BoE indicates no more cuts in interest rates in foreseeable future
Mervyn King, governor of the Bank of England (BoE), has recently indicated that if global and local economic conditions continue as they are it is unlikely that Britain will see interest rate cuts in the next two years.
When he presented the Inflation Report for May, King said: “The rise in inflation is coming from shocks from the rest of the world economy and these are coming in the next six months into the price level, and they will be there for another 12 months. It does not make sense to try to bring inflation back to 2% within that timeframe, but looking two years ahead we should we should certainly be trying to bring inflation back very close to that target.”
Contrary to other media reports, this is not a definite ‘no to interest rate cuts’. A spokesman for the BoE explained that decisions on interest rate cuts are always made on a monthly basis and reflect what is happening both in Britain and globally with no one being able to predict with absolute certainty what will happen over the next two years.
House prices continue to fall according to both Land Registry and the Nationwide
According to two different reports, both selling and mortgage offer prices (a price in between the selling and asking price) for property continues to fall,
The Land Registry, which records final sale prices, reported that growth in house prices fell to 2.7% in April. Nationwide Building Society, which records the mortgage offer price, reported that the average house price fell by 2.5% in May.
The figures from the Land Registry showed that the average house price in England and Wales is now down to £183,626 compared to £184,798 last month, which is the eighth month in a row that it has fallen. The Land Registry also reported stark differences in prices on a regional level with the West Midlands showing the least capital growth (-1.2%) and the South East showing the most (+0.5%).
Nationwide’s figures recorded a fall in the average house price from £178,555 in March to £173,583 in April. Although Nationwide reported an annual fall of 4.4% over the last year, house prices are still 5% higher than they were two years ago.
Fionnuala Earley, chief economist for Nationwide, told PIN: “There are three reasons why borrowers are in a better position than in the early nineties. First, fewer borrowers have bought at the top of the cycle; second, the loan-to-value ratios are lower than they were and finally a much bigger proportion of borrowers have taken out a repayment policy rather than an endowment policy.”
When asked about her views with regard to an oncoming recession, Earley added: “The Nationwide’s central forecast is that the economy will not hit a recession. There will be a rise in unemployment, some forced sales and it will be an uncomfortable time for some but I am not expecting a recession.”
“Buy-to-leave not to blame for rise in empty homes”, says EHA
According to the Empty Homes Agency (EHA) the number of empty homes in England has risen for the first time in nine years. The figures show a rise of nearly 10,000 increasing the total number of empty homes to 672,924.
The statistics showed regional variations in the percentage of empty homes with the largest number being in the north, especially the north-west where 4.18% of homes stand empty. The lowest percentage of empty homes was in the south-east with only 2.35%.
David Ireland, chief executive of the EHA, told PIN: “The largest percentage of empty homes are found in the northern, bigger cities, where there is a high vacancy rate in new build flats due to an oversupply of similar accommodation built in a short period of time. Although this can account for the rise, the major problem is still older homes which make up the bulk of empty homes.”
Due to how the figures are collected, those recently released by the EHA are for the period of 2006/7 and therefore predate the credit crunch. When looking at the previous year Ireland said: “I anticipate a rise when these figure are released, these results are likely to be a trend rather than a blip.”
There have been many media reports regarding buy-to-leave over recent months, but Ireland does not believe that this is the huge problem it has been made out to be. He said: “Empty homes are an effect of a wider downturn in the market. Local authorities need to be more strategic with their powers, focusing their compulsory powers on those homes that will not come back into use by any other means. They should then promote voluntary solutions to landlords, who need clear advice and reassurance about bringing a home back into use.”
Manchester Tram Lines to be Extended
The Department of Transport has pledged £244m towards the £575m total cost of three new tram lines linking Manchester city centre to Oldham and Rochdale, Droylesden in Tameside and Chorlton. The remaining £331m will be provided by Greater Manchester’s 10 local authorities. This could see an increase of 10 million passengers using the Metrolink.
The Metrolink currently carries approximately 20 million passengers a year. These passengers will also benefit from the investment when work is completed in 2012, with improvements also being made to the current network. Rejuvenating disused rail routes for the trams to run along will allow for faster and more frequent services.
