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​A bright year ahead for UK property investors

Making predictions is hard and this year is no exception. Concerns around escalating geopolitical tensions and inflation loom large in the background, the latter driven by unprecedented growth in the money supply during the Covid pandemic.

In the US, the money supply is up by more than 35% and in the UK by more than 20%. In the UK, the situation has been compounded by Brexit, creating the need for structural changes to the way we trade. In our opinion, these UK headwinds will pass, whereas inexorable population growth, the pressing need to create more environmentally resilient assets and the under-delivery of housing will combine with more persistent inflation to give UK real estate another golden year.

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The £10trn residential market performed exceptionally well last year, up more than 10%, driven by the demand of investors seeking inflation-linked rental income. With continued demand and no supply solution, 2022 will see prices rise with increasing levels of institutional ownership, especially in the single-family market, where asset liquidity is better and construction risk lower.

After a total return of more than 35% in 2021, the industrial and logistics market may seem overvalued. Yet given that 97% of new space was leased within 12 months in 2021 and a development pipeline today of only 18m sq ft (4 months’ supply), rents will undoubtedly continue to grow. Logistics, alongside residential, will remain popular for inflation-correlated income to investors. The key issue for both will be that levels of suitable assets will be exceeded by demand.

It is also fair to say that with the Covid outlook significantly brighter this year, the prospects for the office and retail sectors are also better. Pandemic-induced ‘hybrid’ working patterns are here to stay, although companies will have to entice employees back to the office. Higher-quality modern assets with strong amenities on offer will see stronger occupational demand, as well as avoiding the substantial capital costs to meet tomorrow’s environmental standard. Similarly, retail should see a continued recovery as footfall gradually increases, although this is more likely to be concentrated in more accessible retail parks. These are also favoured by investors, as rents are lower and alternative uses underpin the value.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

Other alternative or operational assets, such as data centres and healthcare centres, have done well, with investors seeking ways to deliver returns outside of a crowded marketplace for mainstream assets. However, as it stands, there is not enough of these assets and they require a high level of specialist skills. For this reason, they cannot provide a scalable substitute to deliver income to a portfolio. Instead of chasing these alternatives, at Fiera Real Estate we favour targeting mainstream sectors while undertaking strategies that are more difficult to execute. For example, we will continue to develop new residential and logistics assets across the UK, achieving a better risk-adjusted return from our expertise.

Many of the current headwinds, significant as they are, will pass but structural issues such as inexorable population growth, the pressing need to create more sustainable and resilient assets and consistent under-delivery from a fragmented and politicised planning system are surely here to stay. Perhaps these are the real issues for investors in UK real estate to consider in 2022 and beyond.

When the future looks less clear, it is often useful to draw lessons from the past. Today, we are in a bull market where it is all too easy to make money. Last time, this led to new entrants riding the market with a poor understanding of risks relative to the return. If we have learnt anything from history, it is that at this point in the market you should undertake strategies where you can add value, have little or no leverage to defend against volatility and where you fully understand the asset risks. If you do this then you can capitalise on what remains a remarkable UK real estate opportunity.

By Alex Price

Source: Property Week

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Investors to inject tens of thousands into property

Investors are sitting on an average of more than £37,000 each in investment capital that they are poised to inject into property, according to a study by property investment platform Brickowner.

The property investment platform polled 126 investors about their investment intentions as the national COVID-19 vaccine, which is set to be the UK’s roadmap out of lockdown, continued. Asked how much money they had “allocated to invest into property via platforms or direct”, the average response was £37,345.

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Users were also asked to state what type of investment would interest them, with the most popular emerging as residential (67%), followed by commercial (48%) and care homes (42%). The average annual return they were looking for was 8.4% and the average most desired fixed term was two years and eight months.

Brickowner’s co-founder and chief executive Fred Bristol said: “The pandemic is very likely to have had a chilling effect on the enthusiasm of property investors over the last year – but there are real reasons for optimism.

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“First, it’s clear from surveys like ours that investors have not lost their love of property and want to invest. And, second, we are already seeing early signs of a turnaround that may be linked in part to the successful vaccine roll-out, a key precondition for the re-opening of the UK economy.

“Activity on Brickowner’s platform has risen dramatically since New Year. In fact, the amount invested in first two months of 2021 was almost double that of the last two months of 2020.”

