Tag Archives: Housing market

Autumn Statement 2013 and the housing market Landlord News, Latest Articles, Property Market News

The Chancellor, George Osborne in his Autumn Statement 2013 has confirmed that as from April 2015 foreign owners of UK property will pay Capital Gains Tax.

Foreign investment into the London property market in particular has been hotly debated including in Property118 as a cause for concern. The London market has been rising out of step with the rest of the country with fears of a housing bubble and inflationary pressures putting at risk the UK’s economic recovery.

Indeed it lead to the Bank of England withdrawing its support of the Funding for Lending Scheme to the whole of the UK’s housing market recently in an effort to cool future prices.

Mr Osborne said, “Britain is an open country that welcomes investment from all over the world, including investment in our residential property, but it’s not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence while those who don’t live here do not.”

However I do think it is less about what is fair and more about protecting us from boom and bust pressures caused by the transient nature of foreign investment. Wealthy investors in particular from China and Russia have been buying properties in London as have Eurozone citizens hedging against a possible break up of the single currency.

There was also acknowledgement by Mr Osborne that housing supply must be encouraged to support a stable market and that £1billion will be offered in loans to boost housing developments in Manchester and Leeds, among other sites. Also that the Help to Buy Scheme will be further supported increasing demand and hopefully encouraging supply with Aldermore and Virgin Money adding to the availability of loans to residential purchasers.

Also the Housing Revenue Account borrowing limit which allows councils to borrow against its housing stock is to rise by £300m allowing greater flexibility in the provision of Social Housing. Councils will also be encouraged to sell off the most expensive social housing, Council Right to Buy Schemes will be further supported and rundown urban housing estates regenerated.

On the Banking side, which also has a direct effect on the supply and demand of housing, from the 1st of January 2014, the rate of the bank levy will rise to 0.156%. This is estimated to raise £2.7bn in 2014-15 and £2.9bn each year from 2015-16. Mr Osborne said that it was only right that the banking system continues to support the UK’s recovery.

£100 million of the fines raised from the Banking Libor manipulation scandal will also be given to military and emergency services charities.

Looking purely at Macro economics, growth forecasts for GDP this year increased from 0.6% to 1.4%. Next year revised up from 1.8% to 2.4%, and also up for the following four years to 2.2%, 2.6%, 2.7% and 2.7%. This would place GDP growth exactly where the Bank of England is targeting for the medium term without putting inflationary pressure on interest rates.

Government borrowing and how it is spending public finances and raising taxes is of a wider more political nature and not something I really want to get into in this report.

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).

ONS report record average house price now £247,000 Latest Articles

The Office of National Statistics (ONS) have reported the average house price in Britain is now £247,000. This figure reported for August 2013 is 0.3% higher than the previous record in 2008.

Year on year house price inflation increased from 3.3% in July to 3.8% in August this year

However the Bank of England are warning that the Governments Help to Buy scheme could cause an artificial distortion of the market pushing up prices.

Martin Weale, a member of the monetary policy committee (MPC), confirmed average house price rises were “appreciably more rapid” than the Bank of England had expected. Weale said “if the mortgage-guarantee element of Help to Buy is not priced satisfactorily, it will add to demand while supply is weak leading to increased pressure on prices.”

“Rising house prices may make people feel cheerful and more prosperous, thereby supporting household spending, but rising house prices impose a burden on those who do not yet own houses but aspire to in the future. Like government borrowing, rising house prices can crowd out productive investment.”

Sir Jon Cunliffe, deputy governor of the Bank of England said he would keep a “very firm eye” on lenders, but “it is too early to say we are entering into a bubble.”

The Bank of England are however, known to be critical of short term artificial manipulation of the mortgage/housing market in favor of more sustainable long term growth of available lending provided by the finance markets themselves.

ONS key Findings:

In the 12 months to August 2013 UK house prices increased by 3.8%, up from a 3.3% increase in the 12 months to July 2013.
House price growth remains stable across most of the UK, although prices in London are increasing faster than the UK average.
The year-on-year increase reflected growth of 4.1% in England, 1.1% in Northern Ireland and 1.0% in Wales, offset by a fall of 0.7% in Scotland.
In August 2013, the UK HPI surpassed its previous peak in January 2008 (185.5) by 0.3%.
Annual house price increases in England were driven by London (8.7%), the East Midlands (3.8%) and the West Midlands (3.5%).
Excluding London and the South East, UK house prices increased by 2.1% in the 12 months to August 2013.
On a seasonally adjusted basis, UK house prices increased by 0.5% between July and August 2013.
In August 2013, prices paid by first-time buyers were 4.9% higher on average than in August 2012. For owner-occupiers (existing owners), prices increased by 3.3% for the same period.

