According to Hometrack’s May monthly national housing survey, house prices fell for the eighth month in a row during May by a further -0.5%, following a -0.6% drop during April.
The figures also showed that the annual rate of growth in the housing market was down to -1.9% in May from -0.9% last month, which is the lowest level since November 2005 when the rate of growth was at -2.3%.
The survey found that there is an increasing problem with supply and demand within the housing market. The number of houses for sale far outweighs the volume of buyers, creating what Richard Donnell, director of research for Hometrack, describes as a “buyers strike”.
Hometrack also found that the percentage of the asking price achieved at sale has continued to fall. In April, the average percentage of asking price achieved was 93% and in May this fell to 92.3%, - the lowest point since the survey began in 2001. The greatest fall has been in London where over the last year the percentage has fallen from 97.1% to 91.9%.
Although the surveys results are bleak, Donnell does not see this as the market collapsing. He said: “In order to get sizable price falls, a large majority of transactions need to be ‘forced’ sales which are mostly prevalent in periods of rising unemployment and recession. The fall in buyer confidence over the last six months has certainly impacted on transaction volumes but we do not believe that this is a precursor to a major rise in forced sales and large price falls.”
Lettings increase as house sales fall
The Royal Institute of Charted Surveyors’ (RICS) Q1 2008 Residential Lettings Survey has found that the fall in house sales have pushed vendors into the lettings market.
It found that new instructions to let properties have significantly increased in Q1 2008. As capital values decrease, rental yields are increasing, so the draw of renting a property rather than leaving it indefinitely on the market is much more appealing. The survey found that the net balance of surveyors reporting a rise in gross yields was at its highest point since the survey began.
The figures also showed that initial concerns of a mass exodus from the rental market appears to be unfounded with a fall in the percentage of landlords selling their properties when a tenant’s lease expires from 4.6% to 4.2%.
John Heron, managing director of Paragon Mortgages, sees parallels with the rental market of the early nineties. He said: “Tenant demand is currently rising rapidly as potential first time buyers struggle to get loans for house purchases. This, coupled with an increasingly difficult market environment, is causing a growing number of people to rent their homes privately instead of selling. This is actually a case of history repeating itself. The greatest driver of the private rented sector in recent times was homeowners deciding to let their properties during the downturn in the early nineties.”
Government looks at cutting VAT for buy-to-let refurbishment
MPs have recently called for a cut on VAT from 17.5% to 5% on the price of repairing and maintaining a rental property to incentivise landlords to keep up with the maintenance on their properties.
The recommendation has been put forward by the House of Commons’ communities and local government select committee in their report The Supply of Rental Housing. The committee has identified that some landlords are struggling to keep their properties in good condition due to the high cost of refurbishment, which has lead to some properties standing empty as they are not in a fit state to be let. The report describes the rental sector as having ‘the largest proportion of non-decent homes’ and that to heavily tax repairs and maintenance ‘appears perverse’.
The committee’s recommendation said: “The tax system should not impede or deter any housing provider from taking the steps necessary to improve the supply of rented housing.”
Chris Norris, policy officer for the National Landlords Association (NLA), told PIN: “Although this is not a new call by the select committee, the NLA is keen to see measures that bring empty housing stock back into use. A reduction to VAT across the board would be welcomed”.
Increase in demand for non-prime London offices
According to Drewent London’s Q1 Interim Management Statement there has been an increase in occupier demand for its office accommodation in areas just outside prime central London.
Drewent has found that ‘despite tougher economic conditions, the latter part of the quarter saw an increase in occupier demand for our accommodation’. It found areas such as Victoria, Covent Garden and Paddington becoming increasingly attractive to businesses that are trying to keep costs down by finding competitive rents. In these areas the rents are currently £430-700 sqm, compared to a minimum of £1,290sqm in the West End.
Outside of the city centre, Drewent found that areas such as Shoreditch, Clerkenwell and Holborn are appearing more resilient to current market conditions. This has been put down to lower vacancy rates and less speculative construction.
