The Bank of England has kept the cost of borrowing at 5.75%.
But unusually, the Monetary Policy Committee (MPC) also released a statement which normally accompanies a change in rates. The statement made clear that the MPC had considered the effects that the interest rates could have on the rate of inflation. Inflation currently stands at 1.9%, which is below the target of 2%. Rates have not risen since July, but that was the fifth rise in 12 months.
Michael Coogan, the Council of Mortgage Lenders’ (CML) director general, said: “Credit conditions have tightened since the rate went up in July, and a further increase would have added to the liquidity problems we are already seeing in some sections of the market. At the same time, there is now much clearer evidence that the cumulative effect of five rate rises since last August is slowing activity in the housing market. The bank is right to wait and see, and if market conditions produce a further tightening of credit, it will strengthen the case that the next decision should be that rates go down, not up.”
House prices unchanged in August
House prices were unchanged over August, for the first time in 20 months since November 2005, according to Hometrack.
This is the fifth consecutive month that month-on-month house price growth has slowed. While weaker market conditions are to be expected over the summer, Hometrack believes this is further evidence of a more deep-rooted slowdown resulting from increased affordability pressures and more cautious buyers.
Richard Donnell, Hometrack’s director of research, said: “The housing market faces a testing time over the rest of the year. The increases in interest rates over the last 12 months have pushed average debt servicing costs to a 15-year high, and this will continue to take its toll on levels of market activity and house price inflation over the next 12-18 months.
“Buyer confidence has been weakening on the back of increased affordability pressures over recent months but the turmoil in the global equity markets has added a new external dimension. If this continues it is likely to further undermine market sentiment which will drive weaker levels of demand into the autumn and further undermine the rate of house price growth.”
Major re-development project in Glasgow
Tiger Developments has purchased a ten acre site on Scotland Street, Glasgow, for a major re-development project.
The derelict brownfield site currently houses a number of dilapidated industrial buildings and has been inactive for over 15 years. Subject to planning, Tiger proposes a £100m mixed-use scheme incorporating 385,000 sq ft of office space, a 130-bed hotel and ancillary retail units. The Scotland Street School Museum, which is separately owned, will be left entirely intact under the plans.
John Nesbitt, managing director of Tiger Developments, said: “Tiger’s development will transform this area of Glasgow into a significant centre for business in the city. Scotland Street will offer significant opportunities for both investment and office use, and will continue the momentum that we are already seeing in this area of the city.”
Cooper Cromar Architects has been appointed to undertake a masterplan and density feasibility study for the site. An outline planning application is due to be submitted before the end of the year.
Tiger Developments is also redeveloping the former Morrison Street Goods Yard in Haymarket, Edinburgh. The £200m plan for the Edinburgh site includes the creation of two hotels, retail space and 350,000 sq ft of office space.
DJ predicts commercial property re-pricing
Research conducted by Drivers Jonas (DJ) has identified that rising interest rates is a significant threat to current commercial property valuations and that liquidity in the UK market is decreasing.
DJ predicts there will be an overhang of unsold product this autumn. Howard Richards, partner and head of investment at DJ, said: “Values of secondary property must surely fall this autumn. Re-pricing of some areas of the market is inevitable.”
Values are already falling in parts of the market but DJ feel that prime values will remain robust, especially in London due to both solid rental performance and continued investor demand.
Anthony Duggan, partner and head of research, said: “Rising interest rates are a significant threat to current property valuations. We are already seeing some investors calling a time-out on the UK market until base rates have stabilised. If rates move up only once more, as we believe they will, this certainty should only last 6-9 months before investors are positive enough to re-enter the market and some liquidity returns. However, over this uncertain period we expect to be seeing further reductions in capital value growth and indeed, further instances of capital values actually falling.”
University towns boost residential house price growth
New research from Halifax Estate Agents says that 20 university towns across the UK recorded an increase in house prices of 20% or more over the past year, close to double the nationwide increase of 11%.
The best performing university town was Belfast, home of Queen’s University, with a 47% rise in its average house price over the year to June 2007. University towns, on average, saw an increase in house prices of over 14% over the year to June 2007, comfortably outpacing the UK average.
Seven university towns recorded a 50% or more house price increase over the past three years. Belfast was again the best performer with a 97% increase in its average price over the three years to June 2007. The next two best performers were in Scotland, Aberdeen (75%) and Dundee (64%) followed by Tower Hamlets (61% in London), home of East London University.
Colin Kemp, managing director of Halifax Estate Agents, said: “More than one quarter of university towns have seen house prices increases of at least 20% over the past year. University towns are popular choices for home movers because they usually have a wide range of local facilities, while investors have been attracted by the steady increase in university populations.
“The best ranked university towns, including Oxford and Cambridge, tend to trade at a premium to surrounding towns, but some of the top 20 ranked universities have lower house prices, including Coventry, home of Warwick University, and Bristol.”
Huge disparity in buy-to-let buildings insurance
Research from Landlord Mortgages has showed there is a huge disparity in buy-to-let buildings insurance.
Landlord Mortgages sent mystery shoppers to buy-to-let insurers and found huge differences between providers. In some cases, insurers were charging up to 139% more than their competitors.