Source: Property Wire

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Almost half of BTL landlords remain optimistic despite potential tax hikes

Property investors have been the target of many recent tax changes and may feel unfairly targeted at a time when they are facing potential Covid-related tax hikes to pay for the pandemic, and yet almost half of those who invest in the private rented sector remain optimistic going into 2021.

Despite the challenges of the coronavirus, almost half – 45% – of landlords say they are currently optimistic about the buy-to-let market, according to a new survey released today by Property Master.

The online buy-to-let mortgage broker found that less than a third – 29% – of those surveyed were pessimistic about the buy-to-let market, despite fears that the chancellor Rishi Sunak could increase taxes for those with additional homes, as part of the government’s attempts to claw back the cost of extra spending during the coronavirus pandemic.

Mortgage interest relief changes, the scrapping of the ‘wear and tear’ allowance and the introduction of the 3% stamp duty surcharge have hit landlords’ profits over the past few of years, which partly explains why so many people are exiting the BTL market and thus reducing the supply of much needed private rented stock.

Tax and regulation changes continue to have a negative impact on the buy-to-let market, with a number of landlords selling properties with a view to reducing their portfolio, or exiting the market altogether.

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But despite the concern that yet another proposed tax hike could see buy-to-let landlords exiting the market in droves before it is introduced, just 10% of the landlords surveyed by Property Master planned to exit the buy-to-let market in 2021 and almost 70% said they were not about to sell any of their properties in the new year.

Angus Stewart, Property Master’s chief executive, said: “For landlords, as for many other sectors, 2020 is a year that brought plenty of challenges. But in the case of landlords Coronavirus and the resulting economic uncertainty came on the back of a raft of regulatory and tax changes over recent years that have left the sector battered and which saw smaller landlords in their thousands throw in the towel.”

Stewart continued: “However, our survey shows the buy to let sector as a whole is a resilient one. Those landlords that have survived may well be stronger and our survey shows them as giving buy to let the thumbs up as we move into 2021.

“We see the year as being one of two halves. There is clearly continued turbulence forecast for the first half of the year as coronavirus and Brexit play out. But the fundamentals of the private rented sector remain and now more than ever an increased number of people need a good quality roof over their heads, and this will create plenty of opportunity for landlords to do well.”

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The number of landlords surveyed by Property Master who planned to add to their portfolio in the new year was evenly split with those who had decided in 2021 to stick with their existing property portfolio.

Almost 43% of landlords said they planned to buy more property in 2021 and the same number planned to stick with the properties they already had. Almost 13% were undecided.

In terms of buy to let mortgage rates, landlords seemed more relaxed about the outlook although many commentators have recorded an increase in rates in recent months.

Almost 54% of landlords surveyed thought that buy to let mortgage rates would stay the same as opposed to almost 38% who thought they would increase further. Just under nine per cent thought rates would decrease despite the rumours about a possible negative Bank of England base rate.

Stewart added: “A competitive and innovative buy-to-let mortgage market has proved to be a big plus for the private rented sector. Inevitably, the coronavirus has led to some caution amongst lenders especially around loan to value ratios, but we see this as easing as the year plays out.”

By MARC DA SILVA

Source: Property Industry Eye

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Birmingham rated the best place for property investors

Investors in Birmingham can expect a rental yield of 5.4% and price growth of 14.2% in the next five years, making it the best location for investors, according to UK developer SevenCapital.

Average rents have risen by 30% in the past decade, and are expected to increase by 15.9% in the next four. Prices in the city stand at £202,162.

There’s a raft of projects upcoming in the city – notably the Midlands Metro extension, HS2 and the 2022 Commonwealth Games

The second best city for landlords is Manchester, followed by Liverpool, Nottingham and Newcastle.

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Projected five-year price growth is particularly high in Manchester and Nottingham, at 15.76% and 16.92%.

Liverpool and Newcastle are on the cheaper end, with prices averaging at £186,527 and £198,307 respectively.

The only town represented in the study was Bracknell, which was rated the eighth best place for investors.

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While the area has a high average price of £383,788, prices are expected to rise by 11.02% in five years.

Bracknell is home to tech businesses such as Dell, Microsoft and 3M, while the town is in the midst of a £770 million regeneration.

BY RYAN BEMBRIDGE

Source: Property Wire

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