HBOS has almost doubled its prediction for the fall in house prices by the end of this year. Recently the bank predicted a fall of almost 5% but in its Trading Update this figure was revised to 9%. This is the highest figure since 1989 when a fall of 10% was predicted.
HBOS explained this is because the economy will continue to slow through the rest of 2008. It also predicted that there will be a modest rise in unemployment and that due to inflationary pressures the Monetary Policy Committee (MPC) is unlikely to reduce interest rates below its current level.
The Trading Update also looked at the levels of mortgage arrears on the bank’s books. HBOS, which sells around 20% of the country’s mortgages, has found that 1.43% of its total mortgages are in arrears, an increase of 0.13% from December 2007. The bank has found that there has been a more significant increase in arrears for specialist mortgages, which includes buy-to-let. Specialist mortgages have increased by 0.39% from 1.97% in December 2007 to 2.36% by the end of May. Although mortgage arrears have been increasing, HBOS said that these are in line with its predictions for the year.
Yields rise but mixed picture for rents in May
Paragon Mortgages’ latest Buy-to-Let Index found that yields have risen to an average of 6.4%, its highest since February 2006.
This may sound like good news but when looking at actual rents received the survey found that the picture is highly regional with rents decreasing across half the country and that detached houses were the only properties to see an increase in rent over May.
Paragon’s figures show that media reports of rising rents may be accurate on an annual basis but when viewed monthly and regionally the picture is not quite so bright. On a national level average rents showed a yearly increase (+11.7%) but between April and May there was a fall (-0.8%). Out of the 10 regions surveyed, East Anglia saw the greatest monthly fall in rents (-14.2) followed by Greater London (-6%) and the North West (-4%). Of those regions that saw rents increase in this period, the West Midlands led the way (+9.4%).
The index also looked at average national rents by property type. The only property type to perform well from April to May were detached houses (+6.3%), which were also the only properties to increase in value (+1%) in this period. The types of property that fared worst from April to May were semi-detached houses (-3.9%), followed by flats (-3.1%) and terraced houses (-2.7%).
John Heron, managing director of Paragon, told PIN: “A key contributory factor to the buoyancy of rents for detached properties is that the private rented sector is no longer just the tenure of choice for people in their twenties, but increasingly provides homes for people in their thirties and forties with families. With the rising standard of accommodation in the private rented sector and home ownership being less affordable, people have increasingly seen private rented accommodation as providing a suitable long-term family home, which are typically detached property.”
Landlords warned over rush for EPCs
According to letting agent Leaders, landlords could face costly void periods if they wait too long before getting their Energy Performance Certificate (EPC).
As of 1 st October 2008, all landlords will be required to have an EPC for properties which they wish to rent. Failure to comply with the new regulations will see the landlord face a £200 fine from the Office of Fair Trading (OFT). Leaders has warned landlords that as the deadline approaches there could be a rush of applications for EPCs. In a worst case scenario, a landlord could be faced with having no EPC by the 1 st October and having to leave their property empty until one is obtained.
Paul Weller, managing director of Leaders, told PIN: “Our advice to landlords who are planning to market a property to let after 1 st October is to obtain the EPC for their property well in advance of the deadline. This is important because there is likely to be high demand for EPCs in the run up to the deadline and an EPC must be provided to any prospective tenant before they have viewed or committed to view a property to rent.
“Under the new legislation, a penalty charge of £200 can be imposed, which can be levied at £200 per day for the period a property is marketed without an EPC in place. Organising the EPC and having it in place in advance of the deadline will ensure there are no delays in the marketing of the property, which could lead to a costly void period.”
Highcross Strategic Advisors purchase largest single floor plate in Leeds
Highcross Strategic Advisors has purchased Broad Gate, The Headrow, in Leeds from Capital and Counties for £70m with an initial yield of 6.4%.
Broad Gate, a former department store, is situated in the centre of Leeds and covers a total floor space of 295,636 sq ft. It contains the single largest floor plate in Leeds with each floor covering an acre. Broad Gate is currently a mixed-use property comprising four large retail units on the lower ground, ground and first floor and vacant office space located on the second to sixth floors. Of the four retail units three have already been let, with TK Maxx and Argos on 15-year leases and Sainsbury’s on a 20 year lease and each of the units has an annual rent of £1.5m.
Richard Pellatt, director of Highcross said: “The property provides numerous asset management opportunities within a unique product and offers occupiers a diverse alternative to Toronto Square.” Toronto Square is Highcross’ other main Leeds development which is located in the professional, rather than financial, district and which it plans for a single let.
Recent Savills research showed that there has been ‘no marked slowdown in occupational demand over the first half of the year’ in Leeds. Pellatt told PIN: “The supply and take-up figures are compelling, which contributed to our investment decision.”
‘Quiet revolution’ continues in Sheffield
The regeneration of Sheffield plans to add 5m sq ft of office floorspace and create 30,000 new jobs by 2020.
