There was a move away from fixed-rate mortgages in October, with levels of new fixed-rate loans falling to 68% from 72% in September, according to the Council of Mortgage Lenders (CML).
Fixed-rate loans have been popular throughout 2007 with levels consistently at or above 70%. But the trend towards variable rate loans may increase in coming months as the expectation of further interest rate cuts lessens the need for borrowers to lock in and guard against rate rises.
Mortgage affordability continued to deteriorate in October as interest payments consumed the highest levels of income in over 15 years. First-time buyers contributed 20.6% of their income towards mortgage interest, up from 20.4% in September and the highest level since 1991, and movers contributed 17.6%, up from 17.5% in September and the highest level since 1992. The Bank of England's rate reduction of 0.25% will provide some relief to borrowers in coming months.
Lending volumes remained strong in October totalling £33.5bn, a 9% rise from £30.6bn in September and a year ago. The majority of these loans are likely to have been approved before the full impact of the credit crunch and the problems associated with Northern Rock took hold. Lending is expected to be more subdued in coming months as mortgage approval numbers are showing.
Home movers typically borrowed 3.02 times their income, unchanged from September, whilst first-time buyers typically borrowed 3.36 times their income, down from 3.38 in September.
Market analysts predict 4.5% interest rates next year
Market analysts have been revising their interest rate predictions downwards following the Bank of England's first cut in more than two years earlier this week.
In a suggestion likely to please those with buy to let mortgages looking to maximise profits, one analyst has said that rates could fall to 4.5% next year, with more cuts to follow in 2009.
Others, meanwhile, have suggested that a further cut will be necessary sooner rather than later despite the Bank's pre-emptive action.
“Interest rates are now more likely to fall further and faster than I previously thought. I now think that they will be cut to around 4.5 per cent by the end of next year and perhaps to four per cent in 2009”, said Roger Bootle, Deloitte economic advisor.
Howard Archer from Global Insight, meanwhile, has said that his firm expects rates to be cut twice more in the first half of 2008.
UK housing market will hold steady in 2008, said NAEA
The National Association of Estate Agents (NAEA) is predicting that the UK housing market will hold steady in 2008 thanks to the continued presence of key underlying strengths.
While an unprecedented number of unknown factors make the movement of the market even more difficult to predict than usual, the basic supply and demand factors remain the same and will help to bolster prices through less fortunate times.
The international ‘credit crunch’, issues with Northern Rock, successive interest rate rises and launch of Home Information Packs (HIPs) are all major events that clouded the housing market in the second half of 2007. As the market strives to right itself again it is hoped that the worst is now over, however all of these events have left behind them considerable uncertainty for 2008. Questions over future problems that may come out of America, the size of any credit squeeze and the exact impact of the HIPs roll out still hang in the air. These could well have a significant impact on the fortunes of the market. In the meantime, however, there are a number of underlying factors that will help to keep the market steady.
Peter Bolton King, chief executive of NAEA, said: “These factors relate to the principle of supply and demand. At a very basic level, if supply is limited and demand is high then prices will remain stable or rise. We know that supply is a problem for the UK – a fact highlighted by the government recently as it revised its house building targets upwards. Similarly, we know demand will continue to increase. The population is rapidly growing and at the same time the number of single person households is also on the rise. While the market may have been asked to weather some considerable storms recently, the basic supply and demand dynamic is what will help to keep it steady in the long term.
“The market as a whole is clearly not as strong now as it has been over the past seven years and this is down to a combination of factors. While we expect to see a much more subdued picture in 2008, the underlying strengths remain the same and we are hopefully that these will help the market to weather adversity over the coming year.”
RTPI believes Planning Bill will speed up green infrastructure
The Royal Town Planning Institute (RTPI) believes the Planning Bill, with its call for an independent planning commission, will speed up the delivery of vital green infrastructure.
The commission will work within set national policy statements which, when linked to the Climate Change Bill, will transparently demonstrate whether this Government has a real commitment to a low-carbon future.
