The Bank of England (BoE) recently announced that it will be holding interest rates at 5%.
This is the second consecutive month that the BoE’s Monetary Policy Committee has voted to leave the base rate unchanged. With inflation recently reaching 3% and looking likely to rise further over the summer, the committee had to balance growth with a slowing economy. Leading up to the announcement, there had been some calls for a drop of 0.25% but many economists felt that this was highly unlikely especially after news of the rise in inflation.
Liam Bailey, head of research at Knight Frank, told PIN: “The problem that the BoE has is that it has to balance inflation pressures with the need to please the mortgage market. The problems within the mortgage market are not going to ease until the base rate is cut.”
House prices fall £4,000 in May
The Halifax has recently released its House Price Index (HPI) for May, which showed that house prices have fallen by 2.4% since April and was 3.8% lower than in May 2007.
The Halifax’s HPI, which records the mortgage approval price for a house, found that the average house price in May was £184,111, a fall of over £4,000 from April when it was £188,704. Prices are now £12,000 less than they were a year ago (£196,636), which is the largest annual fall since April 1993 (-4.9%).
Martin Ellis, chief economist for the Halifax, told PIN: “We expect house prices to fall further over the coming months reflecting the squeeze on households’ income due to rising fuel and food prices and the reduction in credit availability. These factors are curbing housing demand and putting downward pressure on prices. Price falls should, however, be measured against the significant gains in recent years. High employment levels, low interest rates and a shortage of new homes support housing valuations. These factors should limit the decline in prices.”
Scotland weathering the credit crunch storm
According to the Council of Mortgage Lenders (CML) the credit crunch is having far less of an impact in Scotland than the rest of the UK.
Scotland saw a 20% fall in loans for house purchasers in Q1 2008 compared to a 40% fall in the UK as a whole. The figures also showed that Scotland saw an increased share in the total number of home loans for the UK from 8% in Q1 2007 to 11% in 2008.
The CML believes this is due to continually affordable house prices in Scotland which are 25% lower than the average in the UK. The fact that house prices are more affordable has the knock on effect that Scottish borrowers typically had a smaller income to mortgage interest payment ratio. The average percentage of income used for mortgage interest payments was 16.9% in Scotland and 18.5% in the UK.
Kennedy Foster, Scotland policy consultant for CML, told PIN: “Affordability is much better in Scotland, which puts buyers at an advantage as they have a much better chance of getting a mortgage.”
When PIN asked if more could be done to continue to support the housing market, Foster added “Given the difficulty facing first-time buyers the Government needs to continue to invest in new-build and Open Market Homestake schemes. Shared equity schemes are good products that help people to make their first steps onto the property ladder.”
First phase of £1bn project opens to the public
The first phase of Liverpool One, comprising 100,000sqm of retail space, has recently opened to the public in the city centre of Liverpool.
The project, being developed by Grosvenor at a cost of over £1bn, already has 90% of its 80 first phase shops let. The development is being anchored by Debenhams and John Lewis, with John Lewis claiming it is the largest store outside of London. The second phase of Liverpool One is due to open on 30 th September 2008 with a further 80 retail units.
When completed, Liverpool One will cover 42 acres of the city centre and have 1.65m sq ft of retail and leisure facilities, which will include a 14 screen cinema, two hotels, five acres of parkland and 3,000 car parking spaces. The project is also looking to create around 5,000 jobs.
When PIN asked what Liverpool One would mean for the city, Mark Preston, CEO of Grosvenor Britain & Ireland, said: “It marks the start of making the city what it once was – one of the UK’s top five retail destinations. Liverpool One is reputed to be the largest project of its kind in Europe which in its scale, design and impact is leading the way in urban regeneration. We are delivering a development that we believe will have a lasting contribution to the future of this historic city.”
Landlords warned about cannabis factories
Absentee landlords are being warned over an increase in the number of cannabis factories in properties being raided by the police.
According to South Wales Police, 36 cannabis factories have been raided and closed down in the first five months of this year, whereas in the first seven months of 2007 only 19 were found. Concern has been raised over the majority of raids occurring in rented properties. Landlords are being offered six months rent in advance, a deal which could be tempting for less experienced landlords, in the current climate of increasing numbers of homes standing empty.
