Government urged to act as house prices continue to fall
The Financial Times (FT) Price Index found that house prices in England and Wales fell for the fourth consecutive month in June (-0.6%). Dr Peter Williams, chairman of Acadametrics, who conducts the research, has urged the Government to act now to help the property market.
This is the first time since April 1995 that house prices have fallen for a fourth consecutive month, with the average house price standing at £227,344 in June. The index also found that house prices continued to grow annually but that this had now fallen to 1.2% which is the 10 th consecutive month that growth has fallen and this is the lowest level of growth since April 1996. Regionally, only Greater London and the South East had annual growth of over 3% with the North West, Wales and the East Midlands falling into negative territory by a maximum of -1.6%.
Acadametrics warned that these are all signs of the market slowdown gathering momentum. Williams told PIN: “The index results show that the market is declining severely and is getting worse day-by-day. The Government currently lacks any urgency and the housing market cannot wait another 2-3 months for any more reviews. The Government needs to increase the size and the speed of its intervention. All the signs are there that the market is getting seriously worse very quickly. If a package was put in place comparable to that of the early 90s then it would need to be between £1-2bn rather than the £300m that has currently been invested. The market needs action and it needs action now.”
Job cuts for house-builders
The UK’s largest residential house-builders have recently announced approximately 5,000 job cuts as the property market continues to struggle.
Over recent months, house-builders have experienced significant falls in the number of properties being sold as the volume of available mortgages has decreased amid stricter lending criteria. In a bid to cut costs, jobs have been cut by the major players in the sector: Bovis Homes (400 jobs), Redrow (450), Taylor Wimpey (900), Barratt Homes (1,200) and Persimmon (2,000)
With the credit crunch unlikely to ease over the next 12 months, challenging times lie ahead for the house building industry with some areas of the media reporting that the industry is on the verge of total collapse. Fears have been raised as to whether developers can continue to honour all their developments in the current climate. One developer, City Lofts Developments, became a casualty of the economic downturn after it was taken into administration.
Allsop’s post lowest ever success rate
Allsop, the UK’s largest property auction house, has posted its lowest success rate since 1995 for the commercial auction market.
Allsop’s commercial auction in July had a success rate of 60%, which was well below its 2007 average of 87%. The latest auction raised a total of approximately £20m, which is 60% down on May’s amount that was raised despite the success rate being only 2% down on May’s auction. This indicates that both the fall in property prices and the lack of mortgage finance is beginning to have an effect on the auction market.
The auction market is often seen as an indicator for the rest of the property market. With the figures for Allsop’s recent auction being down in every area, the effects of the credit crunch and an increasing lack of confidence in the property market continue to make themselves felt.
James Cannon, head of commercial auctions at Savills, told PIN: “Commercial auction success rates are currently running between 60 and 70%, so I think Allsop’s is about the norm. The shock for Allsop was the fall in the volume of sales to £20m. We are finding that there is a high capacity at our auctions but people are generally being more cautious although some investors are still looking for bargains and good returns. The money is out there, but people are much more selective. It is currently difficult for smaller investors to judge the market. Auctioneers need to reflect the market clearly with similar valuations across the different auction houses.”
Mortgage interest rate insurance launched
Insurance company, MarketGuard, has recently launched interest rate insurance for residential mortgage borrowers.
The insurance is aimed at those borrowers who are on variable rate mortgages or who are coming to the end of their fixed-rate periods. With banks lending criteria continuing to tighten, MarketGuard hopes to become an alternative for those borrowers who do not want or are unable to get a fixed-rate mortgage.
The policy works by the borrower choosing what level of interest rate rise they wish to insure against (1.0%-2.5%) over the Bank of England’s (BoE) base rate at the time of purchase. Once the base rate rises above the insured level the policy pays the excess on the mortgage repayment. The cost of the policy is calculated by what level of rise the borrower wishes to insure against and the size of the outstanding mortgage. The full cost of the two-year policy must be paid upfront.
Ray Bolger, senior technical manager for Charcol Mortgages, told PIN: “Interest rate insurance is an interesting concept and one that will be of greater use in the future. Taking into account the effective cost of the 1% policy the borrower would need the base rate to rise over 6.5% for them to start seeing any benefit. I believe this is a remote possibility in the present climate and the base rate is more likely to come down over the next year. The borrower needs to keep a close eye on the market to predict when would be the best time to buy the policy. If bought at the right time the costs will be less than transferring to a fixed-rate mortgage.”
