One-in-five chance the UK housing market will crash
According to the Bank of America (BoA), there is a one-in-five chance that the UK residential housing market will suffer a severe crash in the next year.
BoA estimates that house prices are currently overvalued by 20% and says that leading indicators and its own economic analysis both point to a significant slowdown in the market later this year, and into 2008. Rather than an actual fall in prices, BoA believes it will take the form of very subdued house price inflation until 2010.
But Matthew Sharratt, an economist at BoA, warned that a rapid drop in sentiment could lead to a more abrupt adjustment over a shorter period of time. Property developers, Barratt Developments and Bovis Homes, have indicated recently that the five interest rate rises since the end of 2006 have succeeded in slowing growth in the housing market.
Sharratt argues that the rising cost of borrowing has “not yet had much of a discernible effect on the housing market”, and believes that “much of the impact from higher interest rate rises is still in the pipeline”.
There have also been concerns that rising rates could hit the buy-to-let market, Sharratt said: “With the buy-to-let sector yet to be tested in a serious downturn, the risk remains that this sector could amplify any slowdown in the broader property market.”
Confusion on the housing scene
The Financial Times’ residential house price index, conducted by Acadametrics, found that house price inflation for June was 0.2% up on May’s figure of 0.5%, which represents good news for those with buy-to-let mortgages looking to gain from capital appreciation.
Annual house price inflation also increased, up from 8.7% to 9%. Doctor Peter Williams, Acadametrics chairman, said: “With the Nationwide index showing an increase of 1.1% in June and Halifax 0.4%, there is a degree of confusion as to what really is happening on the market – although both organisations are showing an increase on the level of growth reported in May.
“Since December 2006, the average house price has increased by £8,749, around 4% in the six months.”
Homes affected by national floods
According to the National Association of Estate Agents (NAEA), an estimated 27,000 homes and 5,000 businesses have been affected by the torrential rains that swept across the UK. Additionally, it is believed that the cost of damage to homes in the UK could be as high as £1bn.
Prime Minister Gordon Brown recently announced a £14m package of immediate support for the areas worst hit by flooding to help local authorities and communities aid recovery. However, there is still an acute shortage of homes available for rent for those who have been left homeless due to the recent torrential rain.
The areas reported to be worst hit by the flooding include Humberside, Sheffield, Leeds, Lincolnshire, Gloucester, Bideford, Ludlow in Shropshire and Lowdham in Nottingham.
Peter Bolton King, chief executive of NAEA, said: “The flooding has left a huge amount of devastation throughout the UK and individuals, couples, families and the elderly have been forced to leave their damaged homes and move to cramped hotel rooms due to the acute shortage of rental properties currently available.
“It is with this in mind that we are urging owners of vacant properties in the flooded areas and the surrounding locations to let their properties with the help of local authorities or reputable lettings agents. This will help ease the shortage and help victims of this recent torrent of flooding across the UK to start rebuilding their lives. Homeowners who would like to be of assistance can visit www.naea.co.uk to search for an NAEA approved lettings agent in their area.”
Buy-to-let is paying off
Returns on buy-to-let property investments were higher during the last 12 months than they were in the previous year, according to the latest figures from Birmingham Midshires.
Data from the company shows that buy-to-let properties gave their owners an average income of 13% of the house price during the 12 months to June this year, compared to 11.9% in the same period to June 2006.
The company also reports that terraced houses were the best performing type of property in terms of rental yields over the last year.
Tim Crawford, group economist at Birmingham Midshires, said: “The fundamentals underpinning the buy-to-let sector remain sound. While house price growth in the sector is expected to be more subdued, reflecting the impact of higher interest rates, the potential for further increases in rents should encourage long-term investors.”
Increase of 16.2% in rental prices
In the first six months of 2007, Knight Frank’s Notting Hill office has seen an average increase of 16.2% in rental prices.
A three bed flat let last year on Hereford Road at £725 per week has just re-let at £900 per week, this shows a 24% increase in price over one year.
Sophie Woolfenden of Knight Frank said: “Notting Hill's rental market is busier than ever, and there is a lot of competition for the right property. Our market is currently being driven by tenants’ desire for good quality and outside space.”
In Hampstead there is a similar story happening. In 2006 a property on Mount View let from £1,400 per week whereas this year it has achieved £1,950 per week. Houses continue to be the main driver of rental growth in these markets as families seek to relocate with minimum disruption to the school calendar.
Record level of gross mortgage lending, says CML
Gross mortgage lending has reached a new record of £34.2bn in June, up from £31.4bn in May, according to the Council of Mortgage Lenders (CML).
