The number and value of mortgages taken out by both home-buyers and those re-mortgaging fell in July 2007, according to the Council of Mortgage Lenders (CML).
There were 94,000 loans for house purchases totalling £14.8bn in July, and 92,000 re-mortgages totalling £11.5bn.
The number of loans to first-time buyers fell by 7% from June to 32,400, and the value fell by 4% to £4.4bn. Affordability for first-time buyers continued to worsen, with the typical first-time buyer income multiple rising to a record 3.39 in July, up slightly from 3.37 in June. First-time buyers taking out loans in July typically committed 19.7% of their income to pay their mortgage interest. Fixed rates are still the most popular mortgages, accounting for 79% of house purchase and re-mortgage loans.
Michael Coogan, CML director general, said: “A slight fall in lending between June and July has emerged for the third year in a row, so of course we cannot read too much into a single month’s figures. But the long anticipated slowdown in the housing and mortgage markets may now be beginning to materialise.”
House price inflation rising
According to Communities and Local Government, the UK house price inflation rate rose from 12.1% in June 2007 to 12.4% in July 2007.
Between June and July, there was a rise of 2% in the prices index of properties bought compared with a smaller rise of 1.7% over the same period last year resulting in an increase in the inflation rate.
The rise in UK prices between June and July can be attributed to increases in average prices for detached houses (2.4%), bungalows (2.1%), terraced houses (2%) and flats and semi-detached houses (1.7% each).
Northern Ireland saw a decrease in inflation in July 2007 with annual house price inflation falling from 55.9% in June to 46.8% in July. In Wales, the inflation rate stayed the same at 7.6% throughout June and July. In England, annual house price inflation rose from 11% in June to 11.5% in July and in Scotland annual house price inflation in July was 16.4% compared with 15.6% in June.
House price inflation rose in five of the English regions, fell in three regions and stayed the same in one region. The highest inflation rate was in London (19.2%), followed by the South East (11.9%), and the South West (11.3%). Inflation rates were lower in the East (9.6%), North East (8.5%) and Yorkshire and the Humber (8.4%). The lowest inflation rates were in the North West (7.6%) and West Midlands (7.3%) and the East Midlands (6.4%).
Wembley’s latest mixed-use development
Work is set to begin on a new ten-storey mixed-use building located near Wembley Stadium after planning permission was granted by the London borough of Brent.
Thought to involve £230m of property development finance, the development will stretch over more than 600,000 sq ft and include a Hilton hotel plus facilities for business conferences, student accommodation, affordable housing areas as well as retail outlets.
Quintain Estates and Development is the company behind the project. Nick Shattock, Quintain’s deputy chief executive, said: “This takes us further forward in delivering a fusion of retail, entertainment and living at Wembley. A luxury hotel will play a vital part in serving arena and stadium visitors, as well as reinforcing Wembley’s conferencing credentials.”
There is no problem with lending quality, says CML
Responding to the joint press release from the Bank of England, HM Treasury and the Financial Services Authority (FSA), the Council of Mortgage Lenders (CML) emphasises that the issue currently facing lenders is one of liquidity and funding, not lending quality.The FSA has said that Northern Rock is “solvent, exceeds its regulatory capital requirement, and has a good quality loan book”.
Northern Rock’s savers and borrowers can therefore have confidence that the loan requirements with the Bank of England do not reflect any underlying business problems, but are a reflection of a general lack of confidence in the financial markets, which is making it more difficult for all lenders to raise funds from the markets.
Michael Coogan, CML director general, said: “Consumers need to understand that the problem for lenders generally at the moment is in raising funds, not in lending quality. The Bank of England would not have provided the loan to Northern Rock if it had concerns about the quality of the lender’s own business.
“All lenders are facing funding pressure at the moment, and what they need is a return to more normal market conditions as quickly as possible. We welcome the Bank’s intervention and confirmation that it is keeping a close eye on the situation.”
Possible Birmingham catalyst
A major regeneration site in Aston, Birmingham, has been bought by regional development agency Advantage West Midlands.
The 12-acre site, known locally as the Serpentine, includes the derelict Aston Tavern as well as Aston Events Centre. Advantage West Midlands has now taken ownership of the site and will be working with partners to draw up plans for its future use based around the needs of the Aston community.
The emerging Aston, Newtown and Lozells Action Plan earmarks the Serpentine site for leisure, cultural and mixed use and although the details are yet to be finalised, the final use for the site will incorporate these elements.
Mick Laverty, Advantage West Midlands’ deputy chief executive, said: “One of the major barriers to regeneration in Aston has been the absence of any major development sites which could act as a catalyst for the rest of the community. This is a key piece of land in the middle of one of the neediest communities of Birmingham and it was vital we stepped in to make sure it is used productively.”
