According to the Financial Times House Price Index (FTHPI), nominal house prices in England and Wales dropped for the fifth consecutive month in July by a further -0.5% following June’s figure of -0.6%, meaning the average house price in July was £226,292.
However, the Acadametrics-conducted index found that despite the fall in July, annual growth still remained positive at +0.3%. July was the 11 th successive month in which annual capital growth rate has declined and it is now at its lowest level since February 1996.
The research pointed to the increasing difference between transactions-based indices such as the FTHPI and those based on mortgage offers such as the Nationwide House Price Index. Although all of the indices reported declining house prices, those based on mortgage offers found that property values dropped at a quicker rate. Academetrics believes that this is having a negative impact on consumer confidence and that the continuing slide therefore becomes a ‘self fulfilling prophecy’.
Troy Martin, director at Acadametrics, told PIN: “Indices based on mortgage offers are always based on the lenders own sample. They are much more volatile as they are directly linked to the level of finance currently available. The FTHPI looks at all transactions including those paid for in cash which do not have to rely on the finance sector. The housing market is based on confidence, as people read headlines of falling house prices they believe the worst and so prices continue to spiral down.”
Repossessions rise by 48%
According to the Council of Mortgage Lenders (CML), the possession rate in the first half of this year (the proportion of all mortgages on which possession occurred in the period) was similar to that of the late 1990s but remained less than half of that experienced in the early 1990s. Of 11.74 million first mortgages, some 0.16% of these in H1 2008 were taken into possession, up from 0.11% in both the first and second halves of 2007.
However, the number of possessions has significantly increased in this half by 41% as there were 18,900 in this period from 13,400 in H2 2007.
On arrears, the total number of households with arrears of three months or more was 155,600 at the end of the first half of this year, up from 129,600 in H2 2007 and 120,800 from H1 2007. The arrears rate stood at 1.33% of all mortgages, up from 1.1% at the end of 2007 and 1.02% at the end of H1 2007.
Michael Coogan, CML director general, said: “ The number of people facing difficulty needs to be kept in perspective. The good news is that most people are coping well and continuing to pay their mortgages in full, despite the higher costs of food and fuel and the higher mortgage rates now prevailing in the market for those coming off cheaper original deals.
“But it is inevitable that more borrowers’ coping strategies will come under pressure in current conditions than in the unusually benign years of the last decade. That's why lenders, the Government and the advice sector are working closely together to minimise the impact on borrowers.”
Lenders face consequence of high LTV lending
Northern Rock recently announced a £585m loss in the first half of 2008. Much of the loss was attributed to the banks’ high loan-to-value (LTV) lending. Darren Cook of Moneyfacts.co.uk also warned that other lenders could find themselves in a similar position.
Northern Rock became synonymous with lending up to 125% of the value of a property as the country enjoyed the property boom of the late 90s, and so the bank has found itself with a mortgage book full of high risk borrowers who are unable to remortgage elsewhere.
Since the start of the credit crunch lenders have been tightening their mortgage criteria with very few loans available for those with a LTV of +90%. Many high LTV borrowers who are coming to the end of their fixed-rate period are now faced with much higher standard variable rates and, as house prices continue to fall, the risk of negative equity.
Darren Cook, an analyst at Moneyfacts.co.uk, told PIN: “Northern Rock was one of ten lenders offering mortgages above 100% LTV. Although Northern Rock has the highest percentage of these loans on its books, the others may also suffer some fallout. With borrowers moving onto standard variable rates it is inevitable that some will struggle to make their repayments. It is in the lenders’ best interests to assess those who are unable to make payments on a case-by-case basis and wherever possible to ensure that debts do not go to foreclosure.”
New developments perform well in regeneration areas
According to IPD’s Regeneration Index, The Regeneration All Property total return fell to -6% in 2007 compared with IPD’s UK All Property Index which was -3.4% in the same period. However, for the first time IPD looked at commercial development performance in regeneration areas and it returned +1.2% in 2007, significantly outperforming the IPD UK All Property Index.
Still, different property sectors in regeneration areas showed different patterns of returns. Office managed to retain its attraction in relative terms, returning -0.9% in regeneration areas compared to -0.5% in the broader UK index. In 2007, industrial properties in regeneration areas slightly underperformed, earning investors -4.4% compared with a -3.5% UK average. In the retail sector, retail warehouses and shopping centres in regeneration areas underperforming the retail warehouse and shopping centre averages returning -7.5% and -4.7% respectively.
Rebecca Graham, research analyst for IPD, told PIN: “ Over the medium and long-term, investments in regeneration areas have performed in line with the UK average. However new developments delivered stronger returns than retained investments in regeneration areas in the context of the UK’s serious market downturn in 2007.”
