Ken Livingstone backs BPF’s call for greater institutional investment
Ken Livingstone has published his housing manifesto which banks the British Property Federation’s (BPF) calls for greater institutional investment in London’s rental market.
The document said that ‘good quality private rented housing also has an important part to play in meeting housing needs in London’. The BPF has led a much publicised campaign to encourage investment from large institutions into developing a ‘build-to-let’ sector. The manifesto criticises the current quality of some rental accommodation and recommends that institutional investment could improve standards in the sector.
Ian Fletcher, residential director at the BPF, said: “We welcome the focus the London Mayoral election has had on the private rented sector in the capital and this support for a build-to-let sector. It is clear from the current market conditions that many people will still not be able to afford to buy, even if prices continue to fall. The professional rented sector has a key role to play in fulfilling the capital’s housing needs and those across the UK.”
Andrew Pratt, managing director of residential, at Grainger plc, the largest quoted residential property owner and manager in the UK, said: "The mayor's housing manifesto shows a positive understanding of the current market and his willingness to work with the property industry to help solve the housing crisis which could be the catalyst in delivering the housing that Londoners deserve. The key element of the housing situation will be supply. There is sure to be a large amount of people needing rental accommodation as fixed-rate mortgage periods end and as home purchase is more difficult to finance. Despite significant structural barriers to institutional investment there are investors that are keen to invest.
“These barriers can be removed by encouraging ‘build-to-let’ projects specifically designed for the rented sector, solutions for which urgently need to be further explored, following which there will be a real opportunity for the professional rented sector to show government how it is placed to offer quality accommodation that families and young professionals need.”
“Government needs to change approach to development funding”
According to Yolande Barnes, director of Savills research, a radical change in the approach to development funding is required following the Government’s announcement of its shortlist for creating 10 eco-towns.
Barnes said: “Research shows that a large amount of the value tied up with developing to sustainable principles is realised over the medium to long-term. This does not suit the shorter term approach of many developers and their shareholders particularly at a time when funding is in crisis. The creation of new, longer term investment vehicles and mechanisms is required combined with a ‘cultural shift’ by developers towards timescales to enable investor/landowner participation over the entire development period and possibly beyond.
“Our research shows that householders do consider energy efficiency issues to be important but few are prepared to pay more for homes with measures to reduce environmental impact. They are more motivated by saving money than saving the planet. This currently presents developers with a real problem in how to bridge the cost/value gap associated with sustainable homes.”
Prime regional markets more resilient to credit crunch than mainstream
According to Savills’ latest research, prime regional markets are proving more resilient to the credit crunch than their mainstream and central London counterparts with average values falling by just 0.5% in the first quarter of this year. Year-on-year growth now stands at 4.9%.
On a regional basis, the biggest falls were recorded in the Midlands and the North where values fell by 2.1% in the quarter pushing average annual growth into negative figures at -3.3%. Scotland continues to fare most strongly although growth for the quarter was marginal at 0.3%.
Lucian Cook, director for Savills research, said: “ In the price ranges were access to mortgage finance and the impact of the credit crunch is less of an issue values have held up. The +£4m market proved the most robust recording 2.2% growth with no change recorded for the +£2m market.”
Greatest pressure has been placed on the sub £500,000 market where pressures on access to mortgage finance have had the greatest impact. In the South East, uncertainty amongst city buyers in the £1m to £2m market has contributed to price falls of 0.8% across the country in this range.
High street banks and building societies want a bigger slice of the buy-to-let pie
High street banks and building societies will increasingly dominate the buy-to-let marketplace, said Mortgages for Business.
The buy-to-let market has for many years been dominated by securitised lenders with funds borrowed from the money markets and niche brands owned by the larger financials institutions. However, the global credit crunch has led to funding difficulties for the securitised lenders and limited funding for niche brands from their parent organisations.
Jonathan Moore, head of marketing at Mortgages for Business, said: “Many securitised mortgage lenders have as yet not been able to re-enter the marketplace as funding is sparse and too expensively priced. Meanwhile, many niche brands are receiving smaller tranches of funding from their parent companies as a result of liquidity concerns.”