Lee Grandin, managing director of Landlord Mortgages, said it was important for landlords with buy-to-let property to look after their investment by insuring the building. “While regular home insurance may cover some aspects, there are extra risks when tenants are involved, which means many choose insurance specifically designed for landlords. With rental yields declining and margins being squeezed for the buy-to-let investor, it is important to shop around for building insurance. As this research shows, there can be huge differences in premiums, and so savings can be made.”
First time buyers face upward struggle
An accessibility index, developed by the Royal Institute of Chartered Surveyors (RICS), has found that the cost of becoming a home buyer in Great Britain has grown by 8.4% in the year to 2007 Q2 and by around 350% since 1996.
A couple who are trying to buy their first property, both on lower quartile combined earnings of £25,899, will now have to save up to the equivalent of 96% of joint take home pay to build up the £25,600 needed for up front buying costs on a typical home, deposit and stamp duty. This equates to a substantial rise from the low point of 21% of joint take-home pay required in 1996.
Affordability has deteriorated to almost record levels. A couple on lower quartile income now has to spend 44% (up from 38% in Q1 2007) of their combined take home pay to service their mortgage, only 4% below the all-time high of 48% in Q1 1990. With the whole of the interest rate cycle yet to filter through, repossession levels are set to continue to rise.
David Stubbs, RICS senior economist, said: “First time buyers are facing an enormous struggle to access the housing market. This may worsen if the turmoil in the US market forces mortgage providers to tighten lending criteria and demand even higher deposits.
“Even if prospective first-time buyers make it onto the market, they face mortgage payments which take up a higher percentage of their take home pay than at any time since 1990. House prices have risen by over 11% a year since 1996 whereas first time buyers’ income has only risen by 3.5% a year. This has forced buyers to borrow ever greater amounts and now higher interest rates are applying pressure to the household finances of recent buyers.”
Retailers may have to fund city improvements
The British Retail Consortium (BRC) is bringing together major retailers in a joint membership of British Bids, the new national body for Business Improvement Districts (BIDs).
A BID is a defined area of a town, city or commercial district where business ratepayers have voted to fund improvements beyond those delivered by local Government. A BID means that local businesses will agree to pay a levy on top of their rates bill to provide extra services and facilities to improve the trading environment. If the BID is approved by a majority vote, all businesses in the BID area must contribute, whether they voted for it or not.
So far, five major retailers including Boots, the John Lewis Partnership, Marks and Spencer, Next and Sainsbury’s are directly supporting the initiative. The BRC believes more are likely to follow.
Dr Kevin Hawkins, BRC director general, said: “If BIDs are done well, they can be an effective way for retailers to work together to improve the places where they trade. That’s good for business and local people. On the other hand, a poor BID is just another tax on business. This move shows retailers increasingly accept they need to be more involved influencing results and making sure BIDs are not just an excuse to increase business rates bills.”
BID services, for example, can be aimed at improving cleanliness and safety which are essential to the vitality of any retail centre. BIDs may pay for increased street cleaning or wardens to deter crime and reassure shoppers. They could fund capital expenditure to improve the appearance of streets and accessibility. They may promote the area to would-be visitors by branding, advertising or events.
House prices are still increasing, but slowly
Agreed house prices are continuing to rise, though the rate of growth has slowed considerably, says estate agent Your Move.
With many lenders reviewing their mortgage rates as higher base rates begin to impact, inflation in the housing market is finally cooling correspondingly. Agreed house prices rose by 0.4% in the last month, according to Your Move from July’s average of £182,012 to August’s figure of £182,438.
David Newnes, managing director of Your Move, said: “House price inflation is finally showing real evidence of slowing. Five base rate rises this year are clearly having the desired effect.
“The holiday season over August usually contributes to a seasonal slowdown. The implementation of Home Information Packs (HIPs) has clearly hampered the market a little over the summer months. But the flattening off of house prices shouldn’t be seen as cause for panic. Rather, it should be seen as a sign of success in inflationary control for the Bank of England. We would therefore urge the MPC not to put rates up any further.”
Closing gap puts added pressure on investors
With repossessions on the up and growing number of homeowners falling behind with mortgage repayments, buy-to-let investors are making the most of others’ misfortune but they should be cautious.
Cath Hearnden, director of My Mortgage Direct, said: “Following the recent interest rate rises, we have seen an increase in enquiries from purchasers of investment properties being offloaded by owners who can no longer afford to keep them.
“Buy-to-let as a money-making scheme has certainly overstretched itself since the beginning of the millennium and some people are having to accept a loss on what they hoped would be a nest egg for their future.”
During the height of the buy-to-let boom around three years ago, new builds were selling for over-inflated prices and that has proved to be the undoing of some investors. Thanks to rising interest rates, the closing gap between mortgage repayments and achievable rent has put added pressure on investors.
Hearnden said: “There is still mileage in property investment but not for anyone and everyone. With analysts predicting a surge in mortgage arrears and bad debts associated with mortgages, becoming a landlord will not be quite as easy as it has been in the past.”
New residential scheme aimed at first time buyers for Glasgow
Work has begun on a residential scheme to create around 60 new homes in the East of Glasgow designed specifically for first time buyers, private housing tenants and the disabled.
The development is taking place on a brownfield site in the city and will see the city council contribute £4.1m of property development finance.
The UK government has previously said that it aims to have 60% of new housing developments built on brownfield land.