Rynd Smith, RTPI director of policy and communications, said: “Green groups are missing a trick by not supporting this legislation. Clear national policy statements will offer a window into our Government’s commitment to reduce CO2 emissions. And the Independent Planning Commission (IPC) will deliver green infrastructure more quickly: in the timescales identified by the Stern Report as necessary to prevent climate chaos. At last the public will have a measuring stick to ensure that new infrastructures deliver to the commitments in the Climate Change Bill, once it has been passed.”
“The Climate Change Bill commits the UK to a 60% reduction in CO2 emissions by 2050 with ‘real progress’ by 2020. It also calls for carbon budgeting. The national policy statements will have to form part of the pathway to meeting these goals and for taking forward carbon budgeting in a very real sense. The IPC will be charged with delivering this on a location specific basis.”
HIPs, HIPs, go away, said Conservative Party
The Association of Home Information Pack Providers (AHIPP) are pleased that a housing review has been launched by the Conservative Party although they are disappointed that the party still wants to scrap Home Information Packs (HIPs).
Paul Broadhead, deputy director general of AHIPP, said: “A housing review launched by the Conservative party is long overdue and at last gives them a real opportunity to form a robust policy on this vital issue. It is good that they finally recognise that there are problems for buyers and sellers, although continuing to state that HIPs will be scrapped ahead of the results of this review seems a little premature.
“Claims that HIPs are of little benefit to buyers are simply untrue. HIPs are the first, vital step of home buying reform, set to speed up the process and make it more transparent, as well as aid first time buyers in getting onto the ladder.
“Currently one in four transactions fail when purchasing a house, costing consumers £1m per day. With the final roll out of HIPs for one and two bedroom homes taking place on 14 th December consumers will be provided with unprecedented consumer protection and redress for the first time. HIPs may not be a panacea for all the problems in the housing market, but if built upon correctly can provide the foundations for a revolution in the process for the benefit of all consumers.
“I urge the Conservatives to take into consideration all suggestions of how to improve this process and not let their view be coloured by the politicking that has taken place before. Consumers deserve complete transparency when buying a home and we welcome all constructive steps to further the reform.”
CBRE expects residential market to grow in 2008
Contrary to most 2008 forecasts, Jennet Siebrits, head of residential research for CB Richard Ellis (CBRE) Residential Research, said that CBRE expects house price growth in 2008.
Siebrits said: “We expect house price growth in the UK next year to be 4% as opposed to 7% this year. London will outperform the market, with growth rates at 6%. At CBRE, we are not predicting a crash and are more optimistic than other commentators. This is largely because the economic fundamentals remain sound. In addition, the market weakness will put off some sellers, people don’t like to sell when they think they are making a loss – whether that loss is perceived or actual.
“Significant and consecutive house price falls happen when home owners are forced to sell. With a benign economic backdrop we do not envisage that happening. As a result we expect a thin market in 2008 with lower levels of transactions. However, following a rather stagnant year, we expect the market to pick up again.”
Review of private rented housing sector launched
Yvette Cooper, the Government’s housing minister, is to launch a review of the private rented housing sector as part of a package of proposals to improve social housing services.
Plans include extra investment aimed at making social housing fairer, more effective and more suited to the occupiers.
As part of these plans, a review of the private rented sector is expected to be led by Julie Rugg, an academic at York University. It will examine areas such as how renting can help those unable to afford houses. More details are to be announced next year.
The British Property Federationsaid a professional rented sector similar to the US’s could solve supply issues and ensure stability in the housing market. It called on the Government to remove barriers to the growth of commercial investment in the sector.
Cooper told the Housing Corporation and Chartered Institute of Housing there would be a 'major crackdown' on cramped housing.
The National Landlords Association (NLA) has welcomed the Government’s announcement. David Salusbury, chairman of NLA, said: “ The NLA hopes this review will further enhance the critical importance of the private rented sector in providing high standard and affordable housing to those who choose to rent. In a market where home ownership continues to elude many people, having appropriate residential accommodation is of the highest priority. With so many changes in the sector, a strategic review offers the chance to explore the impact of recent developments. “Naturally, any review of the sector must include the opinions and views of the nation’s landlords and the NLA looks forward to having the opportunity to contribute to this review. Furthermore, we look forward to having early sight of the terms of reference.”
