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Loans, Yields and More Numbers.

Friday, February 17, 2012 Posted in: Property Market Landlords

It is the season for mortgage data release. Every quarter, various bodies vie to try and generate headline grabbing nuggets of information that will win them publicity through publishing in the commentators journals. How are we to make sense of the information, often conflicting, that is coming at us from so many quarters? Here is a snapshot of some of the numbers put out in recent weeks.......... I hope they will help!

According to the Council of Mortgage Lenders, the numbers of properties bought with buy-to-let mortgages increased by more than 80,000 in 2011. This has helped to add to the total number of stock in the Private Rented Sector, now estimated at more than 16% of the total.

Paragon have pointed out that almost a quarter of all buy-to-let mortgages in the last period of 2011 went to first time landlords, and if Knight Frank can be believed, with average annual yields at 5.4% last year, and the FTSE All-Share index only yielding of 3.8%, it is hardly surprising that there are new players entering the market. Savills on the other hand are keen to point out that equity levels are increasing in the property market in general. Since 2001 mortgage levels have dropped from 60% to less than 46% in 2011. This may in part be driven by the extraordinary Prime Central London market where values have increased by over 11% in the last twelve months, largely because of the increase in Far Eastern money looking for a safe haven at a time of some turbulence in world markets. Most of the overseas acquisitions have been cash purchases and will have skewed the loan to value statistics.

It has been reported that in Greenwich yields are over 10% and in other hotspots in East London yields are over 9% (could this be an Olympic effect?) Here in Oxford, in recent years there have been bullish investors happy to purchase at 4% gross yield; it appears that they have been principally made up of parents buying property whilst their son or daughter is studying, and who retain the property after their child has finished. It will be interesting to see if the changes in planning locally will return the local market to a more realistic yield level, or whether the shortage of HMO stock will increase their capital value and therefore negatively impact on yield. So back to the mortgage data.......... During the fourth quarter of 2011, a total of 34,800 buy-to-let mortgages (of which 15,600 were remortgages) were advanced, with a total value of £4 billion. This was virtually identical to the volume of business in the third quarter (34,300 loans worth £4 billion) but up on the fourth quarter of 2010 (26,300 loans worth £2.9 billion). On the face of it these figures look like green shoots of recovery but compared with the height of the market in the third quarter of 2007, when quarterly lending totalled over 93,000 loans worth £12.7 billion, the buy-to-let market continues to operate at relatively subdued levels, but it is recovering from its low point in 2009.

Rental demand in Oxford remains at the highest in the last ten years. But rent increases across our portfolio are only staying in touch with inflation. There have been some increases over 10% in Prime Central North Oxford, where there is significant shortage of supply, but most of the city has taken increases of between 4 and 5%. We have noticed that there is less mobility in the professional market with renewal rates running at between 80 and 90% month on month in the last six months.

So what can be deduced form all of this? The only thing that I can be certain of is that every time I think that I know the Oxford market, something comes along that reminds me that I never will!

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