UK retail sales worst since summer 2005
According to the British Retail Consortium (BRC), retail sales in the UK are the worst since summer 2005 as retail sales fell -0.9% when compared to 12 months ago when sales had only risen by +1.2%.
This is blamed on changeable weather although extended clearance events helped some but underlying trading remained tough. Food and drink was the only sector to show significant growth but that was against a weak July 2007. Clothing and footwear fell further and furniture and homewares remained well down on a year ago, despite continued discounts and promotions.
Consumer confidence has weakened still further to new record lows. With increasing demands on household budgets, shoppers are very price-conscious and reluctant to spend on big-ticket items.
Joanne Denney-Finch, Chief Executive, IGD, said: “Food and grocery, while not immune to a downturn, often proves to be more resistant and grocery sales in July remained strong, although this is substantially affected by inflation.
“Economic conditions are starting to affect shopper behaviour in different ways. Some are shopping more locally, for example, or buying in season. Some are returning to frozen foods. Others are changing their usual brand or outlet. We are seeing premium brands strengthen as well as the value end of the market as people sharpen their shopping skills, seeking out the best prices and promotions available to suit their individual needs.”
The UK’s weakening economy
For the first time since 2006, the sterling fell below $1.90 and is continuing to drop as fears escalate about the UK economy’s ability to fight off a recession.
The pound fell further against a strengthening dollar after it emerged that inflation in July increased by +0.6% to 4.4% in July, which was more than double the Government’s 2% target and the highest since the Bank of England gained its independence in 1997.
This news came as Mervyn King, governor of the Bank of England (BoE), said that he expects “growth to be flat” and does not rule out a recession. He warned that inflation would peak at 5% making it hard for the central bank to cut interest rates in the near future. However, he said that the slowing economy would eventually curb inflationary pressures.
Weak retail sales and housing data indicated that the UK’s economy is slowing. According to the British Retail Consortium (BRC), retail sales were also down in July by -0.9%, while the Royal Institute of Chartered Surveyors (RICS) said house prices fell again in July and the number of completed sales per surveyor slumped to a 30-year low.
King added that consumer spending and house prices would weaken, particularly because of tighter credit conditions that were expected to continue.
In a technical definition of a recession, the economy contracts for two consecutive quarters. The economic picture has worsened since the bank’s last inflation report in May, which forecasted growth to fall to about the 1% mark at the end of this year. And the bank’s prediction is worse than the Government’s official forecast of growth in 2009 of 2.25-2.75%
Property sales activity at an all-time low
Tighter mortgage lending conditions continued to dampen the UK housing market in July, according to The Royal Institute of Chartered Surveyors’ (RICS) latest survey.
RICS said, in its monthly survey, that 83% of its members reported falling house prices, which is a small improvement on the 86.9% recorded in June. Activity has continued to slow, as the average number of transactions per surveyor in this quarter fell to 14.4, which was the lowest figure since the survey began. The collapse in transactions came due to falling demand for the third month running. However, the decline slowed in July with 27% of surveyors reporting a fall in new buyer enquiries compared to June’s 35%.
RICS believes the small improvements in the house price balance and new buyer enquiries suggested that house market activity may be beginning to stabilise and it was optimistic that sales activity could pick up as home sellers lower their asking prices.
Peter Bolton King, chief executive of the National Association of Estate Agents (NAEA), said: “ The report as a whole shows tentative signs that the decrease in housing transactions is likely to start to stabilise over the months ahead and that there may be some marginally better conditions in the market place in the near future. Indeed, these figures confirm the findings from our own survey that whilst transactions are still low the market is showing signs of levelling out.
“However, whilst aspects of this report are encouraging, I remain concerned that the optimism for the next few months may be scarred by the current uncertainty regarding stamp duty. The confused messages being sent out by the Government will undoubtedly have an impact on consumer confidence as the public is understandably confused at present about whether to buy or sell. The Government needs to clear up this uncertainty as soon as possible to help minimise the disruption to the market place and help the British economy move forward.”
“Lenders will be gradually easing mortgage deal rates”
The number of buy-to-let mortgages on the market has dropped drastically in the last year, leaving thousands of landlords struggling to find affordable mortgage deals, however Lee Grandin of Landlord Mortgages believes lenders will be gradually easing rates on mortgage deals in the near future.
The Daily Telegraph revealed that the number of mortgages available has dropped by 93%, from the 4,384 deals available 12 months ago to the 307 offers which are currently available to borrowers. Experts estimated that the lack of availability will affect around 110,000 amateur landlords who only have one buy-to-let mortgage on their portfolio as they do not have enough properties to help prevent the slowing of the market.
Grandin told PIN: “Without a doubt there are less buy-to-let mortgages available now than there were 12 months ago. Anyone who has purchased a property in the last three years will be finding it difficult to refinance due to a couple of factors. First, loan-to-values (LTVs) have come down to 75% so investors will need a bigger deposit to re-mortgage and second, house prices have decreased since they purchased the property. Those people that are coming off deals right now will find that even a 75% LTV won’t get them a more favourable deal than they are currently on. But things are beginning to improve. We predict that lenders will be gradually continually easing the rates on mortgage deals so some better deals will emerge in the next few months.”
MEPC flouts credit crunch
MEPC, a commercial developer, has submitted a planning application for the first building of the third phase of its £450m Wellington Place development in Leeds.
The building will be situated in the heart of Leeds’ West End and will consist of 160,000 sq ft of Grade A commercial office space, along with 8,000 sq ft of ground floor retail space.
Rick de Blaby, chief executive officer of MEPC, told PIN: “Having consulted extensively before submitting our application, we’d be optimistic about obtaining approval in October/November this year. We would then have an aspiration to start on site in the early to mid part of 2009, motivated by an obvious lack of competing supply coming through.
“No one is pretending that conditions for property development are easy, against a background of slowing economic activity and a scarcity of finance. Leeds, however, has always demonstrated resilience to any wider slowdown as evidenced by the consistent levels of annual office floorspace take-up and we would have confidence about the stability of the city’s employers in these conditions.
“The lack of finance is an issue affecting the whole real estate sector and whilst we are not immune to the effects of the ‘credit crunch’, as long term investors with a strong income stream, we are perhaps better placed than some to undertake new projects like Wellington Place, which we wish to see become the definitive 5-star business quarter for Leeds’ West End. That said, like everyone else we will have to watch carefully the Capital and economic markets over the next few months.”
£20m new retail and leisure park in Swadlincote
South Derbyshire District Council has granted planning permission for a £20m Hepworth Retail and Leisure Park in Swadlincote near the City of Derby.
The proposals for the 3.6 hectare former pipe works involve the regeneration of the brownfield site with a mixed-use development comprising of 9,738sqm of non-food retail uses in four separate blocks and a 3,297sqm leisure element including a multiplex cinema and food and drink outlets as well as 36 new homes.
It is being developed by Rokeby Developments in partnership with Peveril Securities.
Adrian Goodall, Rokeby developments director, said: “The scheme will be a major boost for Swadlincote and swell the town’s attractions for shoppers. We hope we have addressed the concerns of local traders by improving our linkages with the town centre.
“We currently have a total of 250,000 sq ft of retail developments on-site at present and remain confident about the retail market despite prevailing market conditions. The retail sector is still interested when it comes to good quality accommodation, in the right location, at the right rental levels.”
Mortgage News
In PIN’s latest weekly mortgage recap, Tim Warburton reports…
Mortgage Express has launched a buy-to-let discounted variable-rate tracker and a number of buy-to-let fixed-rate deals. The variable-rate tracker is discounted for three years and is available for those borrowers with a 75% or 80% maximum loan-to-value (LTV) with an initial interest rate of 6.74% or 6.89% respectively. Both deals come with an arrangement fee calculated at 2% of the advance. Two and three-year fixed-rate products are available with interest rates ranging from 7.24% to 7.74% depending on the LTV.
Both Bank of Scotland (BoS) and Birmingham Midshires Solutions (BMS) have launched new buy-to-let products and they have also cut rates. BoS has launched a two-year tracker, with an initial rate of 5.79%, and a 50% LTV, and a five-year fixed-rate deal set at 6.99%, with a 75% LTV. Both products come with a fee calculated at 2% of the advance. BoS also has cut the rates on a number of its tracker and fixed-rate deals by up to -0.30%. BMS has introduced a two-year remortgage tracker with an initial rate of 5.99%, a 75% LTV and a fee calculated at 2% of the advance. BMS has also cut the rates on some of its fixed-rate and tracker products by up to -0.30%.
Cheshire Building Society has cut its two-year fixed-rate buy-to-let mortgage deal. It is now available with a rate of 6.69%, a reduction of -0.50% from 7.19%, with an 80% LTV and a £1,499 fee.
Skipton Building Society has cut the interest rates on its buy-to-let product range by -0.40%. A three or five-year fixed-rate is now available for 6.99%, with a 75% LTV and a £995 fee.
In addition, Premier Mortgage Solutions (PMS) has withdrawn its three-year fixed-rate at 6.99%.
Darren Pescode, sales director for The Mortgage Broker LTD, told PIN: “We are starting to see some confidence return to the market as lenders dip their toes back into the buy-to-let arena. There are still excessive fees associated with the lower interest rate products and I would like to see these come down. Many landlords are remaining on standard variable rates because they believe that they could be worse off once the fees are taken into consideration. I anticipate that things are going to continue to get better as mortgage deals become more competitive.”
