According to Knight Frank’s London Residential Review Summer 2008, the problems faced by residential sales are strengthening the lettings and professional property investment markets.
The review found that many potential buyers are continuing to rent as mortgage lending continues to tighten and so many tenants now see themselves remaining in the private sector for the medium-term. In the past, potential buyers saw rent as ‘dead money’ which could have been spent on the mortgage of their own property, but falling house prices and the threat of negative equity has allowed renting to be seen as a ‘safe’ option which offers value and flexibility.
The Capital has seen an increase in the number of rental properties available. For those people who need to move but are unable to sell, renting their property has become the only viable option and they have become what the review describes as ‘reluctant landlords’. A number of developers have also begun to take on the role of landlord. Unwilling to sell their properties at too great a discount, some developers have begun to find tenants for the short to medium-term until house prices begin to rise again.
Liam Bailey, head of residential research at Knight Frank, told PIN: “There is currently strong supply for rentals and the market is not oversupplied. Rents have shown strong growth over the last year although I think there is only limited scope for increases this year as they will rise with wages. The rental market in London can be adversely affected by corporate employment, the effect of redundancies is not something we are seeing at the moment but may start to become a feature next year.”
CML and the FSA tackle mortgage fraud
The Council of Mortgage Lenders’ (CML) efforts to tackle mortgage fraud has been recognised by the Financial Services Authority (FSA) in a public letter which admits the priority that the industry has given to fraud issues even in the current challenging market conditions.
The FSA encourages more lenders to become involved in the FSA/CML voluntary initiative to combat broker fraud, welcomes the anti-fraud measures that the CML is taking and emphasises the priority that the FSA is giving to investigating and, where appropriate, prosecuting organised mortgage fraudsters.
Michael Coogan, CML director general, said: “The FSA rightly identifies that the best way to tackle mortgage fraud is for lenders and the regulator to work together, along with law enforcement agencies, to root out fraudsters. People may not think of lenders as victims of crime, but unless fraudsters are tackled then honest customers are the ones who end up paying more.
“We welcome the FSA’s focus and practical approach in this area, and we expect that even more lenders will now participate in the voluntary initiative designed to identify and investigate broker fraud.”
The CML has undertaken a range of work on fraud recently, in addition to the joint initiative with the FSA. As well as industry guidance and information, the latest CML initiative is a change to the standard instructions that lenders give to their conveyancers, to ensure that newly-built properties are accurately assessed for value.
Retailers call for rents to be paid monthly
A number of Britain’s largest retailers have called for landlords to collect rent only one month in advance instead of the traditional three.
Retailers including Argos, Debenhams, Next and Boots have argued that quarterly advances for rent are hitting businesses harder than ever while they are struggling through the current economic downturn. The British Retail Consortium (BRC) recently estimated that quarterly rental payments add £145m to retailers’ costs.
Quarterly advance rental payments have been a long-standing component of retail leases and landlords are expected to fight the proposed change. Retailers will put forward a case that although they have entered into a legally binding contract with their tenancies, in the current economic conditions they need flexibility from their landlords if they are to survive.
The BRC has argued that it is in the landlord’s best interest to see a thriving retail sector and that this will not happen if retailers continue to have to struggle with meeting rental costs. Retailers hope that changes to rent payments will help ease the pressures on smaller businesses, who are hardest hit as their profit margins are lowest, and in the worst cases help avoid them going into administration.
Michael Green, chief executive of British Council of Shopping Centres (BCSC), told PIN: “As is the case with any issue relating to lease conditions, the BCSC advises both landlords and tenants to work closely together to find the most appropriate arrangement for their particular circumstances.”
Buyers believe in positive effects of healthcare
According to research by FindAProperty.com, 77% of buyers believe that the opening of new healthcare facilities will have a positive effect on local property prices.
The survey asked buyers about the pros and cons of having a hospital open in their area. Almost half (48%) felt that a new hospital would lead to increased traffic and 29% said that they would be concerned about the construction effects while the hospital was being built. When asked whether they would move to be close to a good hospital, 38% said that they would. The research also found that half of buyers believed that the closure of a local hospital would have a negative effect on property prices.