Properties put up for auction triple
According to auction house Sutton Kersh Binstock (SKB), the number of properties being put up for auction has tripled since January.
In the first four months of this year the auction house has seen the number of property valuation requests rise from 50 to between 150 and 200 per auction, as vendors become increasingly frustrated with the open market.
Andrew Binstock, director and auctioneer at SKB, told PIN: “It is currently a buyers’ market and they hold all the cards, being able to demand the price that they want. Houses are on the open market for up to 10 months and vendors are finding that they are having offers pulled at the last minute more than once.”
When asked about the low numbers of properties that are currently being sold at some auctions, Binstock said: “The top auction houses are struggling due to the reserves being too high. The vendors that bring their properties to auction need to listen to the auctioneers and be more realistic with the price that they expect to get.”
Binstock then went on to discuss what is becoming a common tactic at auction. He said: “In the last 12 months there have been massive amounts of activity occurring post-auction. Buyers are finding that vendors are much more receptive to their offers post-auction, after their property has failed to reach its reserve.” Binstock pointed to the last SKB auction in Liverpool where 13 properties which failed to sell in the auction room then sold in the first 48 hours post-auction.
NAEA reports market stability
A report released by the National Association of Estate Agents (NAEA) has found that the property market picture is still very regional but elements of the market appear to be stabilising.
The NAEA report asked its members to comment on a number of key areas. The number of viewings made on a property prior to selling was 14, which has increased by two from this time last year. The average difference between asking and selling price was 4.7% which the NAEA saw as sellers becoming ‘more realistic’ with the prices that they could achieve. There was a drop in the number of buyers on estate agents books from 249 in March to 237 in April, which show that buyers are remaining cautious. The number of properties on agent’s books increased to 84 in April from 76 in March, which perhaps highlights a shortage of buyers in the market although there is always a seasonal increase at this time of year. The agents also reported that they are still selling houses with an average of seven sales in April, which is consistent with the figures from March.
The news was not so good for first time buyers, with agents again reporting a drop in the number of first time buyers from 8.3% in March to 7.7% in April.
Peter Bolton King, chief executive of the NAEA, told PIN: “I believe that stability will continue but I don’t have a crystal ball. My view is that the underlying factors that support the market - historically low interest rates, low unemployment and latent demand still exist. However, the effect of the credit crunch needs to be fully born out with banks once again lending to each other at sensible rates. That needs to feed through to consumers being able to find mortgages at reasonable rates and moreover the confidence to move before we really see what will happen.”
39.4% drop in mortgages over last year
Figures released by the British Bankers Association (BBA) show nearly a 40% drop in approvals for mortgages for new house purchases.
The BBA has recently released its mortgage lending figures for April which showed there was a slight increase in mortgages for house purchases in April, up from 35,546 in March to 38,704. Although a slight increase is good news for the mortgage market, the figure for April is still a massive 39.4% down when compared to the same time last year.
The BBA also looked at the amount of remortgaging that occurred in the market during April. When comparing March and April, there were 3,158 more remortgages, with the total amount up to 74,722. This figure is also a 20.3% increase on the number of remortgages in April 2007.
Paragon Advance launches no deposit scheme
A new landlord insurance scheme has been launched by Paragon Advance. The Tenancy Deposit Legal Protection (TDLP) policy allows for landlords to lease a property while not charging the tenant a deposit, for a fixed fee of £145.
In 2007 legislation was passed which made it illegal for landlord to take a deposit from tenants without safeguarding it. Three schemes were approved by the Government - The Deposit Protection Service, Tenancy Deposit Solutions Ltd and The Tenancy Deposit Scheme. Although the schemes have been in place and a legal obligation for over a year, concerns are still being raised by charities such as Citizens Advice Bureau and Shelter that they are not being widely used by landlords.
