Attracting Large-Scale Private Rented Sector Investment

Bill Hughes, President of the British Property Federation

Bill Hughes, President of the British Property Federation

The UK’s housing crisis should not be understated. Not only does it represent one of the biggest potential drivers of inequality in the UK, but failure to address it could sabotage the UK’s economic recovery.

Increasing housing supply tops the priority list of all the major political parties, with the challenge – as set out recently by Labour – is to build 200,000 homes a year, across all tenures, by 2020. In any event, an overall shortfall will persist for another 10 years or more.

The Private Rented Sector (PRS) is clearly an important part of the supply side solution, both in terms of additional housing stock and affordability. The lack of mortgage lending at higher loan-to-value (LTV) levels is reducing the accessibility to ‘buy to occupy’ at a time when the growing population is continuing to put pressure on the chronically undersupplied housing market.

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Spring/Summer 2014: Processing The Profits

Kris Wadia, Founder of Humanized Leadership

Kris Wadia, Founder of Humanized Leadership

Businesses operating in the Private Rented Sector (PRS) can increase profitability through Process Improvements.

Let’s begin by understanding the state of the UK PRS in early 2014, using the limited, and sometimes conflicting, datasets available. The UK PRS demonstrates all the characteristics of an immature market in that:

  • 89% of landlords are private individuals and are responsible for 71% of all dwellings in the PRS (DCLG Private Landlord Survey 2010)
  • 78% of all landlords only own a single dwelling for rent (DCLG Private Landlords Survey 2010)
  • Only 8% of landlords stated they were full time landlords (DCLG Private Landlords Survey 2010)
  • There has been an increase, from 2,445,000 households in 2005 to 3,483,000 households in 2011-2012, within the PRS (DCLG Committee – First Report The Private Rented Sector).

The result? A cottage industry of individuals supplementing their income, or funding their retirement, through an investment vehicle that they manage on a part-time and ‘best efforts’ basis. This dysfunctional approach invites near daily newspaper headlines about rogue landlords, unsuitable tenants, dilapidated premises and increasingly stringent conditions on buy-to-let lending.

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Bank of England Announces New Mortgage Affordability Test

Mark Carney, Governor of the Bank of England

Mark Carney, Governor of the Bank of England

Mark Carney, Governor  of the Bank of England (BoE), has proposed a new mortgage affordability test to curb the proportion of home loans that can be lent  at more than 4.5 times their income. The measures are being touted as an attempt to prevent dangerous levels of household debt.

A consultation paper has been published today and will be open for comments until 31 August 2014 with the final rules will come into effect on 1 October 2014.

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Mortgage Market Review: What you need to know

Mortgage Market Review: What you need to know

Mortgage Market Review: What you need to know

What was the MMR?

The Mortgage Market Review (MMR) was a comprehensive analysis of the mortgage market. Following on from the MMR new regulations were implemented by the Financial Conduct Authority (FCA) on April 26.

Why was the MMR needed?

The MMR set out reforms to the current mortgage market to ensure its continued recovery and sustainability in the wake of the credit crunch.

Policy makers believed that the current regulatory framework was ineffective in keeping high-risk lending and borrowing in check. The policies stemming from the MMR will ensure that those who can afford mortgages can access them, while preventing a return to the poor practices of the past.

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Overhaul of Bank interest rate policy

Bank of England

Bank of England

Mark Carney, governor of the Bank of England (BoE),  has overhauled his guidance policy on interest rates as part of his latest inflation report. The governor had originally stated that a rate rise would not happen until there had been a fall in unemployment, but this policy has now been reviewed after the jobless level fell faster than expected.

The governor has reiterated that the BoE will take into account a number of economic factors before raising interest rates, these indicators would include wages, productivity and spare capacity within the economy.

Mr Carney was quick to point out that when rates increase, they will “only increase gradually”.

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Lending for the Private Rented Sector

Santander

Santander

At the end of 2013 Young Group used the Real Estate team at Santander to refinance one of our property portfolios.

Finance in the Private Rented Sector is a current hot issue and we thought it would be relevant to have a ‘Focus Feature’ article from a bank that is actively lending in our sector.

In 2012 and 2013 the Santander Real Estate team undertook a significant number of transactions in the PRS, with transactions ranging from £1m to £20m+. Whilst there is little doubt that the overall funding market is becoming more accessible to institutional borrowers, following the hiatus of the last few years, it is still not easy for the smaller, non-institutional borrowers to secure funding.

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In Conversation with… Jeremy Leaf

Jeremy Leaf

Jeremy Leaf

There’s a plethora of leading figures in the property, investment, finance and charity sectors who we’re regularly in conversation with, many of whom are guest authors for PRSupdate – and here we share more about them, their roles, priorities and backgrounds. If you would like to feature in this series, or to suggest someone who might, please get in touch through our contact us page or let us know on twitter.