PIN contacted the Home Office and was given some basic advice on what landlords should look out for – tampered electrical wiring, powerful lights being left on all day and night and blacked out windows. If landlords have any concerns regarding cannabis cultivation in their properties they should contact their local police force for advice.
A spokesman for the Home Office said: “The Association of Chief Police Officers and the Serious Organised Crime Agency are working together to develop a coordinated, targeted and robust approach. Police however continue to take tough action against cannabis production with 114,202 cannabis seizures in 2005 alone.”
Housing transactions continue to fall
According to the Royal Institution of Charted Surveyors (RICS), the average number of housing transactions per surveyor over the last three months is now at 17.4, which is the lowest figure since 1978.
The RICS Housing Market Survey for May also found that there was a slight improvement in the number of surveyors reporting a fall in house prices from -94.7% in April to -92.9%, which is the first improvement for 10 months. On a regional level it was East Anglia and the South East which faired worst with both areas reporting that the rate of decline was the fastest seen since the survey began. Northern Ireland showed the only glimmer of positivity with a slight improvement to the number of surveyors reporting a fall. The figures for surveyors reporting new buyer enquires still remained weak, although there was a slight recovery over May to -51% from -69% in April.
There was a 26% fall in new instructions to sell property during May. According to RICS, this decline in new instructions is providing support to the housing market because the lack of supply is currently preventing any significant falls in house prices. A low number of distressed sales has meant fewer properties on the market, although this is very much dependent on the wider economy and employment remaining high.
Simon Rubinson, chief economist for RICS, told PIN: “There is currently a huge amount of uncertainty surrounding the economy and no-one can predict with any certainty what is going to happen. We certainly have concerns surrounding new instructions and by implication distressed sales but there is a stark contrast to the early nineties.
“In the early nineties the economy hit the buffers and fell into a deep recession which led to a huge wave of distressed sales. I don’t know any forecaster who is predicting that. There could be a modest increase in unemployment which may lead to an increase in distressed sales but there is no comparison to what happened in the nineties.”
Prime London not immune from falling house prices
According to research conducted by Knight Frank prices for properties in prime central London fell by 1.5% in May, which is the fastest rate of decline since the early nineties.
The research found that annualised growth continued to fall for the ninth month in a row (+12.8%) since being at its peak in August last year (+38%). Knight Frank also recorded which sectors faired best. In May the strongest performing sector was the +£10m, which saw no change in value, and the weakest sectors were the -£1m (-2.3%) and the £1- 2.5m (-2.2%). The figures for sales volumes were also down annually with a 50% fall, although there was some bright news for properties in the +£10m sector with an increase in sales volume of 40%.
Liam Bailey, head of residential research at Knight Frank, told PIN: “Although you have to be careful with any set of monthly statistics this is still a big drop. I believe that this is a correction to an overpriced market and I expect the fall to continue for the rest of the year, at best, I see a 5% fall in prices but a more realistic figure for the end of the year would be 10%.”
When PIN asked whether the figures were a precursor to recession, Bailey added: “This is the fastest rate of decline since the early nineties but the difference between now and then is that in the early nineties a recession was already underway, whereas now I think that this is a case of the housing market having overshot its self. I think that it is unlikely that their will be a recession.”
IPD review finds tenants solvent but moving on
According to research from the Strutt & Parker/IPD Lease Events Review (LER) the proportion of retail industrial tenants entering liquidation or receivership has fallen below 1% in 2007.
The LER is based on over 40,000 tenancy records and provides evidence on the frequency with which different events interrupt cash flow in commercial real estate. Along with the retail industrial sector there was also good news for the office sector with the LER finding that liquidation and receivership continued to remain under 1% for the sixth year in a row.
There was less good news to report when the LER came to look at those tenants wishing to exercise the break clause in their lease. The study found that there was a 6% increase in 2007 with 43% of tenants exercising a break, which is the highest in the LER’s 10 year history. For those tenants who have reached the end of their lease there was also a fall in those renewing, in 2007 only 17% of tenancies were renewed.
Andy Martin, head of Strutt & Parker’s commercial division, said: “These headline figures will need greater examination to ascertain the course of these renewal figures. Some of which, for instance, will reflect an owner’s decision to take properties back for refurbishment/redevelopment.”
