According to the Association of Residential Agents’ (ARLA) latest quarterly survey, average rents in the private rented sector (PRS) have risen by an average of 4% for houses and 2% for flats in the three months to the end of February 2008.
Rental incomes have increased by over £3,000 a year for renting a house and £1,500 for renting a flat in Prime Central London. Rents have risen in the rest of the country too, from an average of £931 to £981 for houses and £619 to £664 for flats.
The survey showed that falling asset prices are leading to higher yields as well as increasing rents. Average returns for rented houses are up from 4.8% to 5%, while flats have risen from 4.9% to 5%.
Ian Potter, head of operations, said: “We are seeing the beginning of the inevitable. Whenever property prices soften or fall, rental demand, rents and yields all increase. As we begin a year of uncertainty in the sales market, it is inevitable that our member letting agents should report that they have more tenants than properties available for them.”
However, in the South East the average rent dropped from £1,390 to £1,361 a month for houses and from £930 to £882 for flats. Malcolm Harrison, spokesperson for ARLA, said: “This is the first time that this has happened and I put it down to seasonal factors. It is highly unlikely that this is a continuing trend thanks to softening house prices. It will pick up again in the next survey.”
Scotland remains most buoyant housing market in the UK
The balance of chartered surveyors that reported house price falls increased to near historical levels in February and stock piles rose to levels not seen for a decade, according to the Royal Institute of Chartered Surveyors’ (RICS) February UK housing market survey.
The RICS’ house price balance dropped for the seventh month in succession signalling more than half a year of negative market sentiment. Around 64.1% more chartered surveyors reported a fall rather than a rise in house prices, an increase from 54.7% in January. This figure is close to the historical low of June 1990 when 64.5% more chartered surveyors reported a fall in house prices.
However, Scotland tells a different story. The net balance of surveyors reporting price rises surged from 7% to 25% – a significant jump in the current economic climate, indicating that Scotland still remains the most buoyant market in the UK. Although monthly data can be volatile, this relatively healthy trend is broadly consistent with economic data coming out of the country.
Ian Perry, RICS’ spokesman, said: “Confidence in the market is clearly having an effect in prices. A combination of a lack of available finance and weakening demand is causing a slow drop in capital values. While there is very little new supply coming onto the market, it is unlikely that there will be significant price drops in the short term but the build-up of unsold stocks will encourage buyers to negotiate lower asking prices.”
Mortgage approvals dip in February
According to Connells Survey and Valuation Mortgage Approvals Tracker, mortgage approvals for house purchase renewed the downward trend in February, reversing January’s slight recovery.
They fell 3.5% to 71,400 in February, down from 74,000 in January 2008, representing the weakest February since the Bank of England records began in 1993. Only June 2005 was a weaker month for homebuyers taking out mortgages, as the housing market slowed to a halt following the 2004 succession of base rate increases. Compared to February 2007, the decline in approvals was 40.5%. Mortgage approvals for house purchase have now fallen in 10 of the last 12 months.
Ross Bowen, managing director of Connells Survey and Valuation, said: “February’s fall in mortgage approvals is not as dramatic as the fourth quarter of last year, but it does reflect both reduced appetite for borrowing and a tighter supply of lending from mortgage providers. Money market rates have climbed again in recent weeks, keeping mortgage rates relatively high, despite February’s cut in base rates. Meanwhile, confidence among homebuyers is more subdued. Those with plenty of equity in their homes or large deposits have much more flexibility and can borrow more freely, but first time buyers and those with a poorer credit history are struggling to find lenders who can help them.
“We are seeing stronger demand for remortgage business than for new mortgages. Those not moving tend to have access to better deals and need not worry about the direction of house prices.”
RTPI wants to introduce a ‘Land Banking Levy’
Developers that are slow to build homes and shops on land for which they have already gained planning permission should be taxed to discourage them from manipulating the property market, according to the Royal Town Planning Institute (RTPI).
The RTPI believes a ‘Land Banking Levy’ is needed to discourage developers, particularly in the housing and retail sectors, from putting off building. It has warned that the credit crunch and subsequent cooling of the housing market could lead to housing developers - some of which have enough plots with planning permission on their books for more than four years of construction – delaying construction projects while they wait for market conditions which promise fatter margins and bigger profits.
A recent report by the RTPI revealed that house builders have banks of land with planning permission of close to 14,000 acres, enough for 225,000 new homes. However, despite having this resource at their disposal, in January the number of homes being started by developers fell by 39% year-on-year. The RTPI believes the Government must step in to reverse the slide or face the prospect of failing to meet its housing targets.
General Robert Upton, RTPI secretary, said: “A number of developers are sitting on vast tracts of land for which they’ve already gained planning approval and we believe they should be strongly encouraged to use it. There is a rapidly growing need for housing in the UK which will not be met if housing developers feel they can withhold land until the market heats up again and their margins fatten.
“Introducing a ‘Land Banking Levy’, which would penalise the companies that fail to use their resources in a timely fashion, would go some way to preventing developers from cynically manipulating the housing market and would give more people the opportunity to get a foothold on the property ladder. It would also discourage anti-competitive practices between retailers.”
Review of The Housing Revenue Account Subsidy system
Yvette Cooper, Chief Secretary to the Treasury, and Caroline Flint, Minister for Housing and Planning, have formally launched the review of the Housing Revenue Account Subsidy system.
Cooper, when she herself was Minister for Housing and Planning, announced the review in December 2007 as part of a wide ranging package of measures designed both to deliver the new homes the country needs, plus making existing homes fit for the 21 st Century.
