Investing in the North

There was a time that London and the South East of England were the obvious choices for property investors; capital values rose more quickly, rental demand was dependably high and rental values always looked impressive. The region’s prices led the UK property market by such a margin that many indices featured data for “UK markets excluding London” in order to avoid skewing the nationwide averages.

Today, things have changed. Fuelled by waves of overseas investment, London saw a rapid recovery from the global financial crisis and, for a long time, property prices remained buoyant. However, that same, seemingly inexorable rise in capital values led, inevitably, to a problem of affordability. While the super-rich and big institutional fund-holders could still afford to invest in London with the expectation of solid capital gains, ordinary people could not. Prices had simply run too high, and something had to give.

The resulting slide has been apparent in recent market data. For example, the most recent house price index from Rightmove found that average prices in Greater London had fallen by 3.2% in the 12 months from September 2016. By contrast, Yorkshire & Humber rose by 3.1% over the same period, and the North West property market saw an annual rise of 3.4%. With respect to capital appreciation, that represents a straight reversal of the long-standing North-South divide.

A similar pattern is evident when we look at rental values. Rightmove’s Rental Price Tracker, published in September 2017, found that average UK rents outside Greater London had risen by 1.2% in the 12 months from the third quarter of 2016. Over the same period, values in the capital actually fell by 3.3%.

The affordability question

For investors, affordability has become a big issue. In order to maintain anything approaching a worthwhile yield, landlords in the South East have had to demand excessively high rents. Rightmove puts the current average asking rent in Greater London at £1,920, compared to the UK average of just £789 elsewhere. At a time when the real value of wages is falling – due to a mix of austerity, business uncertainty and rising inflation – such rental payments must look increasingly daunting in the eyes of ordinary families.

This would certainly explain what appears to be the beginning of a northward migration. More university students are staying in northern towns and cities after graduation, and more southern-based residents are moving outwards in search of more affordable housing. Faced with a shifting pattern of regional demand, many London-based landlords have been faced with a difficult choice: if they keep rental prices high, they could become uncompetitive, risking longer void periods and late payments by tenants. On the other hand, if they drop prices, they will inevitably see a further reduction in yields that are already sometimes tenuous.

To judge by recent data, increasing numbers of landlords across Greater London are now taking the latter option: setting lower prices and effectively sacrificing yields for steady occupancy.

The appeal of the North

Elsewhere, the picture is rosier, and affordability is a key reason for that. Some of the best yields in Britain are to be found in the regions that recovered most slowly from the global financial crisis. In some parts of the North West and the North East, for example, average values are still below their peak 2008 values. Consequently, investors can acquire highly marketable properties for considerably less than they might have to pay in the South East, and yet they can count on robust rental demand and healthy profits. Absolute rental values might be considerably less than they are in London, but as a proportion of the total investment cost, they are much higher, hence the better yields.

According to LendInvest’s Buy-to-Let Index Quarterly Report for September 2017, Manchester now delivers the highest yields in the country. Its 6.04% returns are comfortably ahead of its nearest competitors and these are coupled with rental price growth of 6.25% – a figure which was beaten only by Luton (6.81% this year, with yields of 4.51%.)

Commenting on the figures, LendInvest observes “Manchester was considered one of the markets to watch in the last Index, leading the charge for Northern markets in the UK. Manchester’s market continues to make great headway … The city’s residential property market boasts the most lucrative average yields thanks in no small part to a thriving rental market.

Capital gains have been strong in Manchester – averaging around 7.39% according to LendInvest’s figures.  However, Manchester is not the only success story in the North. Hull has fared very well – producing capital returns of over 11% and yields of 4.65% – but other northern regions are also seeing a surge in their fortunes.

Sheffield City Region is one such market, which is being buoyed by substantial inward investment. Last year, planners launched a £28 billion economic development strategy which aims to create 70,000 new jobs and 6,000 new businesses over the course of the next ten years. Doncaster Sheffield Airport has already undergone a major overhaul and new road connections, while the £500 million iPort project is establishing one of the UK’s foremost warehouse and logistics centres. Major improvements in infrastructure, together with rising commercial investment should see a marked rise in both rental demand and living standards across the area. Such outcomes would naturally be welcomed by local landlords.

