According to Nationwide’s latest house price index, Britain’s residential housing market has started to slow down.
Monthly growth totalling 0.5% in May fell from April’s figure of 0.9%. May’s fall has been partly caused by recent interest rate hikes by the Bank of England to 5.5% as well as the likelihood of a further rise which means that a cooling period can be expected in the coming months.
Fionnuala Earley, Nationwide’s chief economist, said: “Higher interest rates with the threat of more on the horizon should signal caution to those thinking about stretching themselves to get a foot on the ladder.
“This is not only because of the level of debt in the short term, but also because in a low inflation world, the real value of the debt is not eroded as quickly. As a result the burden of servicing that debt remains heavier for much longer.”
Mortgage market activity softens
According to a recent published report by the Council of Mortgage Lenders, mortgage market activity is softening in response to rising interest rates.
The fall in buyer interest has been greatest among first-time buyers, where numbers are down 4% compared to last year. A typical first-time buyer is now borrowing more than 3.3 times their income and faces levels of mortgage interest repayments relative to income last seen in the early 1990’s.
March was the first month in which the number of loans to home movers fell below that of a year earlier. The number of approvals for further advances has also fallen to the lowest level since 2001 which suggests that higher interest rates are reducing the attractiveness of extracting equity to finance home improvements and general spending.
The impact of interest rates on activity has not been evenly distributed across the UK, with activity strongest in London and the South East, Scotland and Northern Ireland. House price growth is 50% in Northern Ireland and close to 14% in Scotland and London, but around 7% to 8% in the Midlands and Northern regions.
In addition, the underlying level of mortgage lending probably peaked in March, with gross lending reaching £31.8bn, but it fell to £30.1bn in April. This was 9% up on a year earlier, although it is the lowest monthly figure since last October. The value of mortgages outstanding continues to grow at an annual rate close to 11.5%. The lower value of mortgage approvals seen in the last couple of months almost certainly means that the underlying levels of gross mortgage lending will soften a little in the months ahead.
NAEA wants stamp duty abolished for first-time buyers
Statistics from the National Association of Estate Agents (NAEA) shows that the proportion of first-time buyers in the UK property market has dropped from 12.6% in March to 10.3% in April, which is the lowest figure recorded since April 2006.
The NAEA believes that first time buyers are losing out on affordable properties to buy-to-let investors.
It also cited fluctuations in interest rates over the past five years as a deterrent for first-time buyers, creating major repercussions on the affordability of mortgage repayements. Stamp duty, currently at 1% for UK property priced between £125,000 and £250,000, is an additional cost for many home buyers particularly in the South East and Greater London.
Stewart Lilly, NAEA president, said: “Abolishing stamp duty for first-time buyers is one quick way the government could make a difference to this struggling group. We have continually urged for the government to make more concerned judgements for this fragile market, who are struggling to get a foothold due to this turbulent environment in which we live.”
Office sector sprints ahead of construction and retail
According to Lambert Smith Hampton’s (LSH) latest research report, the Economic and Property Market Bulletin, the UK economy remains on track to grow by 2.8% this year with business investment now the biggest driver of growth.
Despite inflation hitting 3.1% in March, the general consensus is that interest rates will peak at 5.75% or maybe 6% before falling back early next year. Meanwhile, within the commercial property sector, the office market continues to see recovery in letting activity, while increased competitive pressures are creating polarisation between value and aspirational retailing. The office sector is forecast to see total returns of 14.3% in 2007, ahead of industrial at 8.8% and retail at 6.4%.
The All Property total return in the 12 months to end of April was 14.8%. So far this year, property has delivered a total return of 3%, according to the Investment Property Databank. With yields expected to move out further over the coming months, LSH expects total returns to be lower than in the past two to three years. However, rental growth is likely to offset this outward shift in yields partially.
LSH is also predicting total returns of 9.7% this year in the commercial sector. Strong rental growth in the office sector will help the sector to outperform with total returns of 14.3%. Industrial is expected to come second with a total return of 8.8% this year, pushing retail into third place with 6.4%.
Buy-to-let market drops sharply
According to the Royal Institute of Chartered Surveyors’ (RICS) lettings survey, the buy-to-let market has seen a sharp slowdown due to the increasing gap between rental income and the cost of debt.
The report shows a dramatic rise in the number of landlords selling their properties, 5.2%, which is up from 4.1% in January 2007. This is the highest level for two years. RICS says many landlords are selling in light of falling gross yields and rising borrowing costs.
Gross yields fell for the third consecutive quarter, with the pace of decline accelerating at its fastest rate since July 2004. The sharp fall in yields reflects strong house price inflation coupled with slowing rental growth.
“Housebuyers are returning to the market to avoid rising borrowing costs, signalling a drop in demand for rental property. With more supply on the market due to a rush to avoid the upfront costs of Home Information Packs, which now seems a little premature, buyers have found the market less tight than expected”, said Jeremy Leaf, RICS spokesperson.
“Rising borrowing costs and a subsequent drop in yields have also contributed to a worrying time for landlords. Interest rate rises later in the year will have a further dampening effect, but the underlying strength of the economy and an active housing market should ensure a soft landing for many.”
Highest ever number of fixed rate mortgages
The number of borrowers taking out fixed-rate mortgages is at its highest level on record, according to Mortgage Trust.
Since September 2006, fixed rate mortgages have grown to make up over 60% of the market, up from 48% before the monetary policy committee began their spate of rate hikes.
John Heron of the Paragon Group said: “Our research also shows that an even higher proportion of landlords have been taking out fixed-rate loans. Around 78% of landlords have been opting for fixed rate mortgages in recent months. As rates have started to rise, landlords have sought to insure that they remain in a financially stable position.”
