The Bank of England’s (BoE) Agents’ Summary of Business Conditions report found that up to 40% of house sales are failing.
The report found that housing market activity was more depressed than in the early 1990s with some estate agents reporting that four in ten house sales were failing to complete. The BoE believe that the main reasons for this are that many buyers are having their mortgage offers withdrawn before they can complete or are pulling out of transactions due to the fear of a continuing fall in house prices. With buyers pulling out of house purchases the effects are being felt further down the housing chain. Those who are unable to sell their house are finding that they cannot complete on the property that they wish to buy.
With the increasing number of transactions falling through estate agents reported that they are being more selective with new instructions from sellers. Sellers are now being asked about their willingness to reduce the price of their property before estate agents accept new instructions to sell.
Ray Boulger, senior technical manager for Charcol Mortgages, told PIN: “Housing transactions are much lower than this time last year, I would say that they are falling off at a greater rate than in the early 1990s. Chains are a huge problem at the moment, they are taking much longer to complete which is increasing the chance of funding falling through. Over recent weeks we have seen some lenders lowering their mortgage rates, currently things are not getting any worse although it will be some time before we see any real improvement.”
Mortgage fees increase by 20% over the last year
According to research by mform.co.uk mortgage fees are approximately 20% higher than they were a year ago.
The research found that in August 2007 the average application fee was £738.33, the cost in July 2008 had raised to £889.69 an increase of 20.5%. Fees for three-year fixed-rate mortgages, one of the most popular products available, rose the most over the last year from £590.40 to £938, an increase of 58.8%. One of the products which saw the smallest rise were discounted-rate mortgages, on average they saw an increase in fees of 11% from £857.20 to £951.62.
With fees on the most popular products increasing at such an alarming rate it is important for borrowers to take into account the full ‘true’ cost of the mortgage they are considering. Borrowers now need to look beyond the initial interest rate deal and take into account the extra costs that they are also signing up for.
Francis Ghiloni, marketing and business development director at mform.co.uk, told PIN: “While the Bank of England’s base rate may have remained relatively stable, the rates and fees we can expect from lenders have shot up. There are two main reasons for this, firstly the cost of borrowing has shot up for mortgage lenders while capital remains in short supply. The second reason is that many lenders are looking to improve the quality of their balance sheets by only lending to those with significant equity in their property and a strong credit history and for those who don’t fall into this category rates and fees are going to be higher.”
FSA to reconsider regulating individual mortgage brokers
The Financial Services Authority (FSA) has announced that it is to reconsider regulating individual mortgage brokers.
In 2002/03 the FSA decided that it was unnecessary to regulate individual mortgage brokers but due to what it describes as “mortgage fraud having been perpetuated on a large scale in recent years” it has decided to reassess broker regulation. Currently every mortgage broker firm is regulated but individuals are not. A spokesperson for the FSA, told PIN: “There would be definite benefits from tighter controls over individuals.” The authority plans to assess a number of different options before the review is completed in Q4 2008.
Broker regulation is one of a number of measures laid out by the FSA to crackdown on mortgage fraud. Other measures included targeted visits to 200 brokers to assess their systems, improving information sharing within the industry and increasing intelligence from lenders.
Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), told PIN: “I welcome broker regulation as an idea and fully understand why the FSA want to go down this path. Regulation is a very long term ambition and we are a long way from this at present. The FSA will find regulation a challenge and they have yet to visit any of the 200 brokers. The question is whether regulation is a real solution? If it is then it would need to be backed by action.”
West Cumbria to become ‘Energy Coast’
A £2bn regeneration scheme has been launched in west Cumbria which sets out a plan for the area to become Britain’s ‘ Energy Coast’. The scheme is expected to bring 16,000 jobs and boost Cumbria’s economy by £800m.
The ‘Energy Coast’ will be based around the proposals for two new nuclear reactors at Sellafield Power Station, a new nuclear laboratory and the use of on and off-shore wind farms. It is hoped that west Cumbria will become the nation’s leader in energy production. Investment is therefore being made in related fields with £100m proposed for a new acute hospital which will specialise in toxicology and radiology and the expansion of the University of Cumbria into the region. A further £200m will be spent on education to boost the number of skilled workers from the local community.
The masterplan includes £80m to be spent on housing market renewal over the next 20 years. Initially this will involve the building of 150 new homes and improvements to up to 400 existing homes. Expansion of the local transport network is also planned which will include improvements to the rail network and road connections with the M6.
Luke Dicicco, spokesman for West Lake Renaissance and Cumbria Vision, told PIN: “The plan for Britain’s ‘ Energy Coast’ is to create a Silicon Valley type area for the UK. West Cumbria will become the base for innovative energy production along the coast. The majority of people in the area support the power station and it has become part of their community. West Cumbria has a surplus of housing stock and investment will be made to improve these ageing terraces for the local community. New homes will also be built as an attractive alternative for the new highly skilled and well paid workers who are expected come to the area.”