Prince Charles to launch £1bn property fund
Prince Charles is planning to launch a £1bn property fund, the Tellesma Fund, which will invest in mixed-use urban regeneration and sustainable property throughout the UK.
The fund will concentrate on the regeneration of brownfield residential and commercial sites with a focus on launching environmentally friendly towns. The Prince is currently seeking investment in the Middle East where investors are continuing to see the UK as a good long-term investment opportunity. With the current problems in the property market land can be bought cheaply, and investors will hope to see land purchased by the fund increase in value over the coming years.
The fund will also have a role for the Foundation for the Built Environment, which is one of the Prince’s charities that promotes ecological ways of planning, designing and building. The Prince has long campaigned for sustainable development and 15 years ago helped to create the village of Poundbury in Dorset under strict sustainability principles.
MANCAT looks at move to Boddingtons Brewery
The Manchester Centre for Arts and Technology (MANCAT) is in talks to expand some of its facilities to the planned mixed-use redevelopment at the Boddingtons Brewery site in Manchester.
The site of the former brewery is to be redeveloped by Ask Developments and Realty Estates in a joint 50:50 partnership. The £250m redevelopment plans to include a combination of offices, retail and residential units over a total of 1m sq ft of floorspace. It is hoped that the site will be anchored by MANCAT and that if it relocates facilities there then the redevelopment can begin in earnest. Both the developers and MANCAT have reported that discussions are currently at ‘a very early stage’.
Peter Tavernor, principal of MANCAT, said: “We are currently in the process of developing the accommodation strategy for the new college and have now started to review the property holdings of both City College and MANCAT to ensure that all accommodation is of the same high standard. These talks are at an early stage, but there are some ambitious plans for major developments in hospitality, leisure and facilities management.”
Commercial property performance declines in June
IPD’s UK Monthly Property Index (MPI) found that total returns for all types of commercial property fell in June by -1.5% which is more than twice the fall experienced in May (-0.7%).
June’s fall of -1.5% was still much lower than that experienced in December 2007 when total returns fell by -3.7%. Annual total returns also hit an all time low in June by falling to -14.9% compared to May's figure of -13%. Capital growth continued its decline in June (-2%) from May (-1.2%) which, according to IPD, is the quickest rate of re-pricing since January. Rental growth for all property remained slightly in negative territory (-0.04%) for the second consecutive month, implying that rents are relatively static.
By sector, retail fared worst in June although all sectors suffered a downturn. Retail (-1.9%) overtook offices (-1.3%) in declining total returns with the industrial sector (-0.69%) continuing to outperform other segments.
Nick Nabarro, senior manager at IPD, told PIN: “The increased pressure on returns reflects investors’ desire for more substantial yields in such volatile times. On top of this the rental returns are relatively static proving that landlords are having difficulty increasing rents.”
Santander takes over A&L
Alliance and Leicester (A&L) has accepted a take-over bid from Banco Santander, a finance company in Spain and Latin America, for approximately £1.2bn.
The Spanish bank, which already owns Abbey, looks set to massively increase its share of the UK mortgage market. It hopes that the acquisition will be completed in October although permission still needs to be granted by both the Financial Services Authority (FSA) and the Bank of Spain. If it is approved, A&L’s shareholders will receive one Santander share for every three A&L shares.
Santander hopes that through combining the business of Abbey and A&L it will be able to increase its efficiency and reduce its overall running costs therefore allowing it to reduce A&L’s high cost of funding. It is also hoped that the purchase may bring some stability back to the UK financial market as the bank has access to European money markets through a line of credit with the European Central Bank which was previously unavailable to A&L.
Chris Cummings, director general of the Association of Mortgage Intermediaries (AMI), said: “This potential deal represents positive news for the UK mortgage market. It is pleasing that a global player like Santander is willing to invest more capital in the UK at this time. It should provide much needed stability for the marketplace and a reassurance about the strength of the mortgage industry in this country.”
Transactions fall to all time low
According to RICS’ monthly UK Housing Market Survey, the average number of transactions per surveyor fell to 15.3 in June, which is its lowest level since the survey began.