Weaker house price growth in 2007, says CLG
Recent data from Communities and Local Government (CLG) showed a strong increase in headline house prices at a national level. But according to Capital Economics, poor affordability, tighter lending criteria and weaker new buyer enquiries all suggest that the CLG data will slow notably towards the end of the year.
CLG reported that average house prices rose by 2% in July, compared with a rise of 1.7% in the same month last year. The annual growth rate remained fairly steady at 12.4%, after a year-on-year increase of 12.1% in June.
Bridget O’Leary of Capital Economics said: “It is important to bear in mind that the CLG data is based on completion prices and thus lag other house price measures by several months. We should, therefore, not be surprised that the softer trend evident in some other series has yet to show up here.”
However, there is evidence of a slowdown in Northern Ireland where annual house price growth dropped to 46.8%, down from 55.5% year-on-year growth in June. Yorkshire and the Humber, the North West and the East Midlands also showed slower year-on-year growth rates than in June. But other regions continued to perform well. London reported the highest annual growth rate (19% up from 17.5% in June) and most other regions showed a small rise in house price inflation.
O’Leary said: “The effect of recent increases in the repossession rate and the potential for one further rate rise before the end of the year will lead to weaker house price growth over the remainder of the year although this index may be slow to show it.”
Tenant demand for rented accommodation grows strongly
Tenant demand for rented accommodation is growing strongly on the back of a slowing housing market, higher borrowing costs and the uncertain outlook for house prices and, according to Paragon, this increased demand is creating an upward pressure on rents.
In today’s environment, investors expect to grow the size of their portfolios over the next year by 5%, from 11.5 to 12.1 properties. In value terms, Paragon expects the average portfolio to be worth £1.5m in 12 months’ time.
This on the back of the Royal Institute of Chartered Surveyors’ research that rents are growing at record levels as well as the Association of Residential Letting Agents’ latest report that tenant demand has outstripped supply in all areas of the rental market.
Nigel Terrington, chief executive of Paragon, says: “There is broad agreement that buy-to-let is a beneficiary of a softer housing market as would-be homebuyers defer house purchase and find themselves competing with migrants, students and first jobbers, among others, for a measurable supply of rented homes.
“This private rented sector continues to expand steadily to meet this growth in demand for accommodation, and landlords add to their portfolios in the knowledge that tenant demand is buoyant and rents continue to rise.”
Royal Bank of Scotland’s Affordable Affluence Index
In a survey by the Royal Bank of Scotland, Beverley in Yorkshire was found to be the best value town for property; Maidstone in Kent came second, third was Chester and fourth was Perth in Scotland.
Maidstone was also named best value town in the South East. The bank’s Affordable Affluence Index considered positive ‘lifestyle indicators’ such as upmarket shops and restaurants, and compared this with ‘negative’ influences such as betting shops and lower end supermarkets. In the survey, these ‘positive’ and ‘negative’ factors were weighed up to give an ‘affluence score’. Property affordability was then worked out to determine the overall index position of each location.
First-time negative equity since October 2005
For the first time since October 2005, house price growth turned negative with 1.8% more chartered surveyors reporting a fall rather than a rise in house prices which is down from 10.8% reporting a rise in July, according to the Royal Institute of Chartered Surveyors (RICS). Demand continues to weaken as rising interest rates weighed on buyer affordability. The trend was most prevalent in the West Midlands, the North West and East Anglia. However, London is yet to be affected by credit market turmoil and remains the region with the strongest price growth in England.
New buyer enquiries declined for the ninth consecutive month and at the fastest pace since August 2004 with potential buyers remaining cautious as the effect of interest rate rises filters through. Around 37% more chartered surveyors reported a fall rather than a rise in new buyer enquiries compared with 27% in July.
Ian Perry, RICS spokesman, said: “Potential house buyers have become far more cautious as they wait and see what affect interest rate rises will have on household finances. Affordability is at its most stretched in over a decade and many will worry that rising mortgage repayments will prove a step to far.
“The market will soften further, going into the autumn, reducing some impetus from those that have been chasing a rapidly moving market. Home Information Packs (HIPs) have reduced the number of four bedroom family properties coming onto the market, making family homes even more difficult to purchase.”
New Commercial Lease Code
Over 80% of property professionals believe that increased transparency between landlords and tenant under the new voluntary Commercial Lease Code will eliminate costly and time consuming disputes, according to Lockton’s Real Estate and Construction division.
The code provides clear direction for landlords with a 10-point guide outlining the requirements for a code compliant lease. Landlords must give reasons for any departures from the code.
Richard Owen of Lockton’s Real Estate and Construction division says: “The code was revised with the intention of improving leasing practice by creating a flexible and affordable letting market, benefiting both owners and occupiers. It will take a while to determine whether these aims have been realised, although early indications suggest that it is off to a good start.
“Disputes between landlord and tenant often arise as a result of misunderstanding and misinformation. The new Commercial Lease Code looks to spell out the process so that there is effectively a check-list before any deal is even entered into.”