CML blames seasonal effects and borrowers’ response to higher interest rates for this. Although lending in June was up by 9% on May, this was a lower monthly increase for June than in each of the last two years (12% in 2006 and 15% in 2005).
CML also believes that strong levels of lending will continue reflecting the growth in mortgage approvals over recent months and more borrowers exiting short term fixed-rate deals. CML’s expectations include a higher percentage of occupiers re-mortgaging to minimise potential payment shock and lower numbers of house purchases as fewer people chose to move.
Michael Coogan, CML director general, said: “ While the markets still expect one more interest rate rise before the end of the year, we believe the Monetary Policy Committee should carefully assess the impact of past rises on inflationary pressures before it takes further action. In the meantime, borrowers should be thinking seriously about how they will afford higher mortgage payments if they come out of a fixed-rate deal this year.”
HIPs, HIPs, away!
After a further debate the House of Lords voted by 186 to 160 to call on the government to revoke Home Information Packs (HIPs).
Peter Bolton King, chief executive at the National Association of Estate Agents (NAEA), said: “Yet again the House of Lords has expressed considerable concern over a number of aspects relating to Home Information Packs (HIPs), demonstrating just how flawed this piece of legislation is.
“While the government can of course ignore this motion, as it was not a fatal bill, this nevertheless sends another clear message. The NAEA has consistently expressed the view - supported by their Lordships - that HIPs alone is not the way to improve the buying and selling process.
“Even at this late stage, with the phased introduction of HIPs due to start on the 1 st August, we yet again call on the government to proceed with the energy performance certificate – which we are in full support of – and to scrap the remainder of this ill-thought out pack.
“Meanwhile, we remain genuinely concerned about whether there will be sufficient domestic energy assessors in the correct geographical locations by the 1st August. We are also alarmed by reports that some of the accredited assessors may not in fact want to take up this new job, and no research appears to have been done to check whether this is correct.”
Top of buyers’ shopping list is location
Savills recent UK Housing Market Survey reveals that location is the primary driver of the UK residential market.
Nearly 500 households across the UK took part in the survey, of which 80% said the quality of the neighbourhood in which property is located was considered the most important factor.
Other top factors affecting the residential market included good schools, the safety of the local environment, the property’s external appearance and the cost of maintenance.
Lucian Cook, director of Savills Research says: “The findings present a clear challenge to policy makers, planners and house builders to deliver developments which provide a sustainable living environment. This is particularly significant because the survey respondents showed a strong preference for away from town and city centre locations, where development is increasingly being concentrated.”
The survey also revealed that more people considered the size and layout of rooms as more important than the number of rooms or indeed the overall size of the property.
TCPA welcomes more affordable housing
The Town and Country Planning Association welcomes Prime Minister Gordon Brown’s pledge to speed up the building of homes and revive the building of social housing.
The association believes the biggest challenges will be providing the skills and capacity to deliver, and releasing land at a price that enables the necessary social and environmental infrastructure.
The TCPA urges the government to realise the opportunity for all new housing, whether within existing urban centres, new settlements or urban extensions as it contributes to lower carbon living and better environments for all.
Gideon Amos, TCPA chief executive, said: “The Prime Minister is right to make affordable housing a priority. However, those public bodies and government departments that own land must provide it at a discount to make these housing and environmental gains possible – high quality low carbon communities must be the end result of the initiative.”
The TCPA will support planning legislation that includes national planning statements by ministers and welcomes the Government’s statement on the use of the New Towns Act to deliver affordable homes in places where they are needed.
Overhaul in regeneration policy
A new parliamentary report out today is calling for an overhaul of regeneration policy to tackle investment in deprived areas.
It says that investment in run-down communities can be more profitable than investing in well-off areas, but preconceptions over crime and inadequate infrastructure put developers off investing.
The All Party Urban Development Group’s report Business Matters, argues that these ‘unsexy’ areas have been overshadowed by the government’s enterprise-led regeneration initiatives which the report concludes do not offer a quick-fix for tackling deprivation.
The report backs calls from the property and retail industries for property owners to contribute to Business Improvement Districts (BIDs) – an initiative that sees business owners pay a levy on top of their business rates to pay for amenities such as extra street cleaning, security and marketing, above and beyond what the council provides.
Clive Betts MP, chair of the All Party Urban Development Group, said: “Business Matters couldn’t have come at a better time. With a new government committed to revitalising deprived areas, we have an excellent opportunity to review existing policy; to examine what has worked and look at those areas that need to be improved. Our report sets out in very clear terms what the Government’s priorities should be for streamlining and improving regeneration policy so that it is holistic and targeted.”