Why not take a lucky dip into our In Conversation archives and discover:

Today we speak with Jeremy Leaf (Principal at Jeremy Leaf & Co) who is the ‘Focus Feature’ author in January’s PRSupdate newsletter.

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Moving Forward: London’s Private Rented Sector 2014

Neil Young, CEO

Neil Young, CEO

Every December, our guest authors take a break as I commandeer the final PRSupdate of the year. It gives me the chance to reflect on the previous 12 months and look forward to the challenges and opportunities that the year ahead might bring.

This time last year I summarised my thoughts on what 2013 would hold and, looking back, I’m pleased to report that the Private Rented Sector (PRS) has performed in line with expectations. London has seen continued rental improvements while our quarterly Young Index report shows that there is continued belief in London’s PRS with growing positive sentiment for the rest of the UK too.

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Economic Roundup

David Mackenzie, DIrector of Asset Management

David Mackenzie, DIrector of Asset Management

With the year coming to a close I thought I would take this opportunity to use the last PRSupdate of 2013 to focus on headline economic data and PRS statistics, and look at their implications for 2014.
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Delivering energy efficient homes for the PRS

Christine Hynes

Christine Hynes

At Climate Energy Homes we believe everybody has the right to a decent home – a well designed, well built and well insulated home that doesn’t cost the earth to heat and power.

We have specifically targeted the rental sector, both affordable and private, as we believe long-term investors are inherently more interested in sustainability from a quality and affordability perspective.

Climate Energy Homes is the result of 12 years work developing and refining our innovative and unique ecoTECH build system and a partnership with the Climate Energy Group and Climate Change Capital. Our pre-certified build system, using our own structural, super insulated panels, is purpose designed to meet Code for Sustainable Homes Level 4, 5 & 6 and the proposed Zero Carbon Homes standard. We will be able to meet these standards at a lower cost than, and in a build time around half that of, traditional construction methods.

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The latest edition of PRSupdate is now available

PRSupdate Autumn/Winter 2013

PRSupdate Autumn/Winter 2013

Here is the link our latest PRSupdate publication.*

This issue is packed full of articles examining the growth of the Private Rented Sector (PRS) and I hope you find it to be an interesting and informative read.

We’re particularly pleased that, as you’ll see from the cover, so many high profile individuals have written specifically for this issue on topics spanning build-to-rent, gross-to-net slippage, large scale residential investment, pricing strategy, operational asset management and much more.

Young Group is passionate about the PRS and works with developers, institutional investors, private individuals, corporates and housing associations.  Our consulting advice spans all aspects of the Private Rented Sector from strategic, operational considerations through to the day-to-day asset management of PRS holdings.

To keep on top of all things PRS-related, including the latest news, opinion and research, and to request future copies of PRSupdate by email or post, sign up to our new subscription management system.

If you’d like to discuss any of the issues raised in this publication, then feel free to contact us.

* You can download the publication by simply clicking Share and then the Download button (Please note: You must be logged in to do this).

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Analysing Private Rented Sector investment and yield

Neil Young

Neil Young

Current Private Rented Sector (PRS) market conditions are such that finding the next ‘hidden gem’ for an investor is proving to be a challenging task.

This is due to a continuation of overseas money chasing, and overpaying for, property situated in London. The factors that drive this situation are; favourable exchange rates due to a weakening pound sterling, favourable interest rates on debt (especially in the Far East) and capital protection in countries such as Greece, Portugal and Spain.

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Buy-to-let continued to grow in third quarter

Council of Mortgage Lenders

Image: Council of Mortgage Lenders Data

There was an increase of 8% in the value of buy-to-let mortgages taken out in the third quarter of 2012. The total taken out was £4.2 billion, an  increase on the £3.9 billion advanced in the preceding three months, according to data published today by the Council of Mortgage Lenders.

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The first appearance of the new housing minister

Mark Prisk MP

Image: Mark Prisk MP

As part of David Camerons’ cabinet reshuffle the 50 year-old MP for Hertford and Stortford, Mark Prisk, was moved from the Department for Business to become the new housing minister. With housing becoming a hot topic in the current economic climate this move generated more interest than it might have done in previous years.

During his first appearance the new housing minister, stressed the importance of how private funding will boost the numbers of affordable houses.

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The Prime Minister lays out plans to boost UK housebuilding

David Cameron

Image: Prime Minister, David Cameron

“The measures announced today show this Government is serious about rolling its sleeves up and doing it all it can to kick-start the economy. Some of the proposals are controversial; others have been a long time in coming. But along with our Housing Strategy, they provide a comprehensive plan to unleash one of the biggest homebuilding programmes this country has seen in a generation. That means more investment around the county; more jobs for our people; and more young families able to realise their dreams and get on the housing ladder.” David Cameron, Prime Minister

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