Tag Archives: House prices

Funding for Lending Scheme withdrawn for household market Latest Articles, Property Market News

The Bank of England have withdrawn their support for the Funding for Lending Scheme, but only to the household market.

The Funding for Lending Scheme (FLS) has been successful in reducing the cost of lending for banks in the mortgage market and contributed to a fall in the cost of borrowing to homeowners. However the Bank of England (BoE) have decided to pull back on stimulating mortgage lending by stopping the FLS scheme which allowed banks to borrow £1 from the BoE at very low rates for every £1 they lend to households.

The concern is the impact a fall in house prices would have on household and bank balance sheets if average household debt was to continue to rise. This was triggered by the latest three month figures showing average  house prices have increased by 6.9%. The BoE did comment that this was mostly localised to the South East, but they were “concerned about the prospective evolution of the market in the absence of some of these changes.”

The potential risk to UK financial stability as borrowing grows in the housing market is a consideration rather than an immediate fear and why it is prudent to take the foot off the accelerator now, but since the credit crisis the Banks have all recapitalised, so the long term risks to their balance sheets and a future crises is now much lower.

£17.6bn was withdrawn under the FLS in 11 months by banks and building societies, but lending to businesses continues to decline.

The FLS will continue to provide support to business lending by offering £5 of cheap BoE funds for every £1 banks lend and with the target for these funds skewed towards SMEs.

Mr Carney said “the changes announced today refocus the FLS where it is most needed – to underpin the supply of credit to small businesses over the next year – without providing further broad support to household lending that is no longer needed.”

The Bank of England are being cautious with the continued recovery not to over stimulate one market by using the tools they have at their disposal with a light touch.

As ever though it is always more complicated with London being the driver of the market growth and a unique economic micro climate compared to the rest of the country. Might a possible alternative or additional solution be making foreign investors pay Capital Gains Tax. This would certainly take some heat out of the London market and increase tax revenues, but by how much, and do we need foreign investment into the country more than the problems it causes in one localised market.

Answers on a postcard please (well actually comments below would be easier).Funding for Lending Scheme


Bank of England Inflation report and what it means for Interest Rates House Prices, Latest Articles

dont panicUnlike the press DON’T PANIC, the economic news is good but not that good in the Bank of England Inflation report.

Reports of imminent Bank Base Rate rises next year are wildly exaggerated and unhelpful to the economy. We had one piece of good news on unemployment and the FTSE 100 took a tumble.

Let’s just start with the facts as CPI inflation is now down to 2.2% from 2.9% in June. This means we are much closer to the medium term targeted inflation than we have been since December 2009. The disclaimer in my previous article about the ONS CPI inflation data was that it did not include the recent energy price increases. However, I have since found out that these increases are actually smaller than at the same time last year so should have no effect on year on year figures.

If you strip out four of the big contributors to inflation: Education, Food, Fuels and Lubricants, Electricity, Gas and other Fuels     you will see that the Core underlying inflation is actually below target at about 1.4%. See table below

Bank of England inflation report

Unfortunately it has been a consumption lead recovery in the UK rather than production as we are sucking in exports from Europe quicker than we are able to expand our export trade to places like China. Hence we are running a trade deficit and not expecting a robust recovery like in the USA, because our increase in export trade has not been dynamic enough.

This can be seen in where the recovery is happening in house prices. London which is lead by the service industry and consumption has had house prices rising by 10% where the National average is 4.3%. The North where manufacturing industry has traditionally been based is seeing little or no increase in house prices dependent on the area.

The figures that got the press in a spin was the decrease in unemployment rates, because the Bank of England had indicated that it would only look at raising the interest rate if unemployment dropped below 7%. However even if it was below 7% now the recovery is not robust enough to even consider raising rates and it is expected that there will only be a 60% chance of unemployment dropping below 7% by the end of 2015. see chart to the right and below:

BofE unemploymet chart

The productivity gap where we were seeing an increase in private employment, but a much lower level of increase in output has now started to close which is good news, but to really see a long term sustainable robust recovery it is business investment that needs to increase so we can compete with emerging low cost markets.

The current figures do not show that corporate investment is increasing, but it does appear that this is changing and may be reflected in future data. Companies may be using their current reserves before seeking borrowing to invest in productivity

The GDP figures shown in the chart below are predicted to improve with growth at about 2 -2.5% per year, but this is within target for GDP without putting pressure on inflation levels or interest rates.

BofE GDP

Predicted future inflation rates inflation rates by  the Bank of England are pretty much spot on the targeted 2% level as seen below

BofE inflation

 

 

 

 

 

 

Overall the UK economy is in a much healthier position than it was a year ago, but stagnation in our main trading partners in Europe and lack of corporate investment and exports means we have little to worry about at the moment concerning an imminent boom and a need to increase interest rates before the end of 2015 or beyond on current projected figures.


A call to convert 66,000 student HMO’s back to family homes? Latest Articles, UK Property Forum for Buy to Let Landlords

I have been having a catch up on my on-line reading over this weekend and I have just come across an article which, in my opinion is very ill-informed. A call to convert 66,000 student HMO's back to family homes

Housing supply in many UK cities is being restricted by the conversion of family housing to student lets and local tenants are being prices out, according to new research. International real estate adviser Savills estimates that 66,000 properties or Houses of Multiple Occupation (HMO) now occupied by students could be freed up for conventional family housing through the delivery of more purpose built student accommodation”

The first thing that I would say is that only students want to live near students and the last place I would want to bring up my family is in an area that is highly populated by students.  I love my students tenants but they do not keep regular hours and often return late at night in a happy and noisy mood. There are other issues too but I won’t go into those, most of us who let to students will know what I mean.