The TDLP is being put forward as an alternative to the Government approved schemes. Paragon Advance describes the advantages of the policy as offering “landlords peace of mind that they will recover the cost of any dilapidation or damage to their property, without requiring the tenant to tie up their money for the duration of the tenancy”.
Janie Gaston, general manager of Paragon Advance told PIN: “The scheme was developed on the back of feedback from landlords and agents regarding the legislative schemes around taking deposits, and the request for the market place to develop an alternative”. When asked about the advantages for both landlord and tenant Gaston added “ This policy offers a mutually agreeable option whereby the landlord has a more realistic chance of recovery and in a timely fashion. In addition to this the tenant has an opportunity for his case to be heard and be part of the mediation process which has not happened in the past.”
£6,425m warehouse site purchased in Southend
Rowan Asset Management has completed a deal to purchase a three acre warehouse site in Southend from Scottish Widows for £6,425m.
The acquisition is part of Rowan’s plans to invest in strong commercial property in the South East. The site on Greyhound Retail Park currently has a net yield of 6.5% and comprises of a 3,405sqm warehouse unit with 162 car parking spaces. The unit is currently let to Matalan Retail Limited and currently produce £440,000 per annum in retail revenue.
When PIN asked Rory Penn, associate director of Rowan what the asset management opportunities of the site were he said: “The site is let for another 15 years, so at this stage we can't be specific. However needless to say, it is a well located three acre site with development potential and space for either retail/ restaurant or in the longer term a residential led mixed use scheme.” When asked why this area of Southend was chosen Penn added: “The site is located in a good residential area which has a shortage of retail developments.”
Gold more popular than property for investors
According to research carried out by Aon Private Clients, investors have greater confidence in gold than they do in property in the current market climate.
The research found that 28% of investors were more confident in gold as a current investment opportunity compared to 20% who had confidence in property. Both of these figures were put into context when compared to the highest result, that 34% of investors found nothing in the current market to be confident in. Investing in shares was at 11%, with more investors showing confidence in art and antiques.
Bill Gloyn, chairman real estate Europe within the Aon Mergers and Acquisitions Group, still feels that property is a good investment for the future, he said: “Property, whether residential or commercial, has always been a safe, long-term, haven for investment. The current economic situation is beginning to reveal some attractive investment opportunities for those who want to purchase properties from distressed owners. Now is the time to be brave, possibly buying when there is still some downside to come but with the confident expectation that the future will prove extremely profitable.”
Mortgage News
In PIN’s latest weekly mortgage recap, Tim Warburton reports…
The Edinburgh Solicitors Property Centre (ESPC) in conjunction with The Bank of Ireland has launched the country’s only 100% mortgage product. The 1 st Start mortgage is a guarantor mortgage which is only available to first and second time buyers who have taken financial advice through ESPC Money Management and is only able to be used on resold properties. As well as having a 100% loan-to-value (LTV), other benefits include no arrangement fee (usually £799), no mortgage advice fee (usually £250), no higher lending charge as well as fixed-rate conveyancing fee deal. It is now available.
After cutting its mortgage interest rates a fortnight ago Abbey has now raised interest rates by an average of +0.44% on its fixed-rate products. A three-year, fixed-rate mortgage with an LTV of 75% now has a rate of 6.14%. A five-year, fixed-rate mortgage with an LTV of 75% now has a rate of 6.19%.
To soften the news Abbey also launched a number of new tracker mortgage products which includes a two-year deal with an LTV of 75%, a starting interest rate of 5.79% and free legals and valuations.
The Woolwich, the mortgage arm of Barclays bank, has announced that it will increase interest rates on products sold through brokers by up to 0.3%.
In addition, Asda is looking to move into the mortgage market by the end of the year.
The supermarket plans to challenge Tesco who currently offer mortgage advice to their customers, by offering a one-stop shop of financial services including mortgage advice through a broker. Asda is currently conducting a tender for mortgage brokers, with three brokers having put in offers.