Sheffield has suffered in recent times from a lack of quality office space. This is changing with the masterplan currently well underway as £77m of office projects are under construction in the city centre. Sheffield’s regeneration goes beyond just office space with plans to benefit the whole city. Other planned developments include a 100 acre technology park situated close to the M1: The Square, a mixed use office, retail and leisure complex and a £600m new retail quarter, the first phase of which is due for completion in 2011 and will be anchored by a John Lewis department store.
Ben Morley, deputy director of regeneration at Creative Sheffield, told PIN: “ Sheffield has undergone a quiet revolution over the past 5-10 years from a city suffering from decline to one that is forward and outward looking.”
When PIN asked about the opportunities for investors, Morely added “An economic masterplan has been put in place by all the key bodies in the city that sets the direction of it for the next 10 years, which provides clarity of thought and a degree of certainty and comfort to potential investors. The recent success of the city is based on this sound approach of setting clear plans and delivering them, given that developments such as Sevenstone (the New Retail Quarter) and the New Business District have yet to make their impact then there are still great opportunities to be part of an improving economy.”
Savills warns of 25% fall in house prices
Savills’ recently released Residential Property Focus for June 2008 warned that if the current credit crisis is not resolved in the coming year then the country could face a 25% fall in property prices over the next two years.
The report found that at the beginning of this year the credit crisis shifted the balance of supply and demand heavily in favour of supply, as the lack of mortgage availability hit those who would usually be looking to buy. The lack of credit is the over-riding factor for Savills as to whether the country suffers merely a property price correction or moves into a ‘deep and prolonged downturn’.
Savills offers two scenarios. First, if more credit was to become available over the coming year then Savills believes that small short-term falls in house prices is not a bad thing as affordability will increase. If this were to be the case then the report predicts a total fall in house prices of 10% by the end of 2009 followed by a 19% increase by 2012.
Second, as confidence in the financial sector is currently so low, there is a risk that liquidity will not be restored to the credit markets over the coming year. If this happens then Savills warns that house prices could fall by 10% by the end of the year and then by a further 15% in 2009. An increase would also be expected by 2012 and although this would be higher at 20% it would still leave house prices 5% lower than they had been five years previously.
Lucian Cook, director of residential research at Savills, told PIN: “Of the two scenarios the second is most probably the more likely at the present time. Current sentiment is negative and there is a less optimistic outlook for economic growth. People are coming to realise that the credit crunch is not going to clear overnight and we are looking at a prolonged downturn. As to how severe that downturn will be, things are finely balanced at the moment. I would hope for house prices to return to ‘normal’ by 2010.”
Mortgage approvals fall 56.8% in May
New data from the British Bankers’ Association (BBA) has found that during May the number of mortgage approvals for new homes fell by 56.8% from May 2007.
The total number of approved loans for new homes in May fell to a record low of 27,968. As well as being 56.8% lower than May 2007, the figure was almost 20% down from April. The figures for approvals for new homes are often seen as a good indicator of housing demand. The continuing monthly fall is consistent with the effects of the credit crunch as recent evidence provided by the Royal Institution of Charted Surveyors (RICS) found that new buyer enquiries were ‘still well into negative territory’.
The BBA also collated the amount of remortgaging that was approved in May. This market appears to be performing better as the amount only fell by 10% from May 2007’s figure.
Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), told PIN: “The BBA figures present a gloomy picture of the market. IMLA recognises this but our own surveys have found that the market contraction is somewhat less. The BBA figures, especially the 56.8% fall in mortgages for new homes, reflect the banks’ rapid change in policy over the last year.”
Gulf Finance launch Shari’ah compliant UK investment fund
Islamic investment bank, Gulf Finance House (GFH), has launched the Gulf Atlantic Real Estate II fund (GARE II) following on from the success of its initial commercial property fund Gulf Atlantic Real Estate (GARE).
The launch of GARE II follows research into the UK commercial property market which identified strong investment opportunities. GFH found that over the last six months commercial property prices had fallen 25% below its peak, offering high quality properties with the opportunity of significant income yields.
The primary objectives of the fund will be to produce a high cash yield and to generate capital growth as the UK property market recovers. GARE II will identify properties which are well located, income producing and let to good quality tenants.
Nick Judd, head of real estate fund management at GFH and fund manager of GARE II, said: “Twelve months ago, indiscriminate, highly geared buyers had driven prices far beyond any measure of fair value. Today, with UK commercial property values having fallen so dramatically, we have the opportunity to buy income producing properties at prices well below their recent peaks. UK commercial property is the market of choice for many international investors who regard it as relatively low risk, transparent and liquid compared to many other markets.”
Masterplan for Battersea Power Station unveiled
Treasury Holdings UK has unveiled its planned regeneration of Battersea Power Station and its surrounding area. The £4bn project plans to deliver the regeneration of the power station through a sustainable mixed-use development, with 8m sq ft of residential, office and retail space. The Capital’s skyline will also become home to a 300 metre glass chimney as part of an eco-dome which will cover some of the site.
