Young Index Q2 2013 Results
July 19, 2013
Each quarter, through Young Index, Young Group polls investor sentiment among 500 of its Private Rented Sector (PRS) investment clients who hold UK property assets.
APPETITE TO INVEST IN THE PRS
Just 13.1% of respondents said they expect to add assets outside of London to their Private Rented Sector (PRS) property portfolio. This is continues the downward trend of the past 12 months.
However, half (50%) of the investors we questioned said that they were considering purchasing additional PRS assets in London over the coming 12 months.
There is a strong positive sentiment for PRS assets, irrespective of where they are located. Of those questioned only 4% stated that they were considering selling PRS assets:
2% were considering selling property assets for cash, most likely looking to take advantage of buoyant house prices.
2% would reinvest the proceeds from the sale in stocks and ‘alternative investments’.
Over the past 12 months, respondents’ expectations of the capital value movements of London based property have remained buoyant and there is positive sentiment for residential property values.
A full 100% of respondents predict that capital values will remain at their current levels or increase further.
There was a marked leap in positive sentiment for property outside of London too, with 84% of respondents expecting capital values to increase.
This is more than double that of a year ago (41.3%) and shows that there is belief that the returning strength of the UK housing market will continue into 2014.
The number of investors predicting that rents will continue to increase across London has remained constant. This quarter, 96% of investors expect London rents to rise over the coming 12 months. This figure is on par with the results from our Q2 2012 Young Index in which 98.3% of respondents predicted that rents would continue to rise.
Sentiment for the rental market in the rest of the UK has continued to strengthen. 84% of investors expect rental income to remain buoyant, a 6% increase on Q2 2012.
COMMITMENT TO THE PRS
Investors continue to remain committed to reaping the benefits of long term investment in the Private Rented Sector. 30.7% of investors are intending to hold their properties for at least the next 20 years and 57.7% for at least the next 10 years.
For the second year the average future hold period has increased to 15.8 years. When combined with the average period landlords have currently held property for, the average life span of a property holding is 24 years.
61.5% of respondents expect that, for the next 12 months, the Bank of England Base Rate will remain static at 0.5%. In Q2 2012 65.5% of landlords expected the base rate to remain static. This shows that there is a small increase in the number of landlords preparing for an increase in the Base Rate.
The average Base Rate expectation for Q2 2014 is 0.69%. When compared to the data from 12 months ago (0.57%) we can see that, on average, landlords believe the base rate will increase by greater amount than they did in 2012.
When it comes to mortgages there are signs of increased activity, 16.6% of respondents review their mortgage at least every 6 months while the majority of respondents (58.3%) review their mortgage every year.
38.1% of the investors questioned had refinanced a property within the last 18 months with 9.5% of them having done so within the last 3 months. The largest cohort of investors (40%) have a Loan To Value (LTV) of 75% while the average LTV is 67%.
REASONS FOR INVESTMENT
When asked about returns from investing in the PRS, the results showed that rental income (13.6%) was less important than capital growth (45.5%), highlighting the fact that landlords are investing in the PRS as part of a long term plan.
When asked about their reasons for investing in the PRS the top two reasons were that it outperformed other asset classes (32%) and as part of pension planning (36%).
64.3% of respondents believe there is currently adequate regulation of the Private Rented Sector. 14.3% believe landlords should be regulated while 35.7% believe that agents need greater regulation.
LONG TERM FOCUS
- 96% of landlords intend to hold their property for the next 12 months.
- 57.7% intend to hold their property assets for the next 10 years or more. 30.7% intend to hold their property assets for the next 20 years or more.
- 15.8 years is the average future hold period that residential landlords expect to retain their property assets for.
APPETITE FOR INVESTMENT
- 50% of investors are considering purchasing additional residential property assets within London over the next 12 months.
- 13.1% of investors are looking at opportunities in the UK outside of the capital.
CAPITAL GROWTH & INCOME
- 100% of respondents believe that London property values will be at current levels or higher by Q2 2014.
- 84% expect values of UK property, outside of the capital, to be at current levels or higher by this time 2014.
- 96% of respondents expect rental income in London to rise over the coming year.
- 84% of landlords expect UK rents outside London to rise over the coming year.
FUTURE BASE RATE EXPECTATION
- 61.5% of investors in the PRS expect the Bank of England base rate to remain static for the coming 12 months.
- 0.69% is the average expected Base Rate to be for at Q2 2014.
- 64.3% believe there is adequate regulation.
- 14.3% believe landlords should be compulsory made to be part of a regulatory scheme.
- 35.7% believe agents need to be more heavily regulated.