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Test Article -Multi Page Article – Student lets to generate 12%+ yield

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02/10/2012
Buy-to-let landlords investing in student accommodation could enjoy total annual returns in excess of 12% in 2013, outperforming every other commercial property class.

According to the report, Halls, hotels and care homes: the changing face of UK property investment, published by property advice website BuyAssociation.co.uk, student letting has outperformed every other commercial property class over the past year and delivered consistent returns throughout the economic downturn.

The report quotes property agent Knight Frank, which forecasts like-for-like rental growth of 5% from student property next year, and anticipates that total returns will exceed 12%. This prolific growth is echoed by figures from buy-to-let specialist Assetz, which show that investors in this sector are benefiting from net yields of around 6.5%, almost twice the average yields in the wider buy-to-let market.

The consultancy says that limited supply of purpose-built student accommodation, coupled with rising global interest in the UK’s educational excellence, points towards further strong rental growth in the sector. Its Student Property Index highlights the customer base for purpose-built student accommodation in the UK including a very high proportion of overseas students, and it foresees this demand continuing to grow as global student mobility increases further still.

Overseas students have a high tendency to choose purpose-built accommodation in the UK, for a variety of reasons, including security, location and facilities.

Click here to read the full report.

Between now and 2020 around 1.3m interest-only mortgages are expected to mature, but at present 1.04m have no final payment plan of any kind. This is around 10% of total outstanding mortgages in the UK.

The study also found that the bulk of the problem mortgages pre-date the financial crisis. In the past decade 1.28m of these mortgages were taken out, 14% of the total number of house purchase loans.

At the start of 2008 the interest-only market constituted 30% of all new house purchase loans but has rapidly fallen away, counting for around 10% of the market in the last 12 months.

Mark Blackwell, managing director of xit2, commented: “The interest-only problem is a big structural issue for lenders.

“Lenders have acknowledged the severity of the problem over the last twelve months, and tightened up lending criteria on their interest-only mortgages. But they’re just closing the door after the horse has bolted.

“The damage was done in the mid-2000s, when a third of new mortgages were interest-only. Interest-only lending has fallen sharply recently, but the outstanding balances are still very high thanks to the glut of lending prior to 2008.

“Identifying struggling borrowers is the hard bit. Lenders need help with it. Lots of interest-only lending prior to the financial crisis was done via specialist markets: sub-prime, self-certified and buy-to-let. It has left a challenging legacy of high-Loan to Value (LTV) interest-only loans with no repayment vehicle, and, just as worryingly, a lack of data about the customer. Lenders need to assess the problem quickly and act decisively.”

The NewBuy scheme enables lenders to offer mortgages for up to 95% of the value of a newly-built property, partially underwritten by guarantees provided both by the government and the builder of the new home.

The seven-year deal is offered at 5.89% up to 96% Loan to Value (LTV) for first-time buyers and homemovers, fee-free and with £500 cashback.

Customers will be able to access the deal through the Halifax branch network and selected intermediaries.

Ian Wilson, head of sales at Halifax Intermediaries, said: “The long term nature of this deal will provide customers with the certainty of set monthly payments over a greater length of time; enabling potential buyers to purchase new homes they would have previously considered unattainable.”

In addition, Halifax Intermediaries has reduced its two-year fixed rates, including its 80-85% LTV to 4.79% and its 75-85% products for remortgages to 4.89%.

Halifax works alongside 23 of the UK’s house builders through the NewBuy scheme, providing 1 in 3 mortgages in the scheme so far.

The MPC minutes from September’s meeting – when rates were left on hold at 0.5% and the quantitative easing programme was left at £375bn – showed all nine members voted to keep the asset purchase programme where it was.

Members also unanimously voted for rates to stay where they are, but the minutes noted a number of members “felt that additional stimulus was more likely than not to be needed in due course”.

Martin Beck, UK economist at Capital Economics, said the minutes did little to diminish the prospect of further policy stimulus over the coming months, and he predicted a rate cut could be seen by November.

The firm’s National Mortgage Index found the rate of borrowers choosing fixed-rate products had risen by 3.8% to 83.1% during August, the biggest percentage since June 2009.

For remortgage customers the number of borrowers picking fixed-rates was at 84.2%, 15.8% higher than at the start of the year.

The survey said that this increase in fixed-rate sales was down to a fall in prices across the month. Both two and five-year fixers were down compared to July levels, with the average five-year deal falling 0.14% to 4.73% in August.

Across the market there was a dip in total applications during the month, 4.16% down on July figures, but the number of applications was 14% up on the start of 2012.

Brian Murphy, head of lending at Mortgage Advice Bureau, said:

“We saw a growing number of lenders releasing more competitive products as a result of the Funding for Lending Scheme.

“In particular, we’ve seen a marked increase in the number of fixed rates, demonstrating that borrowers are seeing real value in both the price and security they offer.

“In August, we saw an increase in competition among lenders both in terms of pricing and also in numbers, with the number of products available on the rise.

“As such we expect this will start having more of an impact on activity this month and that September will be a strong month in terms of new applications.”

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