According to Rightmove’s latest index, asking prices in more than half of London’s boroughs fell in June, and for the first time since December 2006, average property asking prices in the capital are no longer outperforming the rest of the country.
Miles Shipside, Rightmove’s commercial director, said: “The gap between house prices in London and the rest of the UK is getting narrower. Seventeen out of 32 boroughs saw falls. We expect to see this drop continue over the next few months.”
Liam Bailey, head of residential research at Knight Frank, said: “The market may well be close to its peak in London. A slight shift in demand and supply is beginning to emerge. It indicates a move away from a seller’s to a buyer’s market. Since March, however, there has been a noticeable slow-down, with the number of new applicants registering for properties down by 30% compared to recent months.”
Decline in residential growth in Prime Central London…but not for long
Recent figures from Savills shows there’s a decline in the quarterly rate of residential growth in Prime Central London which now stands at 5.7%, down from 8.8%, in Q1 2007.
Growth in the South West area which includes Barnes, Fulham, Putney, Richmond and Wandsworth outperformed Prime Central London in the quarter, which reflects equity filtering out of more central areas. Quarterly growth in this area increased to 8.1% putting annual growth to the end of June at 31%.
Lucian Cook, director at Savills Residential Research, said: “The fall in growth rates in Prime Central London does not mean the house price boom has ended in these areas. While the number of new applicants per property has reduced since February, the figure remains high in a historical context and there remains sufficient pent up demand to continue to drive further growth, irrespective of an easing in the supply/demand imbalance.
“As a result we continue to believe that the second half of the year will see growth levels above and beyond the mainstream market. Whilst growth is set to be lower in the second half of the year, there remains the prospect of a small uplift over and above our 20% forecast for Prime Central London.”
Buy-to-let sector is option for students wanting affordable housing
The buy-to-let sector is a cheap option for university students looking for affordable accommodation, says the National Landlords Association (NLA).
Richard Gard, NLA spokesman, said the government's support of the buy-to-let sector indicates that it has acknowledged the contribution it has made to students looking for housing.
His defence of the buy-to-let sector comes shortly after the president of the Chartered Institute of Housing (CIH), Paul Diggory, appealed to the government to abolish tax relief for buy-to-let landlords.
Diggory claimed that buy-to-let landlords are making it more difficult for first-time buyers to buy as they are willing to pay higher prices for accommodation in areas favoured by both students looking to rent and people in their late 20s looking to buy a first home.
A study from consultancy Wrigglesworth this week showed that the value of the buy-to-let sector has grown by 30 times under Tony Blair's premiership to represent around 10% of the residential housing market.
GDP rose at 3% fuelling speculation for interest rate rise
According to the UK Office for National Statistics (ONS), gross domestic product (GDP) grew at an annual rate 3% in Q1 2007.
GDP grew at 0.7% during the period from the previous quarter. The strong growth will reinforce expectations of a rate rise.
Mervyn King, Bank of England governor, said that economic expansion has proved resilient to four interest rate increases and there are upside risks to inflation. His monetary vote this month for an interest-rate increase has fuelled speculation that the Monetary Policy Committee will raise the Bank of England’s key interest rate to 5.75% this week.
In addition, the ONS figures showed that the savings ratio - the amount of income saved by individuals - was down to 2.1%, the lowest reading since 1960, as consumer spending remained strong.
Monthly rate of house price growth has halved
The monthly rate of house price growth halved over June with average prices rising by 0.3% compared to 0.6% in May, and a recent high of 0.8% in March 2007, according to Hometrack’s Housing Intelligence Business.
The annual rate of house price growth also slowed to 6.4% (from 6.7% in May), a trend that is set to continue over the second half of the year on the back of rising levels of supply and weaker demand in the face of higher interest rates.
The slowdown is being driven by a mis-match between supply and demand with price rises over June limited to 28% of the country, down from 44% in April. For the fourth month in a row, the growth of the supply of homes coming to the market (+12.4%) exceeded the growth in new buyers (+5%) with the volume of homes coming to the market doubling over June.
Richard Donnell, Hometrack’s director of research, said: “The growth in supply comes at a time when demand is faltering on the back of recent increases in interest rates and widespread fears of further rate rises to come. With much of the new supply coming to the market from discretionary sellers looking to achieve close to the full asking price, it seems likely that the average time to sell property will increase in the months ahead with a slowdown in sales volumes and a switch to a 'buyers' market.”