The Northern Powerhouse

Sheffield is one of the regions expected to benefit from the Northern Powerhouse initiative and the multi-billion pound HS2 rail link. In January 2017, it secured £38 million from Northern Powerhouse Fund. The city region will also have a station on the new high speed rail network.

Other northern cities will also benefit from the Northern Powerhouse scheme, which includes a reported £13 billion for regional transport improvements, over £3 billion for local enterprise partnerships and £60 million for Northern Powerhouse Rail. £400 million will also be earmarked for small business support and investment schemes.

Another big beneficiary will be Liverpool, although in the light of recent private sector announcements, it might be argued that the city is looking after itself very well already. The Liverpool City Region currently accounts for a full 17% of the North West’s economic output, but this contribution is likely to grow very dramatically in the next few years. The city plans to deliver some of the country’s largest and most ambitious infrastructure schemes, which began with Liverpool2, a £400 million deep-water container terminal at the Port of Liverpool.

More significant still will be a proposed 30-year waterfront redevelopment scheme called Liverpool Waters, for which planning consent has now been granted. This £5.5 billion scheme aims to create up to 20,000 new jobs, and to secure inward investment amounting to £30 billion. If successful, it will represent one of the largest urban redevelopment projects in the whole history of Britain. This should utterly transform the city’s economy and, with it, the local employment and property markets.

Student populations

Another important feature of many northern markets is a high student population. Liverpool, for example, is home to four universities and 90,000 students, and it produces upwards of 30,000 graduates every year. Increasingly, as the city establishes itself as a centre of excellence for growth industries such as IT, finance and renewable energy, those graduates are choosing to stay in Merseyside. The same is true of other major cities such as Sheffield and Manchester. Around 100,000 students live in Greater Manchester and the area accommodates more 25 to 29 year olds than anywhere else in Britain.

For a whole host of reasons – affordability, yield, rental demand, strengthening economies and more – northern property markets are looking increasingly attractive to investors. Prices remain comparatively low and yet, having not experienced the ballooning effects of some southern cities, they still afford plenty of room for growth.

* *

If you’re considering an investment and you’d like more information about opportunities in the North, please call our advisory team on 01244 343 355.

The Impact of an Interest Rate Rise on Property Investment

Speculation continues to abound that, maybe as early as November, an interest rate rise from the Bank of England could take place. Property investors we talk to are naturally very interested in how this will have an impact on property investment in the UK.

A recent speech to economists in London by Gertjan Vlieghe, a member of the rate-setting committee at the Bank of England, stated that a rise in rates could be ‘as early as in the coming months’. What impact will this have on property ownership and mortgage rates, especially for those invested in multiple properties? Read on to hear our views.

The Predicament for Current Property Owners – For those already owning homes, the rise in interest rates will have a dramatic effect. For many it will mean that monthly bills will increase, especially for those who are working with variable rate and base rate tracker mortgages. For those people with fixed-rate mortgage deals, there will be no immediate increase, but that would only last for as long as the agreed fixed-term period so a sense of unease may well develop in the property ownership market.

For everyone, a rise in interest rates represents a shift, as the majority of property owners will not have seen an increase in the monthly outgoings linked to their mortgages for around ten years!

Increase in Mortgage Repayments – There is no catch-all answer as to how high household bills will increase. Each mortgage is different to the next, with variables including the specific terms of the mortgage, the length of the mortgage repayment terms and the rate attached to each specific mortgage. What we can say however, is that the average standard variable mortgage rate stands at 4.6%, so any increase in interest rates could have a significant impact on the amount of money being paid out on a mortgage each year. UK homeowners could be facing hundreds of pounds extra in mortgage repayments over the course of the mortgage term, should they have a variable rate mortgage in place on the property. This news is enough to unsettle many homeowners and encourage them to tighten their belts.

Choices for a Property Owner – If interest rates are to go up, those with variable mortgage rates have to be prepared for the consequences. Homeowners will need to do their best to have enough cash spare as a buffer in order to cope with the potential increase in repayments as a result of a rise in interest rates. Unfortunately, many UK homeowners are simply not in this position so there is likely to be a significant pinch to disposable income if and when interest rates rise and potentially short term stagnation in the housing market.

