Buy-to-lets to lead the way in 2012
This summer, the UK will play host to the much-hyped London 2012 Olympics, with the hope that the economy and the property market will have regained their footing in time for the games.
However, experts are warning that this won't be the case, with the housing market likely to continue its lacklustre performance. In fact, many data providers and economists believe house prices are likely to remain at their current levels, as the deteriorating economic environment casts a shadow over the market.
In 2011, experts predicted a wide disparity in price movements across the country, with London experiencing the biggest gains. They've been proved right: data provider Acadametrics reports house prices in London rose by 3.1% in the 12 months to the end of November last year, but in all other regions of England and Wales values fell.
In addition, property website rightmove.co.uk says house prices in the south of England are now double those of the North and Wales - with this divergent trend set to continue into 2012 and beyond.
Estate agent Strutt & Parker goes a step further and labels this year as "the year of the great divide" - between the North and the South, and between London and the rest of the country. The capital, in particular, is expected to outperform every other region in 2012, with prime and super-prime property forecast to prop up the market.
Meanwhile, the buy-to-let market looks set to flourish. The rental market saw strong growth last year - rents in England and Wales rose for the ninth consecutive month in October, according to LSL Property Services – due to continued downward pressures on first-time buyers.
The National Association of Estate Agents reported that the number of house sales to first-time buyers fell to a three-year low in October.
As a result, average rental prices will increase by around 3 to 4% in 2012, according to Martin Bikhit, managing director of central London estate agent Kay & Co. Stuart Law, chief executive of Assetz, goes further, saying rents will continue to grow strongly at around 5% plus, as restricted mortgage lending and poor employment prospects leaves a "whole generation of potential first-time buyers with little prospect of buying a home".
He adds: "Consequently, landlords are set to benefit from another year of strong yields, albeit alongside only modest capital growth."
Top five buy-to-let mortgage deals
|Principality BS||2.84%||Base rate plus 2.34% until 31/12/13||60%||2.5%||Free valuation. Free legal
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|Coventry BS||3.49%||Base rate plus 2.99% capped at 4.49% until 31/12/13||65%||£1,249||Free valuation. Free legal
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|Market Harborough||4.15%||1.34% discount for term||70%||£895||Refunded valuation|
|Nottingham BS||4.49%||Fixed until 01/02/15||75%||£1,299||Free valuation. Free legal
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|Leeds BS||5.99%||Fixed until 28/02/14||80%||£199||Free valuation. Free legal
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Source: London & Country, 11 January 2012
Caroline Kavanagh, group lettings director of Townends estate agents, says: "Mortgage finance has eased within the buy-to-let market, providing those wishing to invest with greater opportunity." As other investment options continue to give little in return, Kavanagh predicts property will become an increasingly attractive and a viable longterm investment.
Phil Rickards, senior manager at BM Solutions, the buy-to-let arm of Lloyds Banking Group, cites a high level of confidence among landlords, "robust" tenant demand and homeowners choosing to let their property rather than sell it as reasons for a strong buyto- let market in 2012. "One of the most positive impacts on the market in the past year has been an increase in competition," he adds. ‘We've seen some lenders return to buy-to-let, and we've also been joined by some new entrants. This is really good news for the market as a whole."
However, Paul Diggle, property market economist at Capital Economics, says that while buy-to-let demand has been the "one bright spot" of the stagnant property market, the negative outlook for the UK economy is likely to keep a lid on the market. "Landlords are not immune to the problems of the wider economy," he says. "Job losses, negative pressure on wages and rising rents mean we are less bullish on both the rental and the buy-tolet market."
In terms of house price predictions, Law forecasts a house price increase of 3% in 2012. "The property market in 2012 is likely to continue in a similar vein as it has both in 2011 and in 2010, with relatively fl at house prices buoyed overall by a strong performance in key locations, particularly London and upmarket commuter hotspots in the South East," he says. Lee Watt, managing director of estate agent Kinleigh Folkard & Hayward, is also pencilling in an overall increase of 1 to 2%.
Others aren't quite so bullish, though. Economists at Schroders are forecasting a 6% drop in house prices, dragged down by falling prices in the north of England, while both Nationwide and Halifax, which publish monthly house price indices, admit prices will continue to remain sluggish and mostly flat in 2012.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
All investment returns are measured against a benchmark to represent “the market” and an investment that performs better than the benchmark is said to have outperformed the market. An active managed fund will seek to outperform a relevant index through superior selection of investments (unlike a tracker fund which can never outperform the market). Outperform is also an investment analyst’s recommendation, meaning that a specific share is expected to perform better than its peers in the market.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.