Private Rented Sector (PRS) Report: Young Index Sentiment Survey, Q4 2010

This quarter’s Young Index sentiment survey charts continued optimism from investors in the Private Rented Sector. Price and rental expectations for property in London over the coming 12 months both remain buoyant. However, access to finance is still a barrier to additional PRS investment; in fact, it’s top of investors’ Christmas Wish List this year.

Residential Property Price Sentiment
Property in London is expected to continue to outperform the UK as a whole over the next twelve months. 89% of respondents to the latest Young Index sentiment survey believe that London residential property prices will be at current levels or higher by this time next year, a rise of 16 percentage points on Q3, and the highest sentiment seen since the credit crunch kicked in. Overall, the investors who were questioned predict that prices for London property will see an average increase of 4.5%.

The expectation for residential property prices outside the capital is not as rosy; only 44% expect prices to be at current levels or higher by the end of 2011, representing a slight fall in sentiment from the 46% who expected prices to hold up when questioned in Q3 this year. Overall, respondents predict that property prices outside the capital will fall by 0.6% over the course of the next 12 months.

Neil Young, CEO of Young Group, comments; “The market consensus is that prices have been stabilising in recent months and in some locations, falling back. It is likely that 2011 will present a similar picture, as access to finance remains an issue and the demand from purchasers remains subdued, but it is clear from the latest Young Index results that sentiment among residential property investors is becoming increasingly positive, at least for those with assets in London.

“However, generalisations are fraught with danger and some local markets will outperform the average by quite some distance. I would expect prices in well-connected areas of London such as SE1, N1 and the City postcodes of EC1-4 to hold up well relative to the wider picture, and I would not be surprised for prices of the best quality stock close to the transport hubs to experience a small year-on-year increase, as reflected in this quarter’s index.”

Investment Outlook
32% of investors are considering purchasing additional investment property in London during the coming 12 months, continuing the downward trend of the past 12 months, but at a slackening pace. In comparison, only 11% of respondents are considering making a UK investment property purchase outside of the capital, once again widening the gap in investor sentiment between London and the rest of the UK.

Investors increasingly see residential property as a long-term asset class. Only 2% of investors expect to exit residential property investments within the next 12 months. 65% intend to hold their assets for at least 10 years (up from 54% in Q3) and, on average, investors now intend to retain their residential property investments for 14.5 years, an increase of almost 2 years from the previous quarter’s poll.

Confidence in the Rental Market
Young Index results for Q4 show that investors in the PRS remain confident that the buoyancy in the rental market will continue. 86% of respondents expect rents in London to rise over the coming 12 months and 77% expect the same to be reflected in UK location outside of the capital.

With the mortgage market remaining a closed shop to many would-be first time buyers, the pressure on the Private Rented Sector is only likely to increase. This, coupled with the underlying demographics of increasing housing demand – at a time when the supply of new homes remains at an all time low – means that the current upward pressure on rents is likely to continue well into 2011.

Finance
For the second year running it seems that all PRS investors want for Christmas is a wider choice of appropriate mortgage finance.

It was the top choice with an increasing number of investors; 54% put it top of their wish list (compared to 39% in Q4 2009). Perhaps in response to recent housing price data, which has seen small falls in some areas, ‘house price stability’ crept up to second place from last year’s number three position.

Despite recent rises in unemployment, ‘job security’ was less important to investors this year indicating that there is perhaps waning uncertainty over employment in the minds of residential property investors. Those choosing ‘job security’ as the most desirable option fell by 17 percentage points from 27% to just 10% in the past 12 months, and shifted from second to fourth place on the Young Index Investors’ Christmas Wish List.

Perhaps unsurprisingly, a further reduction in base rate and a further stamp duty holiday were non-movers at the bottom of the table.

Neil Young explains; “We know at first hand that the appetite from investors keen to purchase additional PRS stock remains strong, but despite occasional short-lived headline grabbing mortgage products, as the end of the year approaches, the lending landscape remains largely unchanged from that seen at the beginning of 2010. Any wholesale changes to the mortgage market remain a distant hope as banks remain reluctant to lend. The same is true of development finance; those looking to secure funding for construction need to look to innovative new approaches and finance models to demonstrate commitment and capital of their own.”

Base Rate Outlook
Despite base rate remaining unchanged for the past 21 months, the longest period in history, the outlook from residential property investors has dipped to 1.0%.

Neil Young, comments; “I do not expect the base rate to rise for some time yet; the impact of the austerity measures are yet to fully kick in and economic fragility is likely to remain a characteristic of UK Plc throughout 2011. I would not be surprised to see the base rate at 0.5% at the end of 2011.”

ABOUT YOUNG INDEX
Young Index is a quarterly gauge of market sentiment within the private rented sector, polling Young Group’s client base of around 500 active investors/landlords who hold UK residential investment property.

ABOUT YOUNG GROUP
Young Group is shaping the Private Rented Sector through research, investment, finance and asset management. The Group’s activity spans the entire investment cycle from identifying opportunities and financing their acquisition, through to managing the asset, regularly reviewing the performance of the property holdings and advising on strategic direction, through to realising returns in the most tax efficient manner.

Young Group delivers day-to-day asset management through Young London, its lettings and management agency, which has won multiple awards from The Times, The Sunday Times and Bloomberg for the quality of its service.

Young Group is proud to support NORWOOD and CHILDREN with LEUKAEMIA, two charities doing valuable work that is particularly close to our hearts.

ABOUT NEIL YOUNG
Neil Young is CEO of Young Group, which researches, invests, finances, and asset manages property within the Private Rented Sector (PRS).

A qualified accountant, Neil has more than 10 years experience in global corporate finance at companies including British Airways. In 2000 he was appointed European CFO at Highland Partners, before leaving to establish Young Group in 2003.

While others talk about investing in the PRS, Young Group’s Directors have been actively investing and growing residential property portfolios, both personally and for Young Group’s global client base, for the past 15 years.

Neil’s blog: www.neilbyoung.wordpress.com
Neil on twitter: www.twitter.com/neilbyoung

MEDIA CONTACT
Michael Oakes
Director of Communications
Young Group
71 New Bond Street
London
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T: 020 7318 5454
E: moakes@younggroup.co.uk
Tw: www.twitter.com/mpjoakes

W: www.younggroup.co.uk
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This release was published on openPR.