London housing market still outperforming the rest of the country
The headline rate of house price growth continues to accelerate in the UK. Average house prices grew by 0.8% in March and the year-on-year rate growth now stands at 6.7% - the highest since June 2003, according to research by property valuers Hometrack.
But London continues to distort the headline figure. Average house prices in London grew by 1.8% in March, the largest monthly increase in the capital for over four years.
Richard Donnell, director of research at Hometrack claims that, last year, levels of growth were being driven by the high value, prime housing markets of central London. He says the London effect is now beginning to ripple out to the commuter areas around the capital with average house price growth in East Anglia and the South East standing at 0.8% for March.
Away from those markets influenced by the London economy, house prices remain largely subdued, with growth across the remaining seven regions of the country ranging from 0% in Wales to 0.3% in the South West.
As property prices rise, rental yields are staying level with inflation, according to a survey by the Association of Residential Letting Agents (ARLA).
The price of rented accommodation has risen 10.7% in the three months to February 2007. This was mostly driven by rises in prime central London rented homes (12.4%) and the south-east (15.5%). Prices across the rest of the country dropped by 0.6%.
Irish housing market slowing down
The Irish housing market is cooling, with price pressures easing, growth in mortgage lending decelerating and house completions declining, according to a Bank of Ireland report. However, private sector rents rose in 2006, showing that there is still some increasing demand for housing.
House price inflation has slowed, according to the ESRI (Economic and Social Research Institute) house price index. Nationally, prices rose by 11.8% last year, but this reflects a surge in the early months of the year, with a deceleration apparent from the summer.
Prices rose by 0.8% in the fourth quarter, following a 2.8% increase in Q3, and 4.2% in Q2. Prices rose by just 0.3% in the three months since January, although the annual change was still over 10%, with Dublin performing better than the rest of the country – prices in the capital rose by 1% over the three months, and by 14.7% in the year.
Private sector rents rose by over 10% in the twelve months to February, which implies that the overall demand for housing remains relatively strong and that rental yields are beginning to rise. Although, people might continue to rent since it is becoming more difficult to get on the housing ladder.
Expectations of a reduction in stamp duty may be a factor in persuading some people to postpone purchase, but a more fundamental factor is affordability. The tightening cycle has put pressure on house prices by raising the cost of servicing a mortgage relative to income. This ratio will rise to over 38% in 2007 and to 39% in 2008.
On the mortgage side, the Bank of Ireland expects gross lending for house purchases in 2007 to be broadly unchanged on the 2006 estimate of €25.7bn, with a fall in the number of new mortgages offset by a further rise in the average size of a mortgage. This decline in volumes reflects the expectation of a fall in house completions, which is now expected to come in at 82,000. This compares with 93,400 in 2006.
7% rise in student rents over the past 12 months
Student rents have risen 7% across the UK in the past 12 months, according to an Accommodation for Students’ survey, allowing buy-to-let investors to increase their rental yields.
The survey finds that since this time last year, the average weekly student rent has risen from £56 to £60. London remains the most expensive at £102 per week, followed by Cambridge (£84 per week), Guildford (£83), St Andrews (£82) and Oxford (£79).
The Scottish university cities of Edinburgh and Glasgow were also well above the UK average for weekly rents at £70 and £68 respectively. However, England's redbrick universities of Birmingham, Manchester, Liverpool, Sheffield, Nottingham, Newcastle and Leeds all had below average weekly rents.
Director of Accomodation for Students, Simon Thompson, said: “Although southern universities are still more expensive for accommodation, with London way out front, some increasingly popular university locations have seen a corresponding rise in rents: Durham, Warwick and Loughborough are three good examples.”
Increase in Edinburgh’s office rental levels for the first time in five years
Jones Lang LaSalle has forecast an increase in office rental levels for the first time in five years, according to its annual Edinburgh City Report.
Occupier take up in 2006 was down to 12% due to a lack of larger corporate companies looking for space in the market, as only one deal was complete that was over 3,000 square metres. Bu t during the fourth quarter, the market began to witness an upturn in occupier activity with a number of deals progressing into legal hands.
The supply of Grade A space has decreased, pushed by the fact that, for the first time in 15 years, no new speculative developments have been completed throughout Edinburgh in 2006.
Alasdair Humphery, head of the Jones Lang LaSalle Edinburgh office, said: “With occupier activity increasing in the office market and the development pipeline slow to react, we anticipate that 2007 will witness increased pre-letting activity and potentially rental growth for the first time in five years.”
Annual rate of house price inflation back into single digits
According to Nationwide, the price of a typical house has increased by 0.4% from February to March 2007, bringing the annual rate of house price inflation back into single digits at 9.3% from 10.2%.
The average house price has risen from £174,706 to £177,083.
Fionnuala Earley, Nationwide’s chief economist, said: “While the annual rate of house price inflation has yo-yoed over the last few months, the underlying trend is clearly softening as interest rates take effect.”
