conclude in 2023, there is still a need for a coherent, long-term housing strategy from the Government that embraces the public as well as the private sectors – and delivers a market that meets Britain’s housing needs for the decades to come.”

BY PETE CARVILL

Source: Property Wire

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Covid sharpens inequalities in UK housing market

The Covid crisis has widened inequalities in the UK housing market, according to new research published today.

Figures from building society Nationwide show one in four private renters think the pandemic has made it more difficult for them to buy a home.

Sharp rises in house prices over the last year, driven by demand being stoked by the stamp duty holiday and prospective homebuyers rushing to snap up larger properties with gardens, has reduced housing affordability for first-time-buyers.

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Research from property search site Rightmove shows house prices jumped 5.7 per cent annually in July to reach a record high.

Homeownership rates have dropped markedly over the last 15 years, the research shows. 57 per cent of households in the UK now own their home, compared to 64 per cent in 2003.

63 per cent of the country also thinks the UK has a housing crisis, underlining the need to increase home supply to ease inflationary pressures in the market.

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Sara Bennison, chief product and marketing officer at Nationwide Building Society, said: “Our research and cross-industry conversations show that the pandemic has served to exacerbate long-standing issues in the housing market.

“Layer onto that the enormous challenge of making the UK’s homes net zero and the challenge ahead becomes even greater.”

By Jack Barnett

Source: City AM

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Confidence in buy-to-let business continues to grow among brokers

In Q2 2021, the proportion of brokers forecasting a rise in buy-to-let mortgage business over the next 12 months has increased.

Despite the tapering of the stamp duty holiday, a survey by Paragon reveals 53% of mortgage brokers expect buy-to-let business to increase over the next year. This is compared to 50% in the first quarter of 2021. At the same time, the proportion of brokers forecasting declining levels of business stayed consistent at 10%.

Moray Hulme says: “These figures suggest that the strong levels of buy-to-let business witnessed over the last six to nine months wasn’t just as a result of the Stamp Duty stimulus, but down to more fundamental shifts in where and how people want to live.”

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Buy-to-let demand is high

During the second quarter of 2021, brokers reported that demand for buy-to-let was high. Specifically, 42% of intermediaries said demand was “strong”. And 8% stated demand was “very strong”. In the second quarter of 2020, which was at the height of the pandemic, there were only 26% who felt this way.

Additionally, only 10% of those surveyed reported buy-to-let demand to be weak. That is compared to 30% during the corresponding quarter last year.

Overall, the confidence among brokers is generally high. In the survey, 91% said they were confident about the outlook for their business over the next year. This was especially prevalent for those seeing high levels of buy-to-let business with 97% among that cohort.

“There has certainly been a growth in tenant demand for family homes, for example, and landlords are reacting accordingly.”

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Investing in buy-to-let

With demand in the private rented sector at high levels across the UK, this is providing a boost to the buy-to-let sector. Recently, many landlords have seen a drop in void periods and higher yields.

Additionally, the number of buy-to-let mortgages reached the highest level since March 2020. Investors and landlords have been welcoming the additional choice. With the increased competition, interest rates are still historically low.

Many landlords are locking in competitive mortgage deals. This is leading more buy-to-let investors to expand their property portfolio. Additionally, this year, more first-time landlords have even entered the buy-to-let sector due to the enticing market conditions.

By Kaylene Isherwood

Source: Buy Association

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