The introduction of polyclinics, one stop shops for healthcare, has been high on the healthcare agenda over the last year and PIN asked Michael O’Flynn, content editor for FindAProperty.com, whether its introduction would also have an affect on house prices: “Our research shows that people place considerable value on medical services and believe that they boost local house prices so we can probably conclude that the opening of a polyclinic would have a similar impact. That said, there is some debate over how polyclinics would work, will they be additional to existing services or will they replace GPs’ surgeries?
“If the latter happens, then it is reasonable to assume that property values might potentially increase. If polyclinics are additional to existing services the effect on house prices would probably be less pronounced because a centralising process would be less dramatic.”
Merseyside developers appointed to north east regeneration
Regional development agency, One NorthEast, has appointed Merseyside-based developer Langtree Group as its preferred partner for 24 of its industrial and commercial site developments.
The £30m deal will see Langtree manage and modernise sites across 1,100 acres of brownfield land. The regeneration of these sites is a key part of One NorthEast’s plans for the area as it wants to create 22,000 new businesses and put 70,000 more people in work by 2016. It plans to do this with an annual investment of £280m.
Mortgage lending weaker in June
According to the latest data from the British Bankers’ Association (BBA), June’s mortgage lending rose by £3.8bn which is weaker than May’s figure of £4.5bn but, on the upside, annual mortgage lending rose by 11.9%.
David Dooks, BBA statistics director, said: “Another record low number of mortgages approved by the banks for house purchase means that the whole market is likely to be at its least active since the early 1990s. However, even in this rapidly slowing market, net lending has still grown by 12% over the past year and there continue to be significant numbers of people remortgaging with banks. The pressure on household finances is being reflected in subdued consumer borrowing, with spending on cards lower than of late and borrowing on personal loans and overdrafts being comparatively weak.”
Simon Rubinsohn, chief economist for the Royal Institution of Chartered Surveyors (RICS), believes that the continuing lack of availability of mortgage finance is proving a major drag on the level of property transactions and is increasingly being felt in the real economy.
He said: “The modest cuts in the cost of borrowing seen over the past few weeks will unfortunately provide little relief for first-time buyers. Indeed, the fact that Tim Besley, a member of the Monetary Policy Committee (MPC), actually voted for a hike in interest rates at the latest MPC meeting suggests that it is premature to expect the Bank of England to provide any support anytime soon. This highlights the need for the Government to think creatively both in terms of stamp duty reform and the provision of mortgage finance which is currently being reviewed by Sir James Crosby.”
Minerva valued at half its price of 12 months ago
Minerva, a UK commercial property company, has agreed to be taken over, at least in principle, by a Dubai-based company called Limitless.
There is doubt whether the deal will go through as it is subject to a number of preconditions. If the deal does go through, Limitless will value Minerva at £260m which is less than half the value the company was trading at 12 months ago proving that times really have changed. Investors are looking to release cash in troubled sectors and companies, and the take-over price of 160p is more than double the share price of 71p, prior to the announcement.
It seems as though both parties have been locked in talks for months, trying to agree a price without much luck. Finally the management of Limitless decided to put on the table a ‘take it or leave it’ cash offer of 160p. After deliberating over the deal the directors of Minerva have reluctantly decided to accept the deal in principle, but whether it actually goes through at that price remains to be seen.
Despite credit crunch, agricultural land is booming
According to Knight Frank’s Farmland Market Index, pasture and arable land hit £8,000 per acre in parts of England, prime arable land is now worth on average £6,000 per acre across England and, on average, pasture land is currently worth over £5,300 an acre.
The highest values for prime arable land are in the south-west of England which tops £6,000 per acre. The most expensive grassland in Cheshire and Berkshire for the best pasture is £8,000 per acre.
Andrew Shirley, head of rural research at Knight Frank, said: “ What these figures show is the demand for all types of land in England is still extremely strong. The limited amount available to buy means the difference in price between top-quality and average soil is relatively small. Despite the credit crunch that is affecting other property sectors, agricultural land is still in demand from a wide variety of buyers. There are a number of funds in the market prepared to pay premium prices for the few parcels of land they are able to buy.
