Residential prices to fall by -7% in 2010

Lack of supply causing price rises

Prime London office rents to rise in 2010

Residential mortgage products are easier to obtain

Social housing tenants happy to stay where they are

According to the latest Jones Lang LaSalle (JLL) UK residential property market forecast, the recent revival in the market will not continue, predicting that prices will probably maintain their current level until the end of the year but will fall by -7% in 2010.

The report said: ‘ Our view is that the present recovery is quite fragile and that at sometime over the next six months housing market sentiment and prices will fall back. This could occur quite naturally or have a trigger event.

‘This early and strong recovery...obviously raises questions as to whether the recovery in prices can be sustained and whether the house price falls are indeed over for this part of the cycle.

‘While the recent drive in the market is encouraging, it is impossible to ignore the short-term risks posed to the UK residential sector by rising unemployment and poor credit availability.’

JLL does not expect a lasting recovery before at least 2012, with an anticipated growth of +8% by 2014 with the southern regions of the UK and London in particular showing signs of recovery first.

Lack of supply causing price rises

According to Rightmove’s September house price index, residential asking prices in England and Wales have dropped by -1.5% since September 2008 despite the average asking price increasing by +0.6% in September.

Rightmove believe this is a result of a decrease in available stock, with ten properties coming of the market for every eight that becomes available. This is causing upward pressure on the market as the high deposits required for mortgages are putting off potential sellers which mean there is a dwindling property choice.

Miles Shipside, Rightmove’s commercial director, said: “Confidence is up, stock is down, and the number of people searching is high. There are lots of positives but too few buyers can put down the 40% deposits that are needed in order to secure the best mortgage deals”

The report also noted that Rightmove branches had recorded their lowest stock levels of property since February 2008, with a -29% decrease in properties coming to the market. This is a further indication of a lack of choice, especially as the report included historic data that showed potential buyers had a choice of approximately two million properties per year historically in comparison to the 1.2 million indicated currently.

Shipside said: “Some would-be sellers may be concerned by the limited choice of suitable property currently available, and will have to decide whether to take a chance on finding something fresh to the market after they have found a buyer.”

The report also included data on regional asking prices with residential prices in the south-east increasing by +1.5% in September, London up by +0.9% and East Anglia recording a staggering +8.4% improvement on August. This is in sharp contrast to the rest of the country where prices have all declined with Yorkshire and Humberside recording a -3.6% decrease for the month and a -6.5% annual fall.

Shipside concluded: “The recession appears to have hit prices harder in the north, and this is compounded by lenders’ more conservative attitude to risk.”

Prime London office rents to rise in 2010

Knight Frank has stated that in 2010 office market prime rents in London’s City and West End will show improvement due to the recently flourishing stock market and an increase in tenant demand over the summer.

With City rents down by more than a fifth in 2009, it expects them to rise from £42.50 to £58 sq ft by the end of 2013, an increase of +37%. The West End meanwhile will potentially see an increase of +42% to £92.50 sq ft by 2013 having already witnessed a -30% decrease in 2009.

Will Beardmore-Gray, head of City leasing, said: “The City has seen a marked increase in activity since its low point in quarter one. There is a definite upwards trend in activity emerging - it is certainly not a fresh boom, but it is a steady return to normality.”

The report continued that whilst in real terms City office rents are at their lowest for over 20 years and West End rates for over 13 years, occupiers have been tempted back to the market and are exploiting the tenant-friendly environment due to the rapid rent re-pricing.

Bradley Baker, head of central London tenant representation, said: " The office market is beginning to emerge from the shadow of the banking crisis. These market dynamics are offering our tenant / occupier clients some unprecedented opportunities. Rents are low by historic standards, and landlords are willing to offer generous incentive packages”

Residential mortgage products are easier to obtain

Research by Paragon Mortgages has discovered that 90% of professional landlords are finding it difficult to source buy-to-let mortgage finance in the current market, despite an increase in credit availability, with over 50% attempting to do so in the last quarter.

Buy-to-let product availability has continued to fall in recent months, whereas availability has improved to the residential market. There were 196 live buy-to-let products available at the end of August (a -94.4% reduction on August 2007), compared to 218 in May. This compares to 1,329 prime residential mortgage products available in August (an -86.1% reduction on August 2007 numbers), against 1,266 in May.

John Heron, Paragon Mortgages’ managing director, said: “Product availability in the general mortgage market has improved slightly in recent months, but has worsened for the buy-to-let market. Mainstream lenders are reducing their focus on this sector and specialist lenders are still unable to access the wholesale funding markets to enable them to offer new products.

“We know that there is demand from investors to purchase new property, particularly with returns from savings products being so low, but they are being frustrated by a lack of mortgage supply. Buy-to-let lending has slumped and there is a real danger that the private rented sector could start to contract, particularly if the ‘accidental landlord’ begins to sell property.”

Social housing tenants happy to stay where they are

A Tenant Services Authority (TSA) survey has revealed that only 12% of social housing tenants want to own their own home which is down from 32% just a decade ago, with the decline attributed to the rise in house prices and the risks associated with home ownership.

It is positive news for landlords in particular, as the survey also revealed that 81% of tenants were happy with their landlords and the quality of the property they lived in. However, 18% of tenants were unhappy that landlords did not take their views into account and wanted to move.

Peter Marsh, TSA chief executive, said: “There’s no room for complacency. One in five tenants feel that their landlord takes no notice of their views.”

There were some interesting findings with over a quarter of tenants (28%) who had children over 18 still at home, expecting them to move into social housing. Whilst only 6% stated that they expected their children to buy a home.

The survey also found that 72% of social renters were not likely to leave the sector in the next ten years. With only 16% looking to move into the private sector either by purchasing their existing home under the ‘Right-to-Buy’ scheme, taking on a private tenancy or buying a home on the open market.

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