Eddie Smith, chief executive of New East Manchester, said: “This is great news for us, the people of east Manchester, and the many public and private sector partners we work with. These transport links are vital for the regeneration of the area and play a key part in our plans to create a sustainable future for the area.”
Sheffield’s commercial catalyst
According to Knight Frank, Sheffield’s Arundel Gate is to become the catalyst for renewed commercial investment opportunities.
There are currently a number of commercial developments underway along Arundel Gate. Boschendal is spending £9m to redevelop the former YEB building to create 38,000 sq ft of office space. Your Space Plc has proposed a redevelopment plan for the former post office site which could see another 40,000 sq ft of office space combined with 12,000 sq ft of townhouse style owner-occupier offices, a 115-bed hotel and a 115-space multi-storey car park. The last five years has seen a number of law firms move to the eastern end of Arundel Gate who have benefited from its close proximity to the law courts.
The area along Arundel Gate is also benefiting from regeneration, with Hammerson’s redevelopment of The Moor which provides both retail and residential developments coupled with a 670-space multi-storey car park. Last year Carling succeeded in purchasing the leasehold to the former Roxy Disco, with the aim of a £3m redevelopment into a near 3,000 capacity Carling Academy music venue.
Young working households priced out of housing market
According to a study published by Hometrack, 28.3% of young working households in Britain are unable to get on the property ladder. The report has also looked at the price of buying compared to renting, and found that it costs 32% less to rent.
The report, ‘Can’t Supply: Can’t Buy – the affordability of private housing in Great Britain’ pointed to rising mortgage costs before and after the credit crunch coupled with strong house price growth as the main reason behind the high percentage of young households unable to afford to buy a home. The situation is also regional with London and the South West having the highest percentage of households in this bracket with 41% and 40% respectively. The report, which covers 2007, found that the mortgage cost to earnings ratio hit a new high of 34.5% compared to its previous peak in 1990 of 34.1%.
The report identified the importance of the private rented sector during a period such as this. With the cost of renting a 2-3 bedroom house at just 68% of the price of buying, the sector delivers to those households who are unable to become owner occupiers. The report highlights buy-to-let investors as having helped by boosting the private rented sector to almost three million homes and averting a situation such as the late eighties when house affordability was high but there was little to no rental sector.
Some concern has been raised with regard to the anticipated rise in rents as competition in the market grows. Author of the report, Professor Steve Wilcox, told PIN: “The percentage of young working households in Britain that can’t get on the property ladder (28.3%) is the highest I’ve seen in the last 4-5 years that I’ve been conducting the study. While house prices decline and mortgage costs continue to increase they offset each other. I therefore see no great change over 2008. Even if rents were to rise sharply, there is such a substantial gap between the cost of renting when compared to buying, that it would take some years of these rent rises and static house prices for it to become of any great concern.”
CML offers steps to combat repossessions
Michael Coogan, director general of the Council of Mortgage Lenders (CML), has written to the Chancellor outlining the steps that need to be taken by the CML, the Government and borrowers to help those that face mortgage arrears and the threat of repossession.
According to the CML, repossession should be and already is a last resort. CML members have committed to four measures to help minimise difficulties for borrowers: to analyse current arrears management policies and to implement any changes that are needed; to provide borrowers with information on the arrears management process, so they can better understand what to expect and that they will be fairly treated; to support the principle of a per-action protocol, this will provide extra assurance that only appropriate cases go to court and lastly to provide borrowers with plenty of notice when they are coming to the end of their initial deal and moving onto a higher rate.
The letter goes on to list three concerns which they feel that the Government needs to address. The impact of different regulatory structures for first and second charge secured lending on consumers, the inadequacy of the state support scheme for mortgage borrowers and regulation of sale and leaseback companies.
With regards to what borrowers can do for themselves, Bernard Clarke, communications manager for the CML, told PIN: “It is very important that the borrower contacts the lender and has a discussion regarding the problems they are or could be facing. This will allow for the widest range of options to be available to them.”