Castle Square Developments launches £18m mixed-use development
Castle Square Developments has launched Kingsmill Park, an £18m mixed-use development situated between Mansfield and Sutton in Nottinghamshire.
Kingsmill Park will be developed over nine acres of land close to the A38. The site will include 60,000 sq ft of office and industrial space, a 120 bed Express by Holiday Inn hotel, specialist health care facilities supplied by Exemplar Health and a new Toby Carvery. When completed it is hoped that the development will provide in excess of 500 full and part-time jobs. The majority of the site is due for completion by late 2009 although due to the current economic climate the office and industrial space will be completed in phases, with the first phase planned to go on site in early 2009.
Frank Horsley, head of community and economic promotion at Ashfield District Council, told PIN: “The Kingsmill Park development represents another major commercial opportunity along the A38 corridor. The site is strategically placed close to the Mansfield Ashfield Regeneration Route (MARR) which was designed in order to open up new sites for investors. Population growth in this area is the second slowest in the East Midlands and this can only be changed by increasing the number and quality of houses and jobs to attract people in. The Kingsmill Park site, being a combination of leisure and business usage, will have a positive impact on the local housing market due to the work-life balance such a development brings.”
Crosby finds few solutions for mortgage market
Sir James Crosby’s interim report into the current crisis in the mortgage market has warned that the UK is unlikely to see any respite until 2011 and there are few solutions to help the situation.
Crosby, the former chief executive of HBOS, was commissioned by the Chancellor of the Exchequer, to analyse the current condition of the mortgage market and to make recommendations on how mortgage lending could be revived. He outlined a number of potential solutions suggested by 30 different associations and authorities across the industry, both nationally and internationally.
The suggestions included Government intervention in the market for mortgage-backed securities which could include the Government giving a taxpayer guarantee to billions of pounds of mortgage market bonds. Another suggestion was to boost the confidence of investors by creating cross-border ‘gold-standard’ for securities. There were also calls from some for greater transparency in the market. Others have suggested an extension to the Bank of England’s special liquidity scheme which allowed banks to swap £50bn of mortgages for Government bonds.
Crosby warned against a US-style government-backed agency which would transfer credit risk from investors to the Government. The current problems faced by Fannie Mae and Freddie Mac in the US have gone someway to discrediting this idea.
John Heron, director of mortgages for Paragon Mortgages, told PIN: “ Crosby has consulted far and wide and has got a good grip on the current environment. He has made very sensible and fundamental observations. My concern lies with the general signals from the Government where there appears to be a collective crossing of fingers. It is abundantly clear that things are badly wrong, with the root cause being the dysfunction of the mortgage market. A measured intervention is urgently needed as it will take a number of months before any effects are felt.”
House prices to increase by 23% by 2013
According to the National Housing Federation’s (NHF) Home Truths 2008 report, the average house price in England will rise by more than 23% by the end of 2013.
In the short-term, the NHF forecasts that house prices will fall by 2.1% in 2009 and then a further 1.3% in 2010. From 2011 the federation believes that there will be a sharp increase in house prices rising by 5.2% in 2011, 9.2% in 2012 and 9.3% in 2013. If these forecasts are correct this will put the average house price up to £274,700.
The report also looked into the effect of the credit crunch on housing development. The federation found that demand for housing continues to grow but developers, who have been badly hit by the credit crunch, are scaling back developments. At the present time only 75% of the housing that the country needs is being constructed.
James Kingdom , senior research analyst with Colliers CRE, told PIN: “I think that a rise of over 23% by 2013 is a fair assumption. I have concerns regarding the NHF’s short-term figures, a fall of 2.1% in 2009 is a very conservative estimate. I believe that prices will begin to rise in 2011 but supply will still be an issue. House-builders currently well below the Government’s target of 244,000 new homes a year and construction is expected to fall further this year. With this continued lack of supply I expect house prices to rise aggressively when the property market recovers from this downturn.”
Offices holding up well in Leeds
According to Savills H1 Leeds Office Survey, the take-up of offices increased by 5% in the first half of 2008 compared to the half year average of the last five years. However when compared to H1 2007 take-up is actually down by 6%.
The survey found that 252,262 sq ft of office space was taken up in H1, with the average for H1 of the last five years being 239,821 sq ft. When looking at the remainder of 2008, there is over 250,000 sq ft of active enquiries for space in the city and Savills is confident that take-up for 2008 will match or exceed the annual average over the last five years of 576,023 sq ft.
Rents also increased in H1 with the highest rent being paid at £27 sq ft, which is an 8% increase from Q4 2007 when the highest rent was £25 sq ft. Leeds’ city core currently suffers from a lack of grade A office space and rents are expected to rise to £28 sq ft by the end of this year.