“The big question is how long can this trend continue? My feeling is that prices will continue rising but we have already seen the strongest period of growth. However, farmland certainly isn’t a bubble waiting to burst and in these uncertain financial times is still likely to appeal to investors looking for a safe home for their funds and farmers wanting to expand their acreages.”
Travelodge launches seaside investment programme
Travelodge has launched a £150m seaside investment programme which will see 55 new hotels built in coastal towns be operational by 2015.
The group, who already has property in 30 coastal locations, is following a ’55 property programme’ which will include openings in Blackpool, Weymouth, Newquay, Bournemouth and Scarborough in the next 12 months.
Grant Hearn, Travelodge CEO, said: “If ever there was a time to win back the Brits that have been tempted abroad by the budget airlines, it is now. Soaring air fares, an overpowering euro and the credit crunch is changing holiday habits this summer and maybe for good. If we can provide quality accommodation, low prices and fantastic attractions, we can turn this opportunity into a lasting tourism legacy.”
This news follows strong like-for-like growth across its coastal properties in 2007 and a sharp rise of 30% forecasted in July and August 2008.
Positive end for ‘most burgled street in Britain’
Shields & Co, a student housing company, has revealed a sizeable increase in the number of students wanting to live in Lenton, Nottingham just two years after one of its streets, Kimbolton Avenue, was named as ‘the most burgled street in Britain’.
Enquiries about student homes to rent in the area have doubled in the past 12 months as Lenton has successfully shaken off its ‘crime-ridden’ label and transformed itself into a thriving student location.
Shields & Co’s business manager, Gaynor Cunningham, believes there are a number of reasons behind the increase: “We spend a lot of time talking to students and they are telling us that they no longer want to live in large apartment blocks or halls of residence - they want traditional, shared housing and are keen to live as part of a community.
“The increased number of students is helping the local economy continue to thrive and there are now many shops, bars and restaurants, particularly along Lenton Boulevard, which help to create a really vibrant and relaxed atmosphere.”
Mortgage News
In PIN’s latest weekly mortgage recap, Tim Warburton reports…
HBOS has cut rates on 48 of its products across the group. Halifax has reduced 20 of its fixed-rate deals by up to 0.15%. Bank of Scotland (BoS) has reduced four of its buy-to-let deals by up to 0.25% and three of its self-certificate trackers by 0.1%. BM Solutions has reduced three of its buy-to-let deals by up to 0.2%. Intelligent Finance has reduced 15 of its tracker deals by up to 0.3%.
Nationwide has also cut rates on a number of its fixed-rate and tracker products by up to 0.46%. A two-year fixed-rate has been cut to 6.18% from 6.48% with a 75% loan-to-value (LTV) and for those borrowers with a 90% LTV the rate has been cut to 6.58% from 6.88%. Both products come with a £599 arrangement fee. The lifetime tracker has been cut to an initial rate of 5.98% from 6.44% and £599 fee with a 75% LTV.
Michelle Slade, an analyst with Moneyfacts.co.uk told PIN: “HBOS are following Nationwide and other lenders who have cut mortgage rates in recent weeks. This is good news but we would have expected to see it sooner. Lenders, who were quick to increase interest rates, have been slow to react to the falls in swap rates over recent weeks.”
Simon Wilson, managing director of New Deal Finance, added: “Interest rates are still at a massive premium compared to where they were 12 months ago. This does little to stimulate an overly depressed market.”
Leeds Building Society has launched a five-year fixed-rate mortgage. It has an interest rate of 5.99%, an 80% maximum LTV up to the value of £250,000 and a £1,499 completion fee. The product also benefits from no early repayment charges.
Cheshire Building Society has launched a Family Value mortgage for its existing customers. The product offers those customers a saving of £500 on the £999 arrangement fee for its two-year fixed-rate. The product is available with a rate of 6.49%, a 90% LTV and free annual overpayments up to £5,000.
Market Harborough Building Society has launched a two-year fixed rate deal at 5.99%. It has an 80% LTV up to the value of £300,000 and a £749 fee. The product is subject to early repayment charges within the first two years.