Cut to subsidy for affordable homes in Scotland
The Scottish Government plans to invest £1.5bn in affordable housing over the next three years, with the hope of delivering 21,500 new homes across Scotland. The Government has also said that it will be cutting the level of subsidy per house that housing associations have to spend.
The Scottish Government pointed to the level of subsidy in England to defend this measure. In 2006-07, subsidy levels in England averaged £62,000 whereas in Scotland the figure was £77,000, it therefore argues that there is ‘substantial scope to make savings’.
This is not a sentiment shared by the Scottish Federation of Housing Associations (SFHA). The SFHA have warned that cutting the subsidy given to housing associations will mean that extra cost will have to be covered by increases to the rent, therefore making housing less affordable.
David Stewart, good practice advisor for the SFHA, told PIN: “Housing associations had not wanted to raise rents but we would now estimate for rents to rise 1% above the Retail Price Index (RPI) for the next 30 years. A rise in rents would affect the financially vulnerable members of society with an increase in people falling into the benefit trap and making it harder for those who are already there to get back out.”
When PIN put these concerns to the Scottish Government, a spokeswoman said: “The assumption for rent increases is based on the performance reported to us by housing associations. Current rent levels are generally affordable and will remain so if rents were to rise by RPI +1%, as associations have planned.”
Government faces legal challenge to proposed eco towns
The Better Accessible Responsible Development (BARD) group is planning a legal challenge to not only try to stop proposals for an eco-town in Long Marston, near Stratford, but also to show that the entire process has been conducted illegally.
In the Letter Before Claim For Judicial Review, submitted by solicitors SJ Berwin under instruction from BARD, the campaign group’s grievances is laid out and three actions are requested from the Secretary of State for local government. First, to submit to judgment proceedings that the concepts, plans and programme relating to eco-towns are unlawful; second, to abandon the eco-town concept, plans and programmes only to recommence after proper consultation and finally to abandon the selection of the ex-ministry of defence (MOD) site at Long Marston.
The letter also makes note of the fact that a number of the short listed sites are ex-MOD or Government-owned sites, which the Government could have a financial interest in. This raises concerns of a conflict of interests when decisions regarding the sites are made.
BARD is keen to contrast the eco-town selection process with that of the choice of site for a ‘super’ casino. A spokeswoman for BARD has pointed to the fact that the process for the choice of casino site went beyond what was necessary in operating in a ‘clear and transparent’ way and which BARD has been fighting for throughout the eco-town selection process.
Recently, Cherwell District Council announced ‘its intention to look at possible grounds for a legal challenge’ with regards to another of the Government’s proposed eco-town sites near Bicester in Oxfordshire. David Bliss, chair of BARD, responded to this news by telling PIN: “Clearly there’s now a real groundswell of support forming behind our proposed Judicial Review, but naturally our prime concern is its patently flawed thinking behind the short-listing of Long Marston. Given the obvious strength of feeling, I wouldn’t be surprised if the Government were to take the sensible option and deliver its eco-town experiment on only one or two sites.”
Step forward for £450m regeneration project
An outline planning submission has been made for a £450m mixed-use regeneration scheme in central Birmingham. The Eastland Locks project will create 1.4m sq ft of office, residential, retail and hotel space. The project will also create up to 5,000 jobs.
The Eastland Locks project (formally known as Ventureast) covers a 13 acre site and is being developed in partnership between property group Goodman and Advantage West Midlands (AWM). The Eastland Locks project is one part of Birmingham’s Big City Plan which is a 20 year plan for the greater city centre area.
When completed, the Eastside Locks project will comprise of 686,000 sq ft of office space, 352,819 sq ft of residential space, 103,000 sq ft of retail space and a 175 room hotel covering 94,184 sq ft. Further to this 50,000 sq ft of extra office space will be reserved for ‘flexible office space’ to support the media and learning sectors.
Mick Laverty, chief executive of AWM, said: “The planning process will represent a major step forward as we work with our partners in the joint venture to deliver a thriving and dynamic extension to the centre of Birmingham.”
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.