Prices rose by an average of 1.1% in the last three months of 2006. Earley said: “Leading indicators of house price inflation also suggest that the underlying trend will continue to slow this year. Mortgage approvals and buyer enquiries at estate agents have weakened since the start of the year, and we expect that this will continue as the dampening effect of the earlier interest rate rises feed through.
“Our forecast of house price growth of 5-8% in 2007 still looks on track, and implies price rises averaging between 0.4% and 0.7% per month for the rest of the year.”
Landlords who take deposits must belong to a TDP scheme
From 6 th April 2007, landlords who take deposits from their tenants under an assured shorthold tenancy agreement must belong to a tenancy deposit protection scheme.
If landlords don’t adhere, they risk being taken to court and fined, says the National Association of Estate Agents. The NAEA is advising any landlords or letting agents who have not already joined one of the three government approved schemes to act now. The Dispute Service, the Deposit Protection Service and Tenancy Deposit Solutions Ltd are all running either insurance backed or custodial schemes for landlords and agents to join.
Jan Bartlett, lettings expert at the NAEA, said: “ A number of organisations are claiming to be able to help landlords and lettings agents ‘get round’ the new legislation. It is worth bearing in mind, however, that the new rules will be strictly enforced so it may not be worth the consequences if you get caught out. The only other option is to not take a deposit from tenants at all. However, this is done at considerable risk and is not an advisable course of action.”
Higher interest rates are impacting on housing market
According to the Council of Mortgage Lenders, higher interest rates have started to impact on the housing market, and Property Economics believes this is just the start.
Estate agents have begun reporting some deceleration in the rate of house price growth and there have been tentative signs of a modest slowing of price growth in some of the major indices.
There has been a rise in re-mortgage approvals in the early part of this year, although loan approvals for house purchases were 5% below that of late 2006. However, according to Capital Economics, UK lenders approved 311,000 new mortgage loans in February 2007, with a combined value of £33.9bn. These were 6.1% and 18.7% respectively higher than in February 2006. While mortgage approvals have cooled, they remain well above their long term average of 100,000 per month.
“What’s more, the normal lags in the house buying process mean that the recent interest rate rises will not have had their full impact on mortgage demand”, says Kelvin Davidson of Capital Economics. “Overall, we continue to expect the housing market to cool as 2007 progresses with mortgage approvals moderating to about 100,000 per month towards the end of the year.”
Government makes changes to HIP dates
The government has pushed forward the date sellers must have a Home Information Pack from the 31 March 2008 to 31 December 2007.
This applies to property that is on the market before 1 June 2007. This is the third time the government has changed the date. In the original regulations, sellers had until the end of October 2007 to get a pack on their property, and then in a consultation document issued at the end of January of this year, the government suggested changing this date to 31 March 2008.
Mike Ockenden, director general of the Association of Home Information Pack Providers, said: “I welcome these regulations, which have introduced a series of sensible and pragmatic steps to support the smooth implementation of HIPs, taking on board industry recommendations and concerns.
“We will continue to work closely with Government and the relevant stakeholders to ensure a seamless and effective introduction of HIPs, for the benefit of the consumer.”
Northern Ireland and London buck cooling trend in house price growth
House price growth in Northern Ireland has accelerated since records began in 1973.
The country is now on par with London for bucking the cooling trend in house price growth that is appearing across the United Kingdom. The average house price in NI now exceeds £200,000.
Fionnuala Earley, Nationwide’s chief economist, said: “ Northern Ireland and London stand out as the leaders with the fastest annual rates of house price growth in the UK. In contrast, the Northern and North West regions and Wales saw the biggest slowdown in the annual rate of house price growth.
Overall, the annual rate of house price growth in the UK is firm, but the quarterly data suggest that the underlying rate of growth is now starting to cool. During the first three months of the year the rate of house price inflation slowed from 3.3% to 2.2%. However, London and Northern Ireland bucked this softening trend with house prices increasing by 4.4% and 14.6% respectively during the first quarter.”
How the tenancy deposit protection scheme will affect landlords
Landlords should take action to join the new tenancy deposit protection scheme, according to the National Association of Estate Agents (NAEA).
The new scheme, which applies to landlords who take deposits from their tenants with an assured short-hold tenancy agreement, will come into force on April 6th 2007.
The National Association of Estate Agents (NAEA) is advising landlords who have not already joined one of the government-backed tenancy deposit protection providers to take action now. There are two government-backed schemes available via the websites: www.DepositProtection.com and www.MyDeposits.co.uk.
Jan Bartlett, lettings expert at the NAEA said: “As of April 6th if you let a property under an assured short-hold tenancy agreement, you have to be part of a government authorised scheme. If you are not then you may be ordered to repay the deposit you hold, with the possibility of an additional fine.”
