Build to Rent Should Feature Large in the London Housing Market if Property Developers Seize the Opportunity Offered by Government Initiatives

What is Build to Rent?

Build to Rent is a government initiative to encourage the building of more purpose-built rental properties in the UK.

Around 3.8 million households in the UK are in private rented accommodation. That’s about 16.5% of the population. There is no doubt that some people choose to rent for the flexibility it offers, or for financial reasons, or because they do not want the responsibility of owning their own property.

In recognition of the fact that private rented housing is likely to continue to be a growing part of the housing market, the government has been introducing measures to boost this sector as well as the house buying market.

  • Changes to Stamp Duty Land Tax implemented in 2011 mean that large-scale investors pay a typical 1% instead of 5% on large purchases.
  • A £1 billion fund for equity finance for house builders and developers.
  • A debt guarantee scheme to support the building of more private rented housing.

Build to Rent Funding

The Build to Rent Fund assists the new development of these purpose-built rental properties. The developer takes out the funding loan, builds the properties and then passes on the loan to a third party investor. This means less risk to the developer and avoids them having to wait to regain capital from rental payments – which could take many years.

The Government hopes that the first round of developments will provide high profile ‘show case’ developments that will be test-beds to prove the model. The theory is that this will encourage more developers to take up the Build to Rent scheme rather than the more traditional one of selling off the development piecemeal, either off-plan or on completion.

The Build to Rent Fund prospectus was launched on 20 December 2012 under the joint banner of the government and the Homes and Communities Agency, and the first 45 projects were confirmed in April 2013.  About a quarter of this housing will be in London, and in total are projected to support the construction of between 8,000 and 10,000 new private-rented homes.

Debt Guarantees for Developers

The private rented sector housing guarantee scheme provides a direct government guarantee on the debt property developers incur when investing in new privately rented homes.

The Government thinking is that by reducing the property developer’s borrowing costs it should increase the number of homes they can afford to provide.

The government application process for direct guarantees focusses on applications that comply with the government scheme rules. Developers are expected to demonstrate a robust rental demand with a viable exit strategy, a solid management structure, and suitable asset cover,

If you are developer who is interested in the scheme you can find out more on the Homes and Communities website http://www.homesandcommunities.co.uk/ourwork/private-rented-sector or email housingguarantees@communities.gsi.gov.uk to discuss a specific proposal.

Private Rented Sector Taskforce

There is an expert panel to oversee the scheme. The Private Rented Sector Taskforce consists of developers, management bodies and institutional investors, who aim to support the expansion of the build to let sector.

The Taskforce is headed by Andrew Stanford, who is the former Head of Cluttons Residential was MD and founder of property and asset management company Stanford Mallinson.

Other Taskforce members are:

Julian D’Arcy of Kirkby Capital, a former regional chairman and proprietary partner at Knight Frank

Joanna Embling, a property consultant and chartered surveyor, specialising in urban redevelopment and a former equity partner at Cushman Wakefield

Tracey Hartley, a specialist asset manager for large scale residential landlord Grainger plc

Dominic Martin, senior analyst at EC Harris and a qualified surveyor

So 2014 could be an interesting place for property developers who are willing to embrace the scheme. For advice on property investment and the rental market please get in touch with Riley Marshall on 0207 394 1160.

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Housing Developers Needed as Property Demand Swells in the UK

Help to Buy Numbers Treble

According to a report from RICS (Royal Institute for Chartered Surveyors) the Help to Buy numbers trebled in the last two months of 2013, so will demand outstrip supply in the UK this year?

A report by the NAEA (National Association of Estate Agents) following their recent member’s survey states that during November its members sold an average of nine homes per estate agency branch, and on average two of those were Help to Buy purchasers.

The Help to Buy initiative launched at the beginning of October 2013 and we dealt with the different Government housing market schemes in our earlier blog post.

Nationally more than 2000 people took advantage of Help to Buy in the first month after launch – by December that figure nearly tripled to 6000. These new mortgages will equate to around £1 billion of new lending to homeowners who may have been deterred or prevented from borrowing because of the need for a lump sum for their deposit before a mortgage company will lend money.

David Cameron Comments on the Increased Demand for Housing

Prime Minister David Cameron hopes many more people will be persuaded to get on the property ladder in the New Year, giving the property market and the wider economy a welcome boost

RBS, HSBC, Lloyd’s, Virgin Money and Aldermore are already offering these mortgages but they will soon be joined by Barclay’s and Santander who plan to introduce their own Help to Buy products this month.

The property market will no doubt continue to heat up as we head towards one of the busiest times of year and Cameron observes:

“. . . too many people have found themselves frozen out of the market in recent years as a result of the size of the deposit required.

That is why as part of our long-term economic plan we introduced the Help to Buy scheme, so hard-working people with sufficient earnings can get on, fulfil their aspirations and enjoy the security of owning their own home.”

UK Economic Growth Relies on a Booming Property Market

The UK economy is so dependent on a raising property market that the Government is always under pressure to find ways to keep the figures rising upwards, but if the market gets too hot it could cause a bubble that would be very painful for our recovering economy if it should burst.

RICS senior economist Josh Miller warns:

“The pace of demand is exceeding that of supply in every part of the country. Clearly the momentum in the market is growing. Help to Buy, funding for lending, and the clear commitment to keep interest rates low for a long time, all three are having an effect.”

Build More Housing to Stabilise Economic Growth

The best way to stabilise the market is to increase supply so that it tracks this increased demand. Providing that buyers can afford to purchase we are unlikely to ever have a situation where available housing stock outstrips demand in London. Therefore building more housing is the answer to increased, gradual and sustainable economic growth in the Capital.

The Shadow Housing Minister Emma Reynolds comments that:

“Any help for first-time buyers struggling to get on the property ladder is to be welcomed.

But rising demand for housing must be matched with rising supply if this scheme is to bring the cost of housing within the reach of low and middle income earners.”

It is certainly true that without a reliable release of new more affordable housing onto the market that the housing ‘bubble’ will stall and even burst, if house prices rise sharply in response to this increased demand. This could spell economic disaster for all of us.

Help to Buy Explained

7003Help to Buy

There are two strands to the Government’s Help to Buy scheme, Equity Loan and Mortgage Guarantee. Both are designed to help people to get on the property ladder, even if they only have access to a limited lump sum for a deposit.

Equity Loan 

The Equity loan scheme was released in April 2013 and applies to new build properties only. It is available to first-time buyers but also to those who are already homeowners and looking to move. The value of the house or apartment must be less than £600,000. While this may seem counter-intuitive it does help the housing market by enabling developers to sell properties of varying sizes and keep the housing market moving.

Buyers are required to raise 5% of the total capital as a deposit, the Government then subsidises up to 20% of the value as a further deposit on top of that raised by the buyer. This means that the buyer has access to a deposit of 25%, which in turn allows them to access better mortgage rates.

The really good part about the deal is the cost of the money that come s from the government. It is provided interest free for the first five years. The following year interest will be charged at 1.7% rising by a further 1% of that amount each year plus inflation every year after that.

Borrowers can repay the loan at any time, without penalty. The idea of this is to encourage buyers to pay off the initial loan and put the money back in the pot for the next wave of buyers.

One cautionary note about the scheme is that if you do not repay the government’s part of the loan before you come to sell the property, then the government retains a percentage stake in the property, equal to the amount of loan outstanding. This is calculated at the current market value of the house

Example

You buy a property for £100,000
You raise £5000 as a deposit
The government pays a 20% deposit of £20,000

You pay nothing back to the government and

Five years later you sell the house for £120,000
he government reclaims £24,000

Obviously if the house were to double in value, then the 20% stake doubles to, so £20,000 becomes £40,000

Not all lenders are participating in the equity scheme but you can find out more about participating Help to Buy lenders here.

Mortgage Guarantee 

This is the second phase of Help to Buy, and it came into effect in October 2013. Buyers will still need to raise 5% of the mortgage value as a deposit. The government then guarantee a further 15% of the value to bring the total deposit up to 20%.

This is designed to give mortgage lenders the confidence to lend money to buyers who would otherwise only have a very small deposit. Apart from Natwest, Halifax and HSBC, most lenders are yet to release their rates for these Help to Buy Mortgages, and are not likely to publish details until early in the New Year.

The major difference for this scheme rather than the equity one above is that this arrangement is available for existing properties and is not restricted to new build. There is still a maximum price ceiling of £6000,000, and you cannot use it for a new home, under a shared ownership scheme or to get yourself an investment property.

The administration of the scheme will be very easy for buyers. Although you will have to sign some paperwork in relation to the scheme, most of the mechanics are dealt with by the lender and the government between themselves.

Anyone wishing to apply for either of these schemes will be subject to the same credit checks as they would with any other mortgage application. So you will have to prove you can afford the repayments and have an acceptable credit record.

­Click here to Find out more about Help To Buy.

Other useful sites include the Governments site: https://www.gov.uk/affordable-home-ownership-schemes

Rightmove also have some really useful information: http://www.rightmove.co.uk/help-to-buy.html

Development Jobs Set to Boost Housing in East London

The Royal Docks is to become home a New Business District - the Biggest UK Development to Date

East London’s Royal Docks have attracted Chinese business Investment to Develop the Area (Image courtesy of the Royal Docks Trust)

The London borough of Newham is set to become the next property hotspot following an announcement by the Mayor Boris Johnson of plans to develop the land north of the Royal Albert dock as a business district set to be worth £6 billion to the UK economy. The site will be developed by ABP China (Holding), a successful commercial developer, who have estimated creation of 20, 000 jobs in this region in what will be the biggest shift east since Canary Wharf was built in the 1990’s.

The development land, which comprises some 35-acres, is situated in the heart of Royal Docks Enterprise Zone and is owned by the Greater London Authority. ABP will be aiming the majority of the business at Chinese and other Asian businesses looking to establish headquarters in our capital as a gateway to Europe. It is the first direct investment by a Chinese developer in London. When it is completed it will provide over 3.2 million square feet of work, retail and leisure space.

Mayor of London, Boris Johnson, said: “For centuries the waterways of east London were the throbbing arteries of UK trade and commerce. This deal symbolises the revival of that great era, continuing the re-invention of this once maligned part of the capital into a 21st century centre of trade and investment.

Creating a third financial district in the capital, this development will act as a beacon for eastern investors looking west, bringing with it tens of thousands of jobs and billions of pounds of investment for the UK economy.”

This will make it the largest UK development of its kind, which is great news for the borough, which has also benefited from the successful and on-going regeneration of Stratford, following the Olympics in 2012. The hope is that the site will boost local employment by some 30% and generate around £23 million in business tax alone, and in addition it is expected to act at a catalyst for further development in the area. It is certainly likely to see an increase in new homes developments to service the area as it grows.

Sir Robin Wales, Mayor of Newham said: “The Royal Docks Enterprise Zone offers an unrivalled investment opportunity and this deal further strengthens Newham’s growing reputation as an ideal destination for international business.

We welcome ABP’s ambitious vision for the Docks which are already home to London City Airport, the University of East London, the Siemens Crystal and the Excel. ABP’s proposals will bring further investment from abroad and unlock future development. It will also create benefits for local people by providing thousands of new jobs and further enhancing the waterfront for people to enjoy.

Newham will work closely with ABP and their UK development partner, Stanhope, to ensure that as many of these jobs as possible are accessible to local residents. Our successful Workplace jobs brokerage scheme is ideally placed to ensure this happens.”

Developers, ABP, have recently completed a large development in Beijing, and they are currently working on a 75 million square foot development in Shenyang in north-eastern China. They will be working with UK developers Stanhope and architects Farrells, and they predict the first occupiers will move in in 2017.
It is the latest in a string of investments in the area including exhibition space at the Siemens Crystal Centre, Emirates Air Line – the UK’s first urban cable car, and new homes development along Great Eastern Quay, and Silvertown Quays. There are also future plans to create the UK’s largest floating village at Royal Victoria Dock. Transport links to the area will be enhanced by the new Crossrail station coming to in 2018.

Chairman of ABP, Mr Xu, said: “I am very pleased and very proud that my company ABP has reached this agreement for the Royal Albert Dock with the Greater London Authority. This project will be hugely significant for both the Chinese and UK economies.

My vision is to develop a world class international business district which will initially target Asian businesses to help them secure a destination in London, which in China is seen as the gateway to both the United Kingdom and the wider European economy.  Our plans aim to strengthen trade between east and west, provide new local jobs and deliver benefits for the wider London and UK economy.”

Tenant Admin Fees Guide for Tenants

Estate Agents fees need to be transparent

Letting Agents Need to Ensure Their Tenant Admin Fees are Transparent

Tenant Admin Fees are a Fair Way to Do Business

Housing Charity Shelter would like to see letting agents fees outlawed in England and Wales having already persuaded the Scottish Parliament to scrap tenants’ fees. We want to explain why this could be a bad thing for tenants.

The job of a letting agent is quite time-consuming and, as we know, time is money. It is expensive to rent property to tenants. There are many costs involved in setting up tenancies, and obviously the majority of these costs are borne by the landlord. However there are costs that link directly to a tenant including references, legal documents, and the time spent with tenants finding just the right property for them. All of these are legitimate reasons that the tenant should bear some of the costs of renting property, and are often charged as tenant admin fees, but perhaps the most relevant one is to ensure that the tenant is fully committed to the process.

Where a tenant does not pay any fees but decides to take a rental property the landlord often suspends marketing the property while the agent takes out references. (Even where marketing continues the agent is accruing costs by keeping that property on the market in terms of advertising and conducting viewings). There is nothing holding that tenant to the property and so in the meantime he finds another property that suits him just a bit better and so off he goes leaving the first landlord and agent high and dry.

Rising Costs Mean Rising Rents

Who should bear the costs of referencing the tenant, and any other legal and administrative work that has been undertaken by the agent? If it is the landlord then he will put his rent up, if it is the agent he will put his fees up, then landlord will then put the rent up.

With no fees charged to them the tenant could switch properties several times before committing himself, with no financial penalty at all. Most landlords will have experienced this problem even where the tenant has had to lose a couple of hundred pounds to move on to another property, so imagine how much worse this will get if there is no financial commitment on his part.

There is a myth that all landlords are rich, that all agents are rolling in money, and that all tenants are honourable people who are taken advantage of by sharks.

Most people are reasonably honest and respectable, and I include landlords, agents and tenants in this generalisation, but of course there is a measure of self-interest driving all of us, so if there is no concrete commitment in place there will be more timewasters costing the industry money, and so overall prices will rise, and this will mean that rents will rise.

In our opinion the only way to deal fairly with this situation is for agents to charge a reasonable fee for the work they do; to be open and transparent with their fees; and for everyone to keep to their side of the bargain.

Guide for tenants

  • Ask your Letting Agent what fees they charge before you view a property.
  • When you have found a property, ask for a written break-down of how much you will pay for the specific property you want to rent.
  • Check if the Agents charge for renewals, check out fees, and any other miscellaneous fees.
  • Make it clear to the Letting Agent that you will not pay for any charges that they do not detail in this initial exchange.
  • Ask for confirmation from the Agent, in writing, of all monies that you will be expected to pay including the rent up front and deposit so you are absolutely clear in your own mind what you will need to pay for.
  • Don’t commit to renting a property unless you intend to move into it.

It will be interesting to see how the Scottish system works out over a period of time, and whether in fact tenants are any better off due to this change in legislation north of the border.

If you want to find out more about becoming a tenant, and avoiding tenancy pitfalls check out the Top 10 things tenants should know, when renting a property on DIY Doctor’s project pages.

You can read more about Protecting yourself from Rogue Agents if you are thinking of renting a property.

First Sale for Riley Marshall

First house sale for Riley Marshall

Riley Marshall Directors Stephen Riley (left) and Bruce Marshall (right) with sales negotiator Shane Sutherland celebrating completion of their first sale

As a well-established Letting Agent with a great reputation for letting houses and flats quickly and professionally in South East London, Riley Marshall have moved into sales, and they are just celebrating their first success.

Following the creation of a new letting department the team have just cracked open a bottle of champagne to celebrate their first completion. The landmark sale is expected to be the first of many, as the house sales market is flourishing in South East London.

It made complete sense for us to be offering this service to complement our existing business, and increase the range of services we can offer to our clients” explains Director Bruce Marshall, “We knew the service would be in demand, and we are pleased at how quickly the sales department is growing following our soft launch earlier this year”

Riley Marshall have offices in Surrey Quays but they are also well aware of the importance of the internet when it comes to marketing property effectively for their clients. London is truly an international city, so it is vital to have a vibrant online presence to ensure that the office is open globally at all times.

Director Stephen Riley is busy updating the website at the moment and the new site is due to be launched later in the summer, it will boast a host of new features to ensure that customers get exactly what they want online. Stephen says “we know our customers are already happy with the service we offer in person and we want to match that with a new interactive website, that brings the business right up to date”.

If you want to talk to Riley Marshall about selling or renting a property please get in touch with us on 020 7394 1160. We are particularly keen to hear from developers, as we have an excellent track record of beating expectations when it comes to working with local and internal development companies.

The great council house sale – news now in

1

Council Houses are sold off by the Government

The government has announced that the “Right to Buy” sales of council houses to tenants are at their highest level since 2007.

In April it will be 12 months since the government set out measures to encourage tenants to buy their council homes. The scheme introduced by the coalition raised the potential discount for tenants from £16,000to £75,000 in some areas. This has led to sales of nearly 3,500 homes, an increase of 30% on the previous financial year.

The ‘Right to Buy’ scheme offers tenants discounts of up to 60% of the value for a house and 70% for a flat, with a maximum discount of £75,000.

The final quarter of last year saw the biggest rise in the rate of sales – with tenants buying 2,010 properties between October and December 2012, double what was sold in the previous quarter.

Thatcherite legacy

This mass sell-off of council properties was last seen in the Thatcher era, and many people are worried that the policy will lead to a shortage of council and other affordable housing, however the government deny this.

According to the Government the resulting income of £210 million will be ploughed back into providing affordable rental housing.

The Market is picking up

The housing market has started to see some general improvements recently as lenders have been offering some of their lowest ever mortgage rates.

The New Buy scheme, launched last Spring, has helped to boost the housing market. In fact more than 3,000 homes also been reserved under the scheme which allows first-time-buyers to buy with just a 5% deposit.

The availability of mortgages has also increased since the ‘Funding for Lending’ scheme was initiated by the Government in August 2012. This basically gives lenders access to cheap finance in order to help borrowers to gain a mortgage.

This Government do seem committed to using the Housing Market to drive the economy forward and out of recession.