House price growth is negative and supply is tight
Surveyors from The Royal Institute of Chartered Surveyors (RICS) have reported that house price growth remained negative for the fourth month in succession, but supply remains tight.
In November 40.6% more chartered surveyors reported a fall rather than a rise in house prices, which is down from 23.4% in October. This is the most negative since May 2005, when 49% more chartered surveyors reported a fall than a rise.
In addition, 6% more chartered surveyors reported a fall than a rise in new instructions to sell property up from 17% in October. However, new buyer enquiries improved for the first time in 12 months with 31% more chartered surveyors reporting a fall than a rise which is up from 41% in October. Some would-be buyers have started to test the resolve of many sellers who might be feeling the pinch of successive interest rises but many have been prevented by moving forward by tightening mortgage lending criteria. In fact, the balance of newly agreed sales declined at the fastest pace since April 1999 (when the question was first asked) when 36% more chartered surveyors reported a fall rather than a rise in newly agreed sales.
Surveyors reported price falls across all regions in England and Wales. This was particularly visible in the East and West Midlands. In Northern Ireland, surveyors reported broadly based price declines. Scotland was the only region in the survey where surveyors reported a positive trend in house prices.
Jeremy Leaf, RICS spokesman, said: “It is clear that the housing market continues to feel the strain of depressed market conditions. The recent credit crunch continues to hit confidence in the market, with chartered surveyors feeling the most pessimistic about price expectations since 1998.
“However, while underlying economic fundamentals remain sound and the labour market remains strong, large falls in prices remain unlikely. Employment would have to fall sharply before enough supply entered the market to create a significant dip.”
CAB’s report is too simplistic, said CML
According to the Council of Mortgage Lenders (CML), the recently published Citizens Advice Bureau (CAB) report, ‘Set up to Fail’, is too simplistic in its criticisms of the lending industry.
CAB alleged that lenders default too quickly to court action but CML believes that the vast majority of mortgage customers receive a high level of help and care from lenders if they fall into difficulties in accordance with the rules set out by the Financial Services Authority (FSA). It requires lenders to seek possession only where all other reasonable attempts to resolve the position have failed. CML thinks that CAB’s evidence is based on a very skewed sample of borrowers.
CML is keen to point out that overall the level of mortgage arrears and possessions in the UK mortgage market are extremely small. The CML forecast of 30,000 first-charge possessions this year is in the context of 11.8m mortgaged households, and the individual case studies cited in the report are just a tiny fraction of UK borrowers.
However, CML agreed that there is a case for FSA regulation, that at present only covers first mortgages, to apply across both first charge mortgages and other secured loans. Many of the cases in the report relate to second charge lending, which is not regulated by the FSA.
Michael Coogan, CML director general, said: “CAB has taken a sensationalist tone in this report. In fact, sub-prime mortgages give people a way to rehabilitate their finances and are important in a financially inclusive mortgage market.
“This is a pity, as we agree with many of the underlying policy recommendations, particularly about the need for Government to improve the woefully inadequate public safety net for home-owners who fall into difficulties. It is vital to recognise that the overwhelming majority of mortgage borrowers are meeting their payments in full and on time.”
Static residential asking prices, according to Chesterton Meta-Index
Chesterton Meta-Index November 2007 indicates that asking price growth across the regions in England and Wales was less than 1% month-on-month.
Last month’s index reported that asking house prices in London and Yorkshire and the Humberside fell. According to the Land Registry data recently released, these regions had the strongest fall in house prices out of the 12 regions covered by the index.
The latest index highlighted that the asking price of an average residential property in England and Wales has risen to £199,462 and the least expensive region in the UK to buy a property is now £131,984. At this time last year, Scotland was the least expensive region but asking prices have risen 18.7% in Scotland over the last year, compared to 5% in Yorkshire. The average residential property in Scotland is now £143,043 and it is the fourth least expensive region.
Asking price growth across the regions in England and Wales was less than 1% month-on-month. Prices in Scotland and Northern Ireland continue to grow at a faster speed that the rest of the UK. Flat prices increased by just 0.4% in November as many sellers placed their properties on the market in order to avoid the extra cost of Home Information Packs (HIPs).