For me, the most important point that has been missed is that the cost of converting a family home into a student HMO is colossal and this, coupled with the purchase prices in popular areas, means that landlords have invested a massive amount of money in their properties – will families really want to pay the prices that would cover this investment and also convert the property back to a family home?

In my book “Will You Survive the Mayhem”, I talk about the future of the student market where student numbers are reducing in many areas and there is an oversupply. I have given my predictions of the future of the market and I have warned landlords that we may need a plan “B”.  Plan “B” must, however, take into account that many landlords have big debts on their properties and could not afford to use them for family lets because of the reduced income. There are other markets for which these properties could be used which are realistic and would help to increase supply but Savills are dreaming if they really think that building more purpose built student accommodation is the answer to the shortage of family homes.  They have also overlooked the fact that students can’t wait to get out of “institutional” accommodation and share little houses, at least for their middle year, and there are many empty rooms in purpose build student accommodation in areas where the student population has receded since the increase in University fees.

The article goes on to say

The result is a double whammy for local non student tenants and aspiring home owners. Not only do students price other tenants out of many family housing areas in major UK towns and cities, credit conditions post downturn have favoured landlord investors rather than less equity rich potential owner occupier buyers. ‘Local council coffers would also gain. We calculate that reinstating these student HMOs to homes for non student residents would boost council tax returns by around £1.5 million per town or city, since student only houses are council tax exempt,’ said Savills research analyst, Neal Hudson.”

All local authorities get increased Government funding to cover the cost of Council Tax exemptions for students, the local authority would not be better off if these properties were converted back to family homes, they would in fact be worse off because they would lose the additional “automatic” income and would have to recover it from the families who live there.

The one statement I do agree with in this article is this

“Article 4 of the Town and Country Planning Act proposes restricting new HMO supply which could push students and associated landlord demand into smaller properties, pricing out other occupier and tenant groups.”

I also talked about this in my book because Article 4 Directions are ill-conceived and, in my opinion, will soon sigh and die.

Finally the article says

“For the institutional investor in student housing the UK market offers a mature, counter cyclical investment opportunity”.

Wrong again, I have given a lot of evidence in my book that shows how the student market will continue to recede in all but the Red Brick university areas, many of those are already building campi in the most popular sending countries, and many investors will catch a cold by investing in purpose built student blocks in the next few years.

I am struggling to understand why investors are not being encouraged to put their cash into funds to build more family homes, since we all agree that this is an area of increasing demand and it is very unlikely that the demand will do anything other than grow year on year?

Am I missing something, do Savills know something that I don’t know?

Follow me on Twitter @landlordtweets

My book, where I warn about the storm clouds that are gathering for landlords is here >>> http://www.amazon.co.uk/dp/1484855337


Some London streets really are paved with gold House Prices, Landlord News, Latest Articles, Property News

Plush Kensington and Chelsea is the streets ahead as the most expensive place to buy a home in Britain – with average house prices of nearly £2 million.

Buying a house in Kensington costs around £1.87 million and is £90,850 (5%) up on last year’s prices, according to online property portal Zoopla. Continue reading Some London streets really are paved with gold


House sales 40% down on buy to let boom years Buy to Let News, Landlord News, Latest Articles, Property Market News, Property News

The housing market is still trying to shatter the glass ceiling imposed by mortgage lenders restricting home loans, but expectations are exceeding reality for most sellers as sales have plunged 40% since the 2007 boom.

A number of surveys looking at the market all report more activity but less sales. Continue reading House sales 40% down on buy to let boom years


Confidence in housing market is falling, say estate agents Buy to Let News, House Prices, Latest Articles, Property Market News

House price confidence is dropping away as prices fall and buyers melt away, according to estate agents.

One in five estate agents reported drops in April as hopes for future price rises hit the lowest level this year, and some expect property values to keep falling says the latest housing market survey by the Royal Institution of Chartered Surveyors. Continue reading Confidence in housing market is falling, say estate agents


London’s cheapest home is a £41,000 boat House Prices, Latest Articles, Property Maintenance

A garage hitting the market with a staggering £525,000 asking price in upmarket Knightsbridge, West London, has prompted a look for the cheapest homes for sale in the capital.

For homeseekers looking to buy outright, the cheapest home for sale in London is a one bed renovated houseboat in the Paddington Basin is on the market for £41,000, according to online property portal Rightmove. Continue reading London’s cheapest home is a £41,000 boat


Luxury home sales hit new high as rest of market falters House Prices, Latest Articles, Property Market News, Property Sales & Sourcing

Sales of homes worth £2 million or more are rising – and most are in just four upmarket neighbourhoods of London.

Just over half of all multimillion pound home sales last year were in swish Kensington, Chelsea, Westminster or Camden, while 76% (1,161) of £2 million plus sales were in London. Continue reading Luxury home sales hit new high as rest of market falters


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