Banks and building societies that have recently come to the fore with their product offerings include Alliance & Leicester, Cheltenham & Gloucester, Woolwich and Natwest.
Specialist products are still part of the market however they are becoming less available. Investors will need to choose their broker carefully and ask the right questions should they wish to obtain the very best products available”, concluded Moore.
Halifax introduces LTV banding system
Halifax has introduced a new Loan-to-Value (LTV) banding system which will see borrowers with less than 25% deposit charged 0.14% more than someone who has a substantial deposit.
The lender will be introducing, from Monday, three LTV bands replacing its current two groupings. The first band will be for LTVs of 0-75%, the second will consist of LTVs between 75-90%, with the last at 90-95%. These changes will apply across Halifax, Bank of Scotland and Intelligent Finance.
A HBOS spokesperson says that borrowers who give a deposit bigger than 25% of the value of their home will typically be charged 0.1% less. He said: “We will reward customers for their prudence.”
For those borrwers who can only afford to put a deposit of between 10-24.9%, HBOS will charge them 0.14% more. HBOS claims that 70% of its customers already put down deposits of more than 25%.
Meanwhile, the Halifax has just announced that UK house prices fell by 2.5% in March, the biggest monthly decline since September 1992. House prices are now just 1.1% higher than they were a year ago, the slowest annual growth rate for 12 years.
Commenting on the Halifax house price data, Simon Rubinsohn, RICS chief economist said: "The sharp fall in the Halifax house price index in March highlights the growing pressure on the residential market as lenders continue to scale back their activity in the market. Loan to value ratios are being lowered at the same point as borrowing rates are being raised putting increasing pressure on first-time buyers who are having to find ever larger deposits. There is moreover a real risk that year-on-year house price inflation will turn negative over the next month or two. This will compound the negative newsflow on the housing market.
"The Bank of England could respond to growing fears about the impact of the credit crunch and the worsening state of the property market by cutting interest rates on Thursday. Even so, we suspect that any immediate benefit for new home buyers is likely to be limited."
BoE cuts interest rates to 5%
The Bank of England’s Monetary Policy Committee (MPC) has voted to cut interest rates by 0.25% to 5%.
CPI Inflation rose to 2.5% in February and the committee expects inflation to rise further this year, reflecting the continuing impact of higher energy and food prices, as well as the recent depreciation of sterling on import costs.
To ensure that inflation meets the 2% target in the medium term, the committee needed to balance the two risks. On the upside, above-target inflation this year could raise inflation expectations so that, in the absence of some margin of spare capacity, inflation would remain above the target. On the downside, the disruption in financial markets could lead to a slowdown in the economy that was sufficiently sharp to pull inflation below the target.
In the committee’s opinion, the balance of these risks to the inflation outlook in the medium term justifies a cut in interest rates this month. Credit conditions have tightened and the availability of credit appears to be worsening. While the recent depreciation in sterling will support net exports, the prospects for output growth abroad have deteriorated. In the United Kingdom, business surveys suggest that growth has begun to moderate and that a margin of spare capacity will emerge during this year. This should help to keep domestic inflationary pressures in check in the medium term.
Landlords believe tenant demand is booming
A third of all landlords believe that tenant demand is currently experiencing rapid growth, up from just over a quarter at the end of 2007, according to Paragon Mortgages, which is the highest proportion since May 2004.
A further 58% of landlords believe that demand is currently strong and stable, while only 7% of landlords think there has been any decline in tenant demand recently.
John Heron, director of mortgages at Paragon, said: “ Our landlords are optimistic about the level of demand from tenants. Young people are choosing to remain in rented accommodation for longer due to the uncertain housing market outlook. This is definitely placing pressure on the stock of private rented homes available.”
According to the Association of Residential Letting Agents (ARLA), the proportion of landlords who think that demand for private rented homes outstrips supply is at its third highest level on record, at 50%. However, in London and the South East, this number rises to 52% and 59% respectively.
The tough borrowing conditions now faced by people looking to get onto the property ladder will continue to cause them to delay purchasing property. As such, Paragon’s research showed that 48% of landlords expect tenant demand to increase further over the next twelve months.