When completed the 38 acre site will contain approximately 3m sq ft of residential space and become home to around 7,000 residents in 3,200 homes. The site will also include 2.5m sq ft of office space, 900,000 sq ft of retail space, 1m sq ft of hotels and serviced apartments and 500,000 sq ft of leisure and community facilities. The project also hopes to be a catalyst for the wider regeneration of the Nine Elms district. During the construction phase it is expected that 2,500 new jobs will be created and when completed it will help to create up to 20,000 new jobs.
Treasury Holdings described the plans for the power station as ‘the most advanced sustainable development ever built in the country’. The project will see Battersea return to life as a power station, producing electricity through renewable sources. The chimney and eco-dome will be part of, what is reputed to be, the largest solar driven natural ventilation system ever designed. This will eliminate the need for air conditioning for the commercial and ground floor retail units. The chimney will also house apartments with views over the city.
Rob Tincknell, managing director of Real Estate Oppertunities’ (REO) development manager, Treasury Holdings UK, said: “We don’t embark on projects that we can’t deliver. We are determined that Londoners will not be disappointed and this area will be brought back to life in the most spectacular way. It will be a place to live, work and play.”
Jersey CAB calls for tenancy deposit scheme
The Jersey Citizens Advice Bureau (CAB) has called for the introduction of a statutory tenancy deposit scheme similar to the one used in England and Wales.
Research carried out by the CAB found that 90% of enquires received regarding housing cost were related to deposits. The bureau believes that a deposit scheme is essential to safeguard the rights of both landlords and tenants and has been calling for reform to the current system as there is currently no independent arbitration for either party to turn to when it comes to discrepancies regarding deposits. The only course of action available is to instigate legal action through the Petty Debts Court. The deposit scheme would include the Alternative Dispute Resolution (ADR), which would be an independent body that would resolve deposits disputes quickly.
As in much of the rest of the UK, Jersey is looking to promote the private rented sector and to continue to raise standards. The CAB believes that for this to happen deposit protection has to be an essential part of the process.
Francis Le Gresley MBE, manager of Jersey CAB, told PIN: “Given that home ownership is an unrealistic aspiration of many young people who live in Jersey, due to the high prices of flats and houses, it is essential that living in the rental sector is not a lottery when it comes to getting a rental deposit repaid. Landlords would also be able to avoid protracted disputes with outgoing tenants as the independent ADR, which would be part of the deposit protection scheme, would aim to resolve any disputes quickly and be binding on the parties.”
Mortgage News
In PIN’s latest weekly mortgage recap, Tim Warburton reports…
The Royal Bank of Scotland Intermediary Partners (RBSIP) has announced a loosening of the credit criteria for its Natwest buy-to-let mortgages. The minimum rental cover for landlords with one to five properties is 110% based on the base rate plus 1.75%. This cover is available to landlords with a loan-to-value (LTV) of 75% or less. For those with a LTV of between 75–85% the rental cover is 125%. For landlords with six to ten properties, the rental cover is 125% based on the base rate plus 1.75%.
The Royal Bank of Scotland (RBS) has also announced three new products, one for property purchase and two for remortgaging. The new five-year fixed-rate mortgage has a maximum LTV of 90%, a £999 arrangement fee and an interest rate of 6.69%. For remortgaging, the First Active two-year fixed-rate has a LTV of 90%, a £999 fee and a rate of 6.84% and the five-year equivalent has a LTV of 75%, a £699 fee and a rate of 6.69%. RBS has also raised interest rates across a number of fixed rate products by up to 0.85%.
Yorkshire Building Society is to release two new products for both purchase and remortgage. The two and five-year fixed-rate mortgages both have a rate of 5.99%, a LTV of 75% and come with an arrangement fee of £1,995 and £2,495 respectively.
Nationwide has increased the rates on all of its fixed-rate mortgages by at least 0.25%. The largest increases are for those with a LTV of 90% who now face a rate of 6.95% and on a two-year fixed rate, an increase of 0.5%. Nationwide has also increased some of its tracker products by up to 0.20%, which takes its two-year tracker to a rate of 6.85%.
First Direct has increased the rate on what was the country’s cheapest mortgage product. A two-year fixed-rate has risen from 5.49% to 5.99% with an LTV of 80% and a £1,499 arrangement fee.
Bristol and West has withdrawn seven of its 29 new mortgages that it had launched three days earlier. The bank, which is the British mortgage arm of the Bank of Ireland, said that this was due to unprecedented demand.
Woolwich has increased the rates on its two lifetime tracker mortgages, for those with n LTV of 60% the rate is now 5.99% and for those with a LTV of 90% the rate is 6.29%. At the same time, Woolwich has withdrawn all of its two-year fixed-rate products in an attempt to “control customer volumes”. It plans to re-launch these products soon.