Clare Burke, associate for commercial research at Savills, told PIN: “The stability of office rentals in Leeds is down to the balance of supply and demand. There is approximately 60,000 sq ft of grade A office space in the city core and this is highly sought after. Although there is lots of supply to come on stream over the next year this is predominantly based around the fringes of the city and is unlikely to impact much on rents.”
St Modwen ceases negotiations with Tesco but Project Jennifer not in jeopardy
After four years of negotiation talks, Tesco has decided to pull out of its dispute with St Modwen Properties regarding a £150m regeneration scheme in Liverpool, Project Jennifer, but the fall-out seems likely to carry on for some time as Tesco owns three acres of the 45-acre site.
St Modwen is now courting another major supermarket chain but Tesco is threatening to oppose moves to bring in a rival. And since the retailer owns a piece of the land, this could have repercussions in delaying the entire scheme. Delays could lead to rising costs and, particularly given the current uncertain economic climate, it is not an ideal situation for those that have invested money in the scheme.
Project Jennifer is based around the Great Homer Street area of Liverpool. The 45-acre scheme, which already has outline planning permission, will comprise of 480 new homes, 80,000 sq ft of retail space and replacements to existing light industrial and commercial space. The project will be anchored by what St Modwen claim will be the biggest food superstore in Merseyside at 115,000 sq ft. On completion it is hoped that the regeneration will create 740 new jobs 160 of which will be based in the superstore.
A spokeswoman for St Modwen told PIN: “Contrary to recent media reports the Project Jennifer development is definitely not in jeopardy. I can confirm that St Modwen is in advanced discussions with another supermarket to anchor the development.”
Buy-to-let investors committed to market
According to a survey by the Property Investor Show (PIS), 70% of landlords are planning to purchase property this year despite 65% believing the country is heading for recession.
Landlords were asked where they expected to be purchasing property and 37% said in the UK, 25% abroad and 8% in both the UK and abroad.
With 70% of landlords believing that house prices are going to fall this year, it is unsurprising that over 65% of investors now believe that rental yields are a greater consideration than capital growth. In 2007 only 40% of landlords considered rental yields to be the greater consideration.
Nick Clark, managing director of the PIS, told PIN: “Buy-to-let investors already play a crucial role in the property market, meeting the high demand for rented accommodation from country’s substantial numbers of immigrants amongst others, as well as taking up the slack on social housing. Now, they are also providing for an increasing number of families and first time buyers who are choosing to wait until the market stabilises before buying. Landlords are meeting consumer demand and it is these serious investors who will underpin the housing market as it begins to recover.”
The PIS claim that the survey is the largest of its kind with 1,000 landlords responding to the questionnaire.
Mortgage News
In PIN’s latest weekly mortgage recap, Tim Warburton reports…
The Bank of Ireland has launched two fixed-rate buy-to-let deals over three or five years. Both products come with an 85% maximum loan-to-value (LTV), 100% rental cover, a 2% arrangement fee and a 5% early repayment charge. For those looking to fix for three years the interest rate is 7.39% and for five years the rate is 7.24%.
Mortgages for Business has launched a three-year fixed-rate buy-to-let remortgage deal. It has an interest rate of 6.99%, a 75% LTV up to£500,000, 100% rental cover, a £1,499 arrangement fee as well as a £297 broker fee. There is also a 5% early repayment fee up to the end of the fixed term.
HBOS has followed last week’s reduction of rates on 48 products with a further cut on 45 residential mortgages across the group and the Bank of Scotland has reduced 29 of its residential products by up to 0.45%.
Natwest has reduced the rates on its buy-to-let products. A two-year fixed-rate with an 85% LTV now has a rate of 6.89% reduced from 7.09% and a £1,499 arrangement fee and the 75% LTV equivalent has a rate of 6.69% reduced from 6.89% and a £1,999 fee. A five-year fixed-rate with a 75% LTV has a rate of 6.69% reduced from 6.89% and a £1,499 fee. A two-year tracker with an 85% LTV now has an initial rate of 6.89% reduced from 7.09% with a £1,999 fee. These products are only available through brokers.
Woolwich has reduced the rates on two of its buy-to-let products. Its portfolio tracker has been reduced by 0.40% and will now have an initial rate of 6.59% with a 75% LTV and a per property fee of £295. A five-year fixed-rate has been reduced by 0.5% to 6.99% with a 75% LTV and a fee totalling 1% of the loan.
Lynsey Sweales, director for The Money Centre, told PIN: “The last fortnight has seen two major lenders make reductions to their buy-to-let mortgages. This is a move in the right direction and can be seen as a glimmer of light, at what still is, a long dark tunnel. Hopefully this is a sign of momentum picking up and with this some confidence can be restored to the market.”