However Economist are reporting overall activity to be well below levels recorded before the financial crisis and it is only London prices that are causing a concern as to whether they are sustainable or not.

If you take the weighting effect of high London prices most house prices around the country are still 10-15% below their pre-crunch peak and we are a long way off seeing a market wide housing bubble.

Buy to Let Mortgages to remain legal announces EU Latest Articles, NLA - National Landlords Association, UK Property Forum for Buy to Let Landlords

The Mortgage Directive, officially known as the ‘Credit Agreements Related to Residential Property Directive’ (CARRP) attempted to create a single regulatory framework which would govern all mortgages within the European Union. The EU lobbied hard for this directive so that EU citizens would understand the regularity regimes when purchasing properties in different member states.

However, in constructing the Directive, the EU Commission didn’t take into account the nuances of unusual mortgage products such as buy-to-let that exist in some member states. Therefore, when the Directive was sent to the European Parliament, the text would have made buy-to-let mortgages illegal. This would have been catastrophic for the UK’s private-rented sector.

Had the Directive passed in its original form, it would have been disastrous for landlords operating in the UK’s private-rented sector and the economy as a whole.

The final text is now going through the trialogue process which involves all 27 Heads of State and the European Parliament who will analyse the new text before voting on the new Directive to sign it off.

David Cox, Senior Policy Officer for the NLA says:

“The NLA is very pleased with the EU’s decision to exclude buy-to-let mortgages from the Directive. We have lobbied hard to ensure the UK’s main facility for investing in property to rent can remain in place.

“The private-rented sector is currently the only growing part of the UK’s housing market and I am certain that a mortgage Directive including buy-to-let mortgages would have prohibited this.

“This really is a success for the NLA and its European colleagues.”

Housing Bubble fears – genuine or an overreaction? Latest Articles, Property News

There has been a great deal of commentary in the press the last couple of days raising fears of a housing bubble.

Rightmove increased its forecast for the year from 4% to 6% leading to headlines calling for government to do something about concerns of a debt fuelled crisis in the housing market.

Yes prices are rising, but we are seeing sustained recovery for the first time since the credit crisis outside the economic microcosm of London?

It is this recovery for most of the country, in areas where prices have fallen or been static for a long time and not just one area, that has surely seen the forecast rise recently.

Rightmove report asking prices in London are up 8.2% on a year ago with:

West Midlands up 6.8%

South East up 5.6%

Wales up 3.8 %

East Anglia up 0.8%

The North 0%

Yorkshire and Humberside fell 1.3%.

Overall in the UK asking prices are 4.5% higher than this time last year and have increased on average by £16,000 so far in 2013.

So the questionare:-

are we right to be worried?
what factors are involved
and can we do anything about it?

First of all we need to consider what is really causing prices to rise. Is it demand lead where we are all earning more money, unemployment is down and mortgages are easier to obtain?

Alternatively is it the lack of supply in new housing that is putting the upward pressure on prices?

In terms of industry sector contribution to GDP (Gross Domestic product – the output of the economy) it is the building industry that suffered the worst during the recession and is taking the longest to recover.

In terms of scale, the supply side of new housing has suffered more than any recovery in the economy recently, so it may be this which is the biggest factor for the country as a whole. However, in London there have been many reports that foreign money, especially from Arab states and China, is being invested into the London housing market and could be an external factor fuelling demand lead increases that we can’t control.

At some point limiting factors such as purchasers income and the size of deposits required will come into play with income multipliers and maximum LTVs only able to sustain a certain level of house prices before demand slows back down. This is where regulation of lending could dampen an over heating market putting in place restrictions on lending criteria.

One of the biggest and most immediate fears of property investors is the Bank of England increasing the Bank Base Rate to curb any house price inflation. This is now less likely as the BofE are no longer just targeting inflation levels, but also have the wider remit of encouraging the growth of GDP. Therefore it is less likely that they would consider harming the recovery by increasing interest rates, and more likely that they would look to use regulation of lending to control this specific inflationary pressure.

The Bank of England’s Financial Policy Committee will meet tomorrow, when it will reportedly discuss the issue of a housing bubble and what action it could take.

I certainly see no evidence that we need to panic yet, but it would be very interesting to get readers thoughts on this subject.

Rics want a 5% annual price rise cap House Prices, Latest Articles

The Royal Institution of Chartered Surveyors (Rics) want a 5% annual price rise cap for houses that triggers restrictions on mortgage income multipliers or maximum Loan to Value.

Although Rics did say that sellers under their plans would not face a limit on how much they could sell their homes for.

Joshua Miller, senior economist at Rics, wants to halt a debt-fuelled house price advance and said “the Bank of England now has the ability to take the froth out of future housing market booms, without having to resort to interest rate increases. Capping price growth at, say, 5% is one way of doing