The house price balance improved slightly for the second consecutive month in June with 88% more surveyors reporting a fall rather than a rise in prices, a decrease from May’s 92.2%. New buyer inquiries continued to remain weak although there was a ‘noticeable improvement’ on recent months as only 35% of surveyors reported a fall in June compared to 50% in May. Surveyors continued to report that buyer confidence remains low and that it will not improve as long as negative reports continue to be featured in the press.
Surveyors have yet to report an increase in distressed sales which would cause house prices to fall at a quicker rate. One reason for this is that unemployment remains low which could mean that the current threat of repossessions is not high.
Inflation could hit 6% by the end of the year
Data released by the Office of National Statistics (ONS) found that inflation rose to an 11-year high in June to 3.8%.
The inflation figure would have been available to the Monetary Policy Committee (MPC) when it made its recent decision to hold the base rate at 5%. This is the second consecutive month that inflation has continued to rise above the 3% cut off point set by the treasury. In June, Mervyn King, governor of the Bank of England (BoE), wrote to the Chancellor explaining why inflation rose above 3% and what he planned to do about it. With the rise in inflation the MPC is now faced with the possibility that increasing the base rate may be its only option.
Darren Cook of Moneyfacts.co.uk told PIN: “It is not unexpected that inflation is rising, however the rate at which it is increasing is a surprise. I predict inflation will hit 6% by the end of the year. The MPC is caught between a rock and a hard place with not wanting to raise the base rate but at the same time trying to curb inflation. A rise in the base rate would be a huge issue for affordability and could compound the current economic problems and push households over the edge. One of the effects of the credit crunch may be that banks are able to do the MPC’s job for them. With access to credit severely reduced, spending will hopefully decrease without the need for a rise in the base rate.”
Mortgage News
In PIN’s latest weekly mortgage recap, Tim Warburton reports…
Northern Rock has launched a new range of mortgage products. Its two and five-year fixed rate mortgages both have an interest rate of 6.49%, a 90% maximum loan-to-value (LTV) and a product fee of £995. A two-year flexible fixed-rate comes with a 2.5% fee, a 1.5% fee or a fee free option, that have rates of 6.69%, 7.19% and 7.99% respectively. It also has two flexible tracker-for-life products that come with a 2.5% or 1.5% fee and initial rates of 6.99% and 7.39% respectively. For landlords, there are a number of buy-to-let products available that all have a 70% LTV, at least 120% rental cover and a maximum borrowing limit of £3m for no more than 10 properties and.
The Mortgage Works has launched three new two-year buy-to-let trackers. For those with a 50% LTV the initial rate is 5.49% with a 2.5% fee, for a 65% LTV the initial rate is 5.59% with a 2.5% fee and for a 75% LTV the initial rate is 6.29% with a 1.25% fee. All of these products come with no early repayment charge.
Norwich and Peterborough has launched a new three-year tracker with an initial rate of 5.70%, an 85% LTV and a £599 fee.
Both Abbey and Woolwich have introduced new deals, as well as cutting rates. Abbey has launched a new three-year fixed-rate deal at 5.99% with a 70% LTV and a £1,695 fee. It has also cut rates on its two and three-year fixed-rate products by up to 0.15%.
Woolwich has reintroduced its 90% LTV range. A lifetime tracker is now available for an initial rate of 5.89%, a 60% LTV and no fees or early repayment charges. The 90% LTV range is for five and ten-year fixed-rates with rates of 6.99% and 6.89% respectively and both come with a fee of £995. Other fixed-rate products have been reduced by up to 0.3%.
Nationwide has cut the rates on its fixed-rate and tracker products by up to 0.27%. Existing customers can benefit from a 95% LTV and new customers from a 90% LTV. A two-year fixed-rate with a 90% LTV has been reduced to 6.88% from 6.95%, and it comes with a £599 fee. A two-year tracker with a 90% LTV comes with a fee of either £599 or £1,499 and initial rates of 6.38% and 6.18% respectively.
Halifax has cut rates on some of its tracker products by 0.12%. But it has also increased rates on some of its fixed-rate deals as a three-year fixed-rate has increased from 6.24% to 6.45%.