UK interest rates now 5.75%
The Bank of England has raised UK interest rates from 5.5% to 5.75%, its fifth rate rise since last August.
The increase had been widely expected with inflation still above the government's target rate of 2%.
The rise will add £16 a month to an average £100,000 repayment mortgage, but it could be good news for savers whose cash should earn higher interest.
Commercial property prices will fall by 18% says Capital Economics
Capital Economics believes that between the end of 2007 and the end of 2010 commercial property prices will fall by a total of 12% (or 18% in real terms).
Another possible scenario is property yields may rise by 4.5% over the period 2008-2010 taking yields to 9% despite the fact that rents may decrease by up to 3% per year. This means, claims Capital Economics, that nominal property prices could fall by a cumulative 50%, with the real falls close to 60%. But they doubt this will happen as historically 1973-1976 was the most dramatic correction on record, when real commercial property prices fell by 48%. Kelvin Davidson of Capital Economics believes this is a worst case scenario.
Davidson said: “The commercial property market may be overbought but it is not facing an abyss. With the worst will in the world it is difficult to see the market facing a correction as severe in the early 1990s, let alone the mid-1970s.”
Housing market will slow down, but not crash
According to the Centre for Economics and Business Research (CEBR), the residential housing market is beginning to slow down.
By 2008, house price inflation will be down to less than 2% pa. Even at this modest level of growth, average house prices will reach £200,000 by end of 2008, which represents a doubling in the average price of a house in just six years.
In the short term, conditions for the housing market are less favourable than in recent years thanks to higher interest rates, while economic growth in 2007 and 2008 will be lower than in the recent past. However, a crash is unlikely as mortgages remain, for the average homeowner, affordable.
“We estimate that mortgage payments will remain less than 25% of disposable income. Consequently, the outcome will be a temporary slowdown, not a crash. However, in the longer term, interest rates will loosen and the economic cycle will begin to swing upwards, carrying the housing market with it”, said John Ward, managing economist at CEBR.
Are lenders playing by the rules?
The Financial Services Authority (FSA) has confirmed that lenders do not appear to be incorrectly selling sub-prime mortgages (a more expensive mortgage targeted at people with a credit impaired history) to prime customers.
However, all lenders should review and possibly tighten their responsible lending policies, and ensure they are applied consistently in practice. To help borrowers, the Council of Mortgage Lenders (CML) has produced a new consumer factsheet that can be used to highlight the main things to consider when taking out a sub-prime mortgage. This is available on the CML’s website.
In addition, the CML is currently working towards establishing standard definitions for the various categories of adverse credit lending to make it easier for lenders to benchmark the performance of different categories of business.
Michael Coogan, CML director general, said: “The sub-prime market has an important role to play in helping people with past credit problems to rehabilitate their finances. But we acknowledge that, in particular, lenders and intermediaries in the sub-prime sector need to demonstrate that they are complying fully with the FSA's responsible lending requirements. We will be considering how best we can help lenders to do this.”
Repossessions set to be highest-ever
The Mortgage Lender is urging lenders to drop early redemption charges for customers in arrears in a bid to cut repossessions and to slash the £650m cost to the country.
David Titmuss, managing director of The Mortgage Lender, says there’s around 30,000 mortgages in trouble and the signs point to a substantial increase over 2006’s 17,000 home repossessions.
Titmuss said: “The signs are that there will be many more repossessions in 2007, maybe passing 1999’s 29,990 figure. The share of household income a mortgage absorbs in 2007 is higher than in 2006, up from 15.1% to 17.3%, which means people are getting into arrears more quickly.”
However, the repossession market peaked in 1991 with 134,000 repossession warrants issued according to the Office of National Statistics.
Property market in Tunbridge Wells ‘buoyant’
According to Knight Frank’s recent research, around 7,000 Tunbridge Wells’ residents commute daily into London, taking advantage of the 50-minute journey time to Charing Cross.
Demand for residential property is strong, particularly for one and two-bedroom apartments. Charles Rosling of Knight Frank Tunbridge Wells said: “The property market in Tunbridge Wells is particularly buoyant as the town has such a broad appeal.”