Manchester to receive £3bn of funding for public transport
Following on from PIN’s news of 3 rd June, it has been announced that Manchester is to receive a further £3bn towards the ongoing improvement to its public transport network.
The £3bn, which is reported to be the single biggest investment in public transport outside of London, comes off the back of the announcement that there will be an introduction of a congestion charge affecting different roads and areas in the region. The congestion charge will come into place in 2013 and will be a limited use charge, costing around £5 a day to drive during peak times of the morning and afternoon. Although the charge is some years away and much more limited than that in London, it has met with some opposition with people who live and work in Manchester
The areas of public transport which will benefit from investment in the next five years include – increased frequency of trams, more frequent and reliable buses, new and improved bus interchanges and refurbishments to train stations.
Lord Peter Smith, leader of the Association of Greater Manchester Authorities (AGMA), said: “This announcement is great news for Greater Manchester. As a successful and growing economy, congestion is an increasing problem and one we cannot afford to ignore. This will provide a level of investment not seen before outside of London, and will transform our public transport system into one capable of supporting the growth of the region for years to come.”
Website launched to rate tenants and landlords
Trustedlets.co.uk is a new website which hopes to alleviate a certain level of risk out of the process of landlords trying to find quality tenants.
The website allows both landlords and tenant to rate each other and build up an online reputation. The ratings system works in much the same way as the one successfully used by Ebay and will allow prospective landlords/tenants to make an informed choice about who they rent to/from next. In these times of economic uncertainty, some landlords are deciding that they are unable to afford the cost of an agent to find a reliable tenant for them. For those landlords who decide to go it alone in the search for a tenant trustedlets could be a useful tool.
Registration on trustedlets is free but landlords are also able to advertise their properties alongside their ratings. This is currently being offered to landlords for free as the site has just launched and if combined with an initial three month free subscription there is the possibility of having six months free. After the free period is completed the cost per property will be £40 per month with discounts on three and 12 month packages. Trustedlets also told PIN that there will be further promotions in the future.
Charles Peak-Smylie, director of trustedlets.co.uk, told PIN: “The idea behind trustedlets.co.uk was borne out of the change in the law regarding deposits, we wanted to offer a service to landlords who wanted to find tenants but who did not want to have to take a deposit.”
Mortgage News
In PIN’s latest weekly mortgage recap, Tim Warburton reports…
Texas Pacific Groups has bought a 23% stake in the Bradford and Bingley (B&B), the UK’s largest buy-to-let mortgage lender. The news came after the bank reported that it recorded a loss for the first four months of this year. B&B blamed worsening economic conditions for an increase in the number of its borrowers who are over three months in arrears or who have had their property repossessed.
Lloyds TSB has announced that it has struck a deal with Northern Rock to allow Northern Rock customers who are approaching the end of their fixed-rate period the opportunity to switch to a Lloyds mortgage. They will then be assessed under Lloyds own lending criteria. Those customers who are successful in making the switch will benefit from free legal and valuation work, and will also be exempt in paying the standard application fee.
The Halifax bank has announced that it is cutting the rates and fees on its tracker mortgages. A three-year tracker will have a starting rate of 6.34% with a £999 arrangement fee. The five-year tracker will have a starting rate of 6.24% with a £999 arrangement fee. It has also announced a new-build tracker mortgage with a starting rate of 6.75% and an arrangement fee of £1,499.
Alliance and Leicester (A&L) has introduced a new two-year tracker mortgage with a starting rate of 5.89% with a loan-to-value (LTV) of 75%. The product has a 2% arrangement fee but offers no early repayment charge.
A&L has also raised the interest rate on two of its fixed-rate products. A two-year, fixed-rate mortgage has a rate of 6.14%, with a maximum LTV of 75%. The product has a 2% arrangement fee and a 10% overpayment facility. The five-year equivalent has a rate of 7.14%, with a maximum LTV of 90%. The product has a £599 arrangement fee and a 10% overpayment facility.
Nationwide Building Society has increased the interest rates on its fixed-rate mortgage products. A two-year, fixed-rate mortgage will have a rate of 6.25% and a £599 arrangement fee. A 25-year, fixed-rate mortgage is also available with a rate of 6.28% and a £599 arrangement fee.
In addition, Skipton Building Society has withdrawn its buy-to-let tracker mortgage. The building society said that a replacement product will be made available in the near future.