Perfect Time to Invest in Property – Every cloud has a silver lining however, and if you are in the property investment market for the medium to long term, this could be a golden opportunity to take advantage of a shift in the market due to a rise in interest rates. For serious property investors, adverse market conditions can reveal significant opportunities so at Residential Estates, we believe now is the perfect time to strike. Why do we believe this?

• Less experienced investors may have their eye taken off the ball by an interest rate rise therefore attractive investments will be available to be snapped up by more insightful investors.

• Fixed-rate mortgages are at the best value for money they have ever been in many cases. Acquiring a fixed-rate mortgage at this point in time provides you with a chance to continue building your property portfolio without having to worry about the potential increase in interest rates having an impact on your mortgage repayments over the course of a set period of time.

• Re-mortgaging is at its highest rate since 2009, and much of this is down to fixed-rate mortgages being such a desirable product at this moment in time. Uncertain financial times might be scary for many, but it is often a period that can be fruitful for more experienced property investors who understand the feeling behind making a move into the property market at exactly the right time.

• Doing the opposite to the direction of the market can be a fruitful way to invest. While inexperienced investors may be scared off by an increase to interest rates, rich pickings will be lying on the table for those who know how to navigate political and economic changes.

• Interest rates are likely to still be exceptionally low compared to rates 20+ years ago therefore the return on investment from property investment remains a proven and solid base for long term financial security.

At Residential Estates we have experts on our team who can help you make the right choices, whether the interest rates rise or not. Being aware of the economic climate and the property marketplace is what we do, so we know we can provide insightful advice to our clients, whatever happens to the wider economic issues.

For more information about the property investment advice and guidance we have to offer at Residential Estates, contact our office on 01244 343 355 or email We also have a live chat function on this page and a simple-to-use contact form, where our friendly customer service team can return your call at your convenience.

A Changing Pattern of Investment

National statistics can be a useful barometer of general market conditions but there’s a limit to how much weight should be attached to them. For example, average UK house-prices might make for attention-grabbing headlines, but as any serious investor will recognise, they are of very limited value when it comes to deciding where and whether to invest.

That’s because location makes such a tremendous difference to market conditions. Values and tenant demand will vary considerably between different suburbs and neighbourhoods – sometimes even between different ends of the same street. A country-wide average therefore reveals nothing at all about the appeal of a particular investment destination. When it comes to making a financial success of bricks and mortar, local knowledge is everything.

A Local View

At Residential Estates, our own home territory is the North West – a region that is home to enormous diversity. There are some great locations here, as well as some that should be avoided at all costs. A large part of our work is about steering clients towards the safer, more profitable investments and keeping a close eye on local market conditions.

To take our home town of Chester as an example, we’ve seen a gradual shift of emphasis on the part of private investors. This can probably be traced back to 2015, when the Government first mooted plans for new tax-based measures aimed at curbing the growth of the private rented sector. However, that shift became more pronounced after 1st April 2016 and the introduction of an extra 3% surcharge on Stamp Duty for anyone buying a second (or additional) residential property.

The newspaper headline-writers would have us believe that the extra Stamp Duty, together with this April’s reduction in BTL mortgage interest tax relief, has prompted landlords to sell up and leave the sector in droves. Back in November last year, the Residential Landlords Association published a press release stating that a quarter of respondents (in its survey of a thousand members) had either sold a property or were in the process of selling one. This month, the RLA issued another announcement, stating that  22% of the members participating in its latest survey planned to sell at least one of their properties over the next 12 months. However, a similar number – just under 20% – were planning to acquire more.

This second part of the statement is important. The headline-writers fixated on the 22% leaving the market but few picked up on the more nuanced view. The fact that almost as many were planning to expand their portfolios went almost unremarked. That’s possibly just because bad new sells papers, but it’s important not to be swayed by  that. The reality we see on the ground is very different.

A Changing Pattern

Looking across the UK as a whole, ignoring those all-important local market details, the RLA is no doubt right to point to the high rate of sales of BTL residential property. What is much more debatable is what that actually means.

In our experience, it certainly does not mean that landlords have stopped investing. If local activity can be taken as any indication, what it really means is that they are shifting their sights to alternative forms of property.

The rationale for that is simple: there are very few credible alternatives.