Lowest level of first time buyers in NI for 26 years
According to the Council of Mortgage Lenders (CML), the rapid growth in house prices in Northern Ireland have contributed to the number of first-time buyers reaching its lowest level for 26 years.
Derek Wilson, chairman of CML Northern Ireland, is pushing the newly-formed Northern Ireland Assembly to tackle the shortage of affordable homes.
House prices have trebled in 10 years, and the number of first-time buyers has more than halved in five years. The average house price in Northern Ireland is currently £210,349, which is three times higher than its 1996 level. And while house prices have been increasing, the number of first-time buyers has fallen into decline from 18,300 in 2001 to just 8,000 in 2006.
Wilson said: “It is no surprise that with house price inflation reaching 23.4% in 2006 we now have the lowest number of first-time buyers entering the market since 1980.
“The CML urges the Northern Ireland Assembly to address affordability constraints by implementing some of the reforms proposed in Sir John Semple’s report on affordable housing. This includes increasing the supply of affordable housing and examining whether a shared equity scheme - like HomeBuy in England - could play a part in helping more first-time buyers on to the property ladder.
“Mortgage lenders already offer a range of innovative products to help people buy their first home, but they cannot solve the affordability issue on their own. The CML looks forward to working with the Northern Ireland Executive and the Social Development Committee to find ways of helping those who want to become home-owners.”
Gardens prove popular with buyers
Around 70% of Britons buying UK residential property cites a garden as a major factor in their decision in buying a home, says Savills.
Large gardens are the most popular but small plots also attract interest from buyers, particularly singles and first-time buyers.
Lucian Cook, a director in Savills’ research department, said: “We looked at about 450 occupiers across England and Wales. We asked them to rank the attributes of their home or potential home, and about 70% of respondents considered their garden as either important or very important in the context of home ownership.”
Cook also added that families and working-age couples both cited size as a distinct drawback to notoriously compact new-build properties in the UK property market.
First site to accept The Carbon Challenge
Hanham Hall in Bristol, a 6.1 hectare former hospital site owned by English Partnerships, claims to be the first site in the country to be suitable for development under the agency’s Carbon Challenge.
The Carbon Challenge calls on developers to achieve the highest level (Level 6) of the government’s new Code for Sustainable Homes to demonstrate that zero carbon homes, combined with building design, are economically viable on a commercial scale.
Housebuilders have been invited to submit expressions of interest to build England’s first large scale development of zero-carbon homes, as regeneration agency English Partnerships published its pre-qualifying questionnaire (PPQ) for a 150-home site in Bristol. The PQQ is the first step in a process which will end in the summer with the appointment of a preferred developer for the site.
Jayne Lomas, the project manager at English Partnerships responsible for the Carbon Challenge, said, “The government has made it clear that all new homes will need to be zero carbon from 2016 and the Carbon Challenge will help demonstrate to the construction industry how this can be achieved. And we need to start now - 2016 is less than a decade away – and nobody should underestimate the challenge of achieving zero carbon.”
Developers completing the PQQ will be shortlisted to around six organisations that will be invited to submit a more substantive submission in response to a detailed design brief for the site.
£11m investment in Aberdeen
Scottish-based shipping agency, Seletar Shipping, has announced plans for a new 46,500 sq ft office development on the site of the existing Horizons House at Waterloo Quay, Aberdeen.
The development comprises around 46,500 sq ft of office space, and is available for lease in individual floor space from 7,500 sq ft to 14,000 sq ft.
Shaun Eardley, managing director of Seletar Shipping ( Scotland) Limited, said: “We are delighted to have announced this new development, which will be the result of an £11 million investment by Seletar.
“We have redeveloped a significant proportion of the office buildings on Waterloo Quay since first branching into quayside property rental in 2003, and are pleased to be able to further enhance the area with this latest project. We look forward to continuing to contribute to the harbour area’s current regeneration.”
Subject to planning, the development will be available for occupation by the end of 2008. Knight Frank will be designing, project managing and marketing the new building called New Horizons House.
Council houses are more energy efficient
According to the Communities and Local Government Department (DCLG), council houses are among the most energy efficient homes in the country.
Its new report reveals that the social housing sector, currently undergoing a £40bn overhaul, is much more energy efficient and is updated at a faster rate than privately-owned housing.
Over three quarters (77%) of social sector housing has cavity walls, compared to just over two thirds (67%) of private homes. Just a quarter (27%) of private homes have adequate loft insulation, while almost a half (44%) of social sector houses boast 150mm of insulation or more.
Yvette Cooper, housing minister, said: “This report shows the multi-billion pound investment in helping the environment as well as families’ fuel bills. Council houses are now much greener than private homes.
“It shows that major refurbishment’s to deliver decent homes are far more than Changing Rooms-style makeovers. Modern central heating and insulation is being installed alongside new kitchens and bathrooms.”
Bank of England maintains bank rate at 5.5%
The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 5.5%.
The Council of Mortgage Lenders (CML) welcomes this decision but warns borrowers who will be coming to the end of fixed rate deals in 2007 or 2008 to plan ahead for the higher payments they will almost certainly face.
Michael Coogan, CML director-general, said: “While today’s decision not to raise rates is welcome, there is no cause for complacency. More than two million borrowers over the next year and a half will reach the end of fixed-rate deals, and will face the prospect of higher mortgage payments.
“For most people, the scale of the increase will be manageable. But it makes sense for borrowers whose fixed-rates will end soon to start planning ahead now, and to recognise that their monthly costs will be higher in the future. Anyone who thinks they may face financial difficulties should talk to their lender at an early stage to see what steps can be taken to improve their situation.”