The review will consider evidence about the need to spend on property management, maintenance and repairs. It will consider rent policy, including the relationship between council rents and rents set by other social housing providers.
The review commenced with a constructive debate on the draft terms of reference and, to take the work forward, the Ministers announced that the Chartered Institute of Housing would be hosting a number of expert workshops on the main themes of the review to gather evidence to inform the review.
Flint said: “The Housing Revenue Account Subsidy system is very complex and I know that people are unhappy with it because of its seeming unfairness and lack of transparency. I want the system to work so that it delivers for tenants and local authorities, and to get it right in the long term. This review, with the active engagement of key stakeholders, is essential to that.”
Buy-to-let sector is booming thanks to the credit crunch
According to letting agent Your Move, the buy-to-let sector is booming as the number of leases that commenced in January and February rose 21% compared to 12 months ago.
Your Move believes that not only has the credit crunch led to a pronounced rise in tenant demand, but that the trend is set to continue.
David Newnes, managing director of Your Move, said: “The start of 2008 has seen considerable growth in the buy-to-let sector. Squeezed credit and volatile mortgage rates have contributed to an increased demand for rental accommodation. First-time buyers with little or no deposit are finding it virtually impossible to secure high LTV mortgages – the days of 125% mortgages are long gone. But frustrated wannabe first-time buyers still need a roof over their heads and buy-to-let is filling the gap. The strong fundamentals are impossible to argue with.
“The demand is definitely there. The private rented sector is the out-and-out beneficiary of the liquidity squeeze. Not only do buyers have less access to credit, but those that can get it have been spooked by the negative sentiment surrounding house prices. Landlords are cleaning up.”
The Budget’s ups and downs
The Budget, announced yesterday, drew a range of reactions from the property industry with many thinking first-time buyers were neglected.
The Council of Mortgage Lenders (CML) welcomed the announcements of further consultation on market-led solutions to strengthen the mortgage funding market, and hopes for early progress with active participation by the Bank of England. However, CML also thought there was a lack of urgency on sale-and-leaseback schemes as the Financial Services Authority (FSA) and the Office of Fair Trading (OFT) have been tasked with undertaking a review of the operation of such schemes but no timescale has been set to tighten up requirements in this sector.
CML, as well as developer Galliford Try, welcomed the modest announcements relating to shared equity schemes for key worker first-time buyers but believe they are unlikely to offer any short term relief to affordability and entry costs for other first-time buyers in the housing market, where a stamp duty reprieve would have done so.
Chris Coates, managing director of Galliford Try Homes, said: “It is disappointing that Chancellor Alistair Darling has given little tangible help to the majority of first-time buyers in his first budget. While stamp duty will now not be payable on shared ownership properties until buyers own 80% of the equity in their home, the Government knows the take up of these schemes is miniscule compared to the wider housing market.
“At present, 61% of first-time buyers pay stamp duty and the numbers paying higher levels has risen to 11%. The Chancellor is out of touch with the financial pressures facing this group and seems unable to grasp their importance in the housing market.”
In addition, according to Savills, the clarification of the proposals for the taxation of non-doms in the Budget will free up London’s prime property market by providing a degree of certainty, but will nonetheless have a dampening effect over the next 12-24 months, during which time prices are expected to show little growth.
Commercial investment in the UK falls by £10.7bn
According to CB Richard Ellis (CBRE), commercial investment in the UK in the second half of last year fell by £10.7bn, with funding for new developments almost entirely drying up.
The research found that investment in UK commercial property fell by 9% in 2007, a statistic which hides a much larger fall following quick price rises in the first half of 2007. Overall commercial investment in the year was £59bn.
Nick Axford, head of research in Europe, the Middle East and Africa at CBRE, said that the change in sentiment from lenders and financial institutions meant that it was now virtually impossible to fund commercial development without tenants signed-up in advance. He added it was now likely that the easy access to capital seen up until the middle of last would not be repeated, with a permanent return to a more normal commercial property market more likely. “To expect us to go back to an environment we had in 2005-6 in the future is just unrealistic. It’s now back to basics, back to a world where risk is priced in to property transactions”, he said.
Over £100m planned investment for South West Wales
Plans have been unveiled to redevelop 1,000 acres of industrial land between Neath town centre and the River Neath in South West Wales.
Councillor Derek Vaughan, leader of Neath Port Talbot Council, said business, leisure and residential developments would regenerate the area.. He said: “These regeneration schemes will bring huge benefits to the people of Neath and secure the future of Neath town centre for years to come.”
The council leader said he believed the Neath Canal, which runs through the middle of the site, could provide a focus for the redevelopment, although no fixed decisions have been made and initial ideas will be put forward for public consultation in May or June.
In the meantime, work on an £80m retail complex being overseen by developer Simons gets underway next month. Vaughan stressed that 220,000 sq ft of new retail space would be created, along with a new “state-of-the-art” heritage centre, library, multi-storey car park and cafe quarter.
All together, these plans bring in a total investment of £100m for Neath town centre and the surrounding area.
Mortgage Express pulls 100% range
Mortgage Express has withdrawn its 100% range from the mortgage lending market.
The company blamed this on a number of significant changes in the market recently, most notably lenders withdrawing from certain sectors. It said that it made this move in order to maintain service standards.
The following products will no longer be available: 100% plus and 100% mortgages, buy-to-let extended criteria products (with 90% LTV) and 2-Year Self Cert deals at 85% LTV. Mortgage Express said its 3-year self cert deals at 85% LTV will remain.