With considerable uncertainty still surrounding Britain’s future place in Europe, investors seem wary of investing in commercial property. The economy is languishing at the bottom of the G7 table and there are few signs of any immediate change in its status. For the time being, investing in the fortunes of British business would strike many as a brave bet, whether that’s in the form of commercial buildings or stocks and shares.

Likewise, there is nothing to be gained from ordinary high street savings accounts, which are currently producing sub-inflation returns. In real terms, money in the bank is losing value every day.

Investors know this, and they know from experience that property is a good long-term performer. Historically, it has always done well and – when viewed in the long term – it has been much less susceptible to volatility. Capital appreciation has generally been good and – importantly – property delivers the added bonus of a substantial monthly income. Rental returns remain healthy; indeed, the Homelet Rental Index found that they rose by 2.4% in August alone.

So if property remains an attractive option but the Government’s policies have made residential investment less attractive, where are all the landlords going?

To judge by the enquiries we’re seeing every week, a significant number of them are moving towards student accommodation. It’s a subject we’ve covered before, but the reliability and profitability of such properties continues to attract interest and generate sales.

In Chester and elsewhere, landlords appear to be acting on sound advice: not to sell a property until they know they can find a better home for their money. Shares are risky, and selling up and putting cash in the bank is a recipe for losing out. Given the history of property, a calm, analytical response makes sense. If you’re looking to achieve a better return on whatever assets you have, consider the options carefully. Do the research and look around for high-yielding properties; study the local conditions and satisfy yourself that there is proven and consistent demand for the kind of property you are considering.

In many cases, student accommodation might be the answer. Many North West investors have certainly arrived at the same one, but – as ever – local market conditions will determine the best opportunities. For some, that might be a new student flat; for others, an HMO, a family home or a high-spec residential apartment in a salubrious part of town.

Just as there’s no single set of national statistics that can identify a good investment opportunity,  so there’s no single answer to the question of which investment is right for you.

* *

If you’re considering an investment and you’d like some free, expert professional advice, please call our customer support team on 01244 343 355.

Legal Compliance: Help for Landlords

If you’re a landlord or a property investor and you keep an eye on the property media, you’ll know what a tightly regulated sector this is.

To begin with, there are many well-established and largely well known regulations governing the fitness and safety of properties in the private rented sector; important and necessary regulations that exist to protect lives and wellbeing. In addition, there are numerous financial regulations that affect everything from buy-to-let mortgage applications to tax relief, tax reporting and the timeliness of payments.

Any landlord operating in Britain will soon become be familiar with most of these. Nevertheless, stories about prosecutions often make the news, so there are clearly still those who fail to comply with everything they should.

Some prosecutions will doubtless be deserved, yet the resulting media coverage can paint a very distorted picture. ‘Rogue landlords’ represent only a tiny fraction of the sector as a whole. The vast majority of housing providers are diligent about meeting their many obligations, and they want nothing more than a settled, happy relationship with their tenants. No one wants to face disputes, void periods or legal action, so mutual respect is in everyone’s best interests.

Landlord regulations: a changing landscape

However, legal difficulties do sometimes arise, particularly when new regulations are introduced. Sometimes, especially in the case of small-scale investors who might well have many other family and professional responsibilities, staying abreast of all the legal requirements can be a challenge.  It’s certainly not an impossible task – many thousands of people do it every year – but keeping yourself informed is an important and ongoing responsibility.

Since 2016, the private rented sector has faced a barrage of new tax rules, some of which have been politically motivated, with the undoubted aim of skewing the market in favour of home buyers rather than investors. However, while measures such as the 3% hike in Stamp Duty might have put a new focus on tax costs and profitability, they are at least relatively easy to recognise and to follow.

More tricky are introductions of new sector-specific landlord regulations, many of which occur at the start of each new tax year. In April 2017, for example, new rules came into effect under the Housing and Planning Act 2016. They allow local authorities to impose fines of up to £30,000 for various offences – including (amongst others) failing to apply for an HMO licence, and breach of a Housing Health and Safety Rating System  enforcement notice.

This new ruling came into effect at the same time as several other changes, including the much more widely publicised reduction on mortgage interest relief. These changes followed others in October when, amongst other things, landlords were required to install smoke alarms on every storey of their rented living accommodation, and a Carbon Monoxide alarm wherever a solid fuel appliance is used.