Heron said: “ Despite much hype to the contrary, professional landlords enter into their investments with a long-term outlook and they will continue to provide a home for these people. New Capital Gains Tax rules and cooling property prices will not deter them from the market while tenant demand is high and strong rental incomes generate attractive returns. Supply as a whole will not weaken, but in comparison to demand it is already under strain. Landlords must take the buying opportunities that a cooler market offers to ensure the supply/demand imbalance does not spiral out of control.”
Government announces new measures to support key workers and FTBs
A major package of new measures to support key workers and other first time buyers into affordable homeownership was recently announced by the Prime Minister Gordon Brown and Housing Minister Caroline Flint.
New cash grants of £1,500 will be offered to buyers who take up a shared equity loan under the Government’s Open Market Homebuy scheme (OMHB). Whilst to help increase long term housing supply, the Government is confirming the locations of surplus public sector land sites that will provide 30,000 new homes, many of which will be affordable.
The new grants will help key workers taking up OMHB with the costs associated with setting up a new home such as solicitor’s charges, fees, and furniture. More than £3m has initially been earmarked for the first wave of grants.
Under OMHB, key workers can boost their purchasing power by up to 50% following the launch of two new shared equity mortgage products announced in the budget. This means a household with an income of £32,000 could afford a house of £200,000, paying £760 each month - as opposed to £1,350 without the scheme.
Flint said: “We urgently need to meet the challenges of building more homes. Our plans for public land, and tougher building regulations, means we can deliver the homes our young families and first time buyers desperately need, whilst protecting and maintaining the environment. It is important that we look at what more can be done to support households most at risk from the impact of the global credit crunch, working closely with the CML.”
Tracker-rate mortgages gain in popularity
The number of people choosing tracker rate mortgages have more than doubled in the past 12 months from February’s 2007 figure of 14% of the mortgage market to February 2008’s figure of 35%, according to the Council of Mortgage Lenders (CML).
The number of people opting for fixed-rate loans has fallen to 52%, which is its lowest level since March 2005. Floating rate products have also become increasingly attractive when compared with fixed-rate products, as consumers expect further base rate reductions in the coming months. These mortgage figures typically relate to applications taken out several months ago, and do not reflect the shrinking availability of mortgage products and re-pricing which has been a feature of the market in recent weeks.
First-time buyers in February typically borrowed 88% of the property’s value, unchanged from January and 3.33 times their income (also unchanged from January). Home movers typically borrowed 71% of the property’s value, and 2.97 times their income, unchanged from January.
Mortgage lending activity in February remained subdued. February’s gross lending totalled £25bn, down 3.5% from £25.9bn in January and 2.3% from £26.6bn in February 2007. Loans for house purchases declined in volume to 49,000, down 3.5% from 50,900 in January, and by 5.1% in value to £7.5bn. The number of loans for house purchases has been more than 30% lower than a year ago for the last three months, and this picture of year on year declines will likely continue throughout 2008.
Remortgaging made up 45% of all lending in February, this is unchanged from January and the highest share since March 2005. Remortgaging activity is likely to remain relatively strong, and will likely represent a higher percentage of all lending for the rest of the year, given the wave of borrowers due to come off fixed and discounted rates in 2008.
Lowest total commercial development activity since survey began
According to Savills’ latest Total Commercial Development Activity Index, there is a sharp decline in UK commercial development. It stands at -16.4% which is down 6% from February’s figure.
This is the lowest reading since data was first collected in March 2003, with around 28% of survey respondents reporting a fall in activity, against just 12% that signalled a rise.
In March, lower levels of activity were widely attributed to tighter bank lending conditions and deteriorating market sentiment. Some also commented that weaker growth prospects for the global economy had dented client demand. Compared to one month ago, work on public sector projects have fallen at the sharpest rate in the survey history. Private sector development declined markedly and at a faster pace than in February.
The Future Activity Index registered -19.6% in March, down from -7.7% in February to indicate that business sentiment was in negative territory for a sixth consecutive month. The latest reading was close to January’s survey low (-23.6%), with developers linking their pessimism to weak market demand and the rising cost of borrowing in March. Commercial developers reported negative sentiment about the 3-month outlook for office construction, retail and leisure activity and industrial/warehouse projects.
