The United Kingdom for the first time in 16 years registered a zero economic growth rate in Q2 2008 after enjoying 63 consecutive quarters of growth.
The Government had previously forecast a +0.2% growth rate, while economists had a more modest +0.1% prediction. But the negative effect of the economic slowdown on the country’s construction and manufacturing sectors led the Office of National Statistics (ONS) to revise it to zero.
Construction declined by -1.1% in Q2 2008, worse than previous estimates of +0.7% growth and manufacturing also slipped by -0.8%. With the second quarter data, the Bank of England (BoE) revised its growth forecast to a realistic zero growth for 2009 and even accepted the possibility the UK would have a quarter or two of negative growth.
The bad news led to the decline of the sterling against the dollar and euro.
Tesco sells 13 more of its stores in sale and leaseback deals
Tesco, one of the UK’s big four grocers, will sell 13 of its stores as well as a depot in sale and leaseback deals with property investors to raise more than £600m to fund growth.
The deals, with the Universities Superannuation Scheme, fund management group PRUPIM, LaSalle Investment Management and Canada Life, take the total sum raised by Tesco from sale and leaseback deals to nearly £2bn in the past two years. The disposals are part of a plan announced by the retailer in 2006 to release £5bn over five years.
Three of the deals involve 100% sales to PRUPIM, LaSalle Investment Management and Canada Life and the fourth is a joint venture with the Universities Superannuation Scheme. All the properties will be leased back to Tesco with rental agreements linked to the retail prices index.
The 13 stores account for 2.4% of the value of Tesco’s UK stores’ portfolio. So far, 35 stores have been sold and leased back since the £5bn strategy was announced. Tesco’s property portfolio has an estimated value of more than £30bn and the grocer owns the freeholds on more than 80% of its stores, compared with about 60% at Sainsbury’s.
Can banks support highly leveraged property investors?
Glenn Maud, one of Britain’s most secretive property tycoons, is working on an urgent £2.5bn refinancing plan after one of his funds, Propinvest, breached banking covenants.
Maud, whose portfolio includes a 50% stake in Citigroup’s landmark Canary Wharf tower, is in talks with a consortium of banks and hopes to refinance Propinvest, his investment vehicle, within weeks. The negotiations will be a key test of banks’ appetite to support highly leveraged property investors and will be closely watched by many in the property industry. If completed it will be the first major property refinancing deal since the credit crisis began over a year ago.
Maud has been one of the most active private investors in recent years, building a portfolio reported to be worth around £5bn. As well as the Citigroup tower, Propinvest also owns a number of major UK shopping centres.
Recently, Barclays Capital declared that more than £300m of commercial mortgage-backed securities linked to Propinvest were in breach of a “loan-to-value covenant” ruling that a “special servicing event” had occurred. “[Barclays Capital] are in talks with the borrowers regarding the breaches of the credit agreement,” said the bank in a statement.
Maud is one of a number of property investors who has breached the covenants on commercial mortgage-backed securities (CMBS) - a popular form of financing in the final years of the property boom.
At the end of last week ratings agency Fitch changed its outlook for the commercial mortgage-backed securities sector from “stable” to “negative”. Fitch said the outlook for the junior bonds secured against these schemes was now “negative”.
Patchy credit ratings increasing
Borrowers with patchy credit ratings have increased, with more falling behind on their mortgages and fewer able to refinance their higher interest rate loans, according to a report by credit rating agency Standard & Poor’s.
The report showed that the total delinquency rate for mortgages rose to a record 23.31% of the total pool in Q2 2008 which is up from 22.17% at the end of Q1 2008. Seriously delinquent loans (those overdue by over three months) rose to 12.12% of the total. Roughly 70-80% of all subprime mortgages have been packaged into securities and their performance shows how those loans, never tested through an economic downturn, will behave.
The report also highlighted, amongst other things, differences among the performance of lenders as, for example, loans generated by the Bank of Scotland showed noticeably higher arrears. It also showed the securitisation market had a relatively high number of self-certified loans (where borrowers provided no proof of income) within it. But Northern Rock loans showed the sharpest deterioration even after taking account of the high number of borrowers refinancing with other lenders.
Crossrail announces its short list for tender processes
Crossrail has announced the short listed consortia and companies for the competitive tender process for its programme partner, project delivery partner and design framework agreements.
The four companies invited to tender for the programme partner, worth £75-100m, are Legacy 3 a joint venture between Parsons Brinckerhoff and Balfour Beatty Management; Bechtel; Transcend, a joint venture between AECOM, CH2M HILL United Kingdom Unlimited Company and Nichols Group and lastly Mouchel.
The five companies invited to tender for the project delivery partner, worth £300-400m, are: Legacy 3, a joint venture between Parsons Brinckerhoff and Balfour Beatty Management; Bechtel; Laing O'Rourke Holdings; Flare, a joint venture between Fluor, Ove Arup & Partners and E C Harris as well as a joint venture between Capita Symonds and NNN.
Companies invited to tender for the design framework agreements, worth £300m are: Aedas Group, Atkins, BDP, Capita Symonds, a joint venture between Faber Maunsell and Gifford, Halcrow Group, Hyder Consulting (UK), Jacobs Engineering UK, Mott MacDonald, Mouchel Limited, Ove Arup & Partners International, Parsons Brinckerhoff, Scott Brownrigg, Scott Wilson Railways and WSP UK.
Announcements about the appointments of the successful bidders are expected towards the end of the year.
Doug Oakervee, executive chairman of Cross London Rail Links, said: “This is another significant milestone for the Crossrail project as it progresses towards the construction of the railway. I am heartened that the tender lists for all of these important contracts are comprised of such distinguished companies.”
TPG pulls out of bid process for Paragon
TPG Capital, a US private equity group, has dropped out of the bid process for Paragon just weeks after it pulled out of a £179m ($330m) rescue of Bradford & Bingley (B&B).
It is understood that the private equity group decided that Paragon did not “stack up” as a prospective investment and so has not proceeded to the due diligence phase for the UK’s third biggest buy-to-let lender. Paragon ran into serious loan-funding problems and was forced into a £287m emergency rights issue earlier this year. The lender stopped issuing mortgages to new customers although it is renewing existing borrowing facilities for existing landlord clients. Its shares have fallen nearly 90% in this time.
Other private equity houses, including Blackstone of the US and Bridgepoint of the UK, have been examining Paragon’s books in recent weeks but it is not clear when an offer might emerge.
Kettering retail park secures three major retailers
Belgrave Land Ltd (BLL) is preparing to start work on the second phase of its Telegraph Park retail development in Kettering, costing £3.8m, after having secured Comet, PC World and Maplin as pre-lets for the site.
The new stage of development will consist of 39,000 sq ft of retail space. All three retailers have signed 15-year leases with Comet leasing 20,000 sq ft at £19 sq ft, PC World taking 14,000 sq ft at £20 sq ft and Maplin occupying the final 5,000 sq ft at £20 sq ft. Construction is set to begin by the end of September with a completion date set for May 2009.
The £15m first phase of Telegraph Park covered 62,000 sq ft and became home to Wickes who opened a 50,000 sq ft store and Carpetright who moved into the other 12,000 sq ft.
Jonathan Willoughby, managing director of BLL, told PIN: “We are delighted that three national retailers have committed to opening new stores in Kettering. This emphasises Kettering’s position as a major retailing centre within Northamptonshire. The fact that Kettering’s population is set to grow considerably, due to the Government’s designation of it as a significant growth town, has clearly influenced the decision of these retailers.”
Planning permission for Allens West development near Stockton-on-Tees
JG Land & Estates (JGLE) recently received outline planning permission for its masterplan for the regeneration of the Allens West site at Eaglescliffe near Stockton-on-Tees.
The 112-acre mixed-use development is situated on a brownfield site close to the A19. Upon completion the site will consist of 500 new homes, 90,000 sq ft of industrial warehouse space, 10,000 sq ft of office accommodation, 2,500 sq ft of retail space, a care home and community facilities.
Concerns had been raised at the public consultation that the number of homes was too great for the area. JGLE responded that the Stockton-on-Tees area needed new homes if it was to fulfil Government targets. It also argued that it will be providing a mix of different homes which are not provided in the locality, including 15% which will be affordable.
John Jowitt, planning director for JG Land & Estates, said: “We’re naturally very pleased that the committee has approved of our plans for Allens West. We’ve worked hard to put together a high quality, well designed scheme, which will transform the site and bring numerous benefits to the local community for many years to come.”
OFT approves new estate agent redress scheme
The Office of Fair Trading (OFT) recently granted approval to The Ombudsman Service Limited (tOSL) to run an estate agents’ redress scheme called the Surveyors Ombudsman Service (SOS).
SOS has become the second redress scheme to be approved by the OFT. In June 2008 the Ombudsman for Estate Agents Company Limited’s (OEACL) estate agent redress scheme was also granted approval. tOSL originally established the SOS to handle complaints regarding members of the Royal Institution of Charted Surveyors (RICS). This service will now be made available for any estate agent to join.
As of the 1st October all estate agents who deal with residential property will be required to become a member of a redress scheme. The service will allow both buyers and sellers to refer complaints regarding members for resolution. Both SOS and OEACL’s decisions on complaints will be binding to its members and they have been granted the power to issue levels of compensation to consumers.
Elizabeth France, chief ombudsman at the SOS, told PIN: “We are delighted that the OFT has given its approval for us to run an estate agent redress scheme. We have the skills, people and processes to enable us to effectively resolve complaints. As we move towards the new environment for consumers beginning on the 1st October, I look forward to using the experience we have gained in running ombudsman services for other industry sectors to provide the best possible service to estate agents, who choose to join our service, and their customers.”
CML encourages greater use of ‘mortgage rescue’
The Council of Mortgage Lenders (CML) has called for the Government to encourage more wide-spread use of ‘mortgage rescue’ schemes to help those home-owners faced with the risk of repossession.
A ‘mortgage rescue’ scheme is a way of alleviating the pressure on those borrowers who are unable to meet their mortgage payments. A home-owner would be ‘rescued’ by a housing association or social landlord who would buy into a share of their property. The owner would therefore pay less on their mortgage albeit with a rental payment to the landlord. When their financial situation improves they will be able to repurchase the remainder of their property.
‘Mortgage rescue’ can also work when a home-owner is bought out of their mortgage by a housing association but remains as a tenant in their home. This is similar to the practice of sale and leaseback which is offered by private companies and landlords but offers the owner less security.
The CML said that there needs to be a standardised approach to ‘mortgage rescue’ schemes. In England only a few housing associations and local authorities offer support, while in Scotland, Wales and Northern Ireland each of the Governments are developing their own systems.
Bernard Clarke, spokesman for the CML, told PIN: “Mortgage rescue in the UK is currently piecemeal, so we’d like to see it available more consistently. It won’t be right for everyone, so borrowers’ circumstances, including the workability of any new arrangements, need to be assessed on an individual basis. Generally, we favour options enabling owners either to sell an equity share, with the flexibility to buy it back if their circumstances change, or to sell outright and become a tenant.”
Mortgage approvals stabilise but not sign of recovery
New data from the British Bankers Association (BBA) found that during July the number of approvals for house purchases improved slightly to 22,448 from June’s record low of 22,369.
The figures for approvals for new mortgages are often seen as a good indicator of demand in the housing market. Although approvals stabilised during July they have now fallen at an annual rate of -65% from July 2007 when 64,184 new home loans were approved.
The BBA also collated the amount of remortgaging that was approved in July. It recorded a drop of -7.5% to 54,232 from June’s figure of 58,624. Annually, the remortgage market declined by -21.2% from 68,780 in July 2007. When compared to approvals for new purchases and other loans secured against a property, remortgaging accounted for over 50% of the total approvals.
Chris Cummings, director general of the Association of Mortgage Intermediaries (AMI), told PIN: “The BBA figures may point to a stabilisation of mortgage approvals but it certainly doesn’t look like a recovery as the data showed that mortgage approvals remain close to record lows. I fear we will have to wait until 2010 for any signs of recovery, unless the public policy pressure moves away from the laissez-faire approach now being pursued.”
Mortgage News
In PIN’s latest weekly mortgage recap, Tim Warburton reports…
The Bank of Scotland (RBS)has launched a number of new buy-to-let products. These include a three-year tracker with an initial rate of 6.39%, an 85% loan-to-value (LTV) and a fee calculated at 2% of the advance. For those existing customers that are remortgaging, a five-year fixed-rate is now available at 6.19%, with a 75% LTV, a fee calculated at 2% of the advance and an incentive of no legal or valuation fees.
In addition, RBS has reduced its buy-to-let rates by up to -0.2%. A two-year fixed-rate has been cut from 7.11% to 6.99%, with an 85% LTV and a fee of £1,499. A two-year tracker has been cut from 6.54% to 6.44% with an 85% LTV and a fee dependent on the type of current account held or opened.
Natwest has launched two new buy-to-let mortgage deals. A two-year tracker has an initial rate of 6.44% and an application fee of £1,299 or £999 depending on which Natwest current account is opened with the deal. A two-year fixed-rate is set at 6.99%, with fees of £1,499 or £999, again dependent on which current account is opened. Both products come with an 85% LTV and remortgage customers will also benefit from free legal and valuation fees.
Pink Home Loans has launched a new two-year fixed-rate buy-to-let deal set at 4.85%. It has a 70% LTV and a fee calculated at 4.85% of the advance.
Birmingham Midshire Solutions (BMS) has launched a new buy-to-let two-year tracker deal for those customers that are remortgaging. It has an initial rate of 6.39%, an 85% LTV and fees calculated at 2% of the advance. The lender has also cut the rate on its three-year fixed-rate deal by -0.2% to 5.69%, with a 70% LTV and a fee calculated at 2.5% of the advance.
Lynsey Sweales, director for The Money Centre, told PIN: “The buy-to-let market is continuing to get a little better with more lenders slowly returning to the sector. It is still expensive for lenders to borrow and this is reflected in the current trend of high arrangement fees. It is now much harder for landlords to calculate which is the best available deal for them. I would advise that they speak to a broker rather than dealing with a lender directly.”