Keeping constant tabs on every changing regulation is difficult, and what’s more, the requirements vary across the UK. Rules that apply in England may very well be different in Scotland or Wales.  Only this month, the Scottish government published new guidance for local authorities explaining new landlord registration enforcement rules. The Landlord Registration Statutory Guidance seeks to raise standards in the sector by requiring local authorities  to maintain a register of ‘fit and proper’ private landlords. Those that fail to register – or to meet the necessary standard – can expect difficult times ahead.

Getting Support:

Fortunately, the challenges that landlords face are not being ignored. A number of important public and professional bodies have published tools to help the hard-pressed investor.

The website features many useful tools, tips, webinars and advisory notices for landlords. For example, its “Help and support for landlords” page features webinars on subjects including property income, expenses, profits and losses, and tax relief on loans and mortgages. There are also online courses and links to videos about self assessment and property-related tax returns. The HMRC’s Property Rental Toolkit is also freely downloadable; a PDF that sets out advice for tax advisers and offers advice on risk mitigation as well as a checklist for property rental income.

The Residential Landlords Association (RLA) also offers various forms of support. For example, in the wake of the Grenfell Tower disaster, it produced a fire safety foundation course that can be studied online. (The cost is £14 for non members and £11.20 for members.) It notes that: “legislation on fire safety is complex with different buildings/property types being subject to different laws and regulations.” In an effort to clarify things, it has devised a course that provides a basic overview of legislation and how the different forms relate to different types of property. It also suggests some practical fire safety tips and shows how to conduct a meaningful fire risk assessment.

This is just one of many online courses available on the RLA website. They also examine other landlord regulations such as the laws on deposits, lettings compliance issues, immigration law and ‘right to rent’.

Online tools such as ‘Landlord Secure’ and ‘LateRent’ are also now available to help landlords to conduct credit checks on prospective tenants, and to track those with a history of late payments.

In short, landlords face a continuing obligation to understand and comply with all the relevant legislation within their sector, but there are resources available to help them cope. Nevertheless, it does require a conscious effort to recognise regulatory changes, and this effort must constantly be maintained.

Future Changes:

Looking ahead, there are more changes in the pipeline. In June, for example, the Government published proposals to limit tenancy security deposits to a value not exceeding one month’s rental payments – half the amount currently allowed.

Tax reporting will also change. The government’s plans to introduce quarterly tax reporting this year were postponed due to its unexpected failure to secure a Commons majority, but its imposition seems to be a matter not of ‘if’ but ‘when’. Certainly, elements of it are already scheduled to come into effect in 2019 with respect to VAT-registered firms. The website notes:

“A number of concerns about the pace and scale of change have been raised. As a result, the government has announced that the roll out for Making Tax Digital for Business has been amended to ensure businesses have plenty of time to adapt to the changes. Businesses will not now be mandated to use the ‘Making Tax Digital for Business’ system until April 2019, and then only to meet their VAT obligations.”

By 2020, the majority of businesses and self-employed landlords will be expected to submit quarterly self-assessment tax returns using HMRC software.

These are two examples of forthcoming changes but the sector can expect more. The Grenfell fire disaster might well prompt new guidance on fire safety and, with party conference season approaching, property investors can expect the question of housing to be high on all the main parties’ agendas.

Compliance and Confidence:

For those investors who lead busy lives – or for those who just don’t want the burden of having to stay on top of all the associated legal obligations – one obvious answer is to appoint a lettings agency. As property experts with a vested commercial interest in maximising their clients’ profits, lettings agents are ideally placed to identify (and provide solutions to) any legal compliance issues.

Delegating responsibility for compliance can be simple, convenient and cost effective. A good agent will keep you free from the threat of fines or prosecution, and ensure that your tenants stay happy – thereby minimising the risks of voids or late payments. What’s more, reputable agents know that their credibility rests on staying ahead of the game, so they’ll give their clients useful advance notice about forthcoming changes, and advise them accordingly.

For those who feel able to take more of a hands-on role with respect to rental collections, property maintenance, marketing and legal compliance, lettings agents can still be a valuable ally – an experienced advisor to call upon whenever a specific need arises.

* *

If you’re uncertain about the impact of current legislation or any proposed new regulations, please call our lettings team on 01244 343 355.