Landlords set to take leading role

Lending Strategy March 2010

I’m going to give up talking about house prices and which way the market will go in the next few months. Trying to find a consensus among commentators on the topic is like trying to get everyone to join Team Katie rather than Team Peter.

For the record, I’m cautiously optimistic that we’ll see a small rise in the next year or so but a summary of recent expert views and data highlights the inconsistency.

Asking prices rose by 3.2% in the four weeks to February 6, according to Rightmove. This was the biggest rise in England and Wales since April 2007 and pushed the average cost of a home up to £229,398 - 6.1% higher than a year earlier. The average asking price in London climbed to a record high of £427,987.

But Nationwide told the Sunday Times that house prices could stay flat or even fall in 2011 and 2012 despite the recent rally, adding to fears of a double dip. It forecasts no growth for this year, meaning prices could stagnate for a full three years.

Meanwhile, figures from Halifax show the recovery slackened in January with a 0.6% rise in property values - the lowest for six months.

But Nationwide’s index is more bullish, showing house prices rising by 1.2% last month and up 8.6% year-on-year. It thinks house price inflation could top 10% next month before falling back as interest rates rise and unemployment bites.

Property specialist Jones Lang LaSalle expects prices to fall 3% this year while the Centre for Economics and Business Research has revised its forecast from a 4% to a 6% rise in 2010 on the basis that interest rates will remain low.

The CEBR also expects mortgage approvals to rise and while prices are likely to falter again in 2011, it says values will rise 20% by 2013.

So there you have it. A hopeless mish-mash and I for one am none the wiser. I wonder how many hours have been spent analysing the market to arrive at a these contradictory findings.

Anyway, having got that off my chest I’d like to turn to something even more contentious.

Many aspiring first-time buyers have been kept off the ladder by tough lending policies for the past two years and must now face the fact that they are likely to be in rented accommodation for the foreseeable future.

Some say that far from creating opportunities for bargain hunters the crunch has changed the market so fundamentally that renting is now the only option for millions. Typically, people won’t be able to buy until they are 38.

The combination of a continuing mortgage squeeze and a housing shortage means that in the next decade the private rented sector is destined to come to the fore, presenting an opportunity for buy-to-let investors.

Encouraged by the government, big institutional investors such as Aviva and Legal & General are already lining up to acquire suitable properties, as are existing landlords. Their numbers have begun to rise in the past few months, according to the Council of Mortgage Lenders which reported an 8% increase in buy-to-let loans in Q4 2009.

Yolande Barnes, director of research at Savills, has told The Times that renting will be the “tenure of the decade as lenders are not expected to return to 100% LTV deals in the near future”.

And Steve Morgan, chairman of builder Redrow, says the private rented sector could be a low-cost fix for housing needs in this country.

“If you have socially responsible landlords they will be fulfilling a market need,” he says. “This is a different approach to housing at a low cost to the public purse so it should be considered a good thing.”

There’s been a rise in demand for rental accommodation, with demand outstripping supply in parts of Sussex, Hampshire, Surrey, Hertfordshire, Berkshire, Buckinghamshire and Dorset, according to letting firm Leaders.

Although we are officially coming out of recession Leaders maintains that many people are still either unwilling or unable to take on a mortgage and are choosing to rent rather than buy.

Given that the availability of finance for first-timers has not improved significantly and is still stifling the sales market it is not surprising that we are seeing more demand for renting.

While research from the Association of Residential Letting Agents shows that 54% of landlords believe tenants are being forced into renting as they either can’t afford to buy, can’t find a competitive mortgage or are reluctant tenants unable to find suitable properties to buy Leaders believes a significant number simply prefer it.

So are we starting to see a shift away from home ownership in favour of a more flexible and carefree European-type lifestyle? If so, it represents a significant opportunity for lenders and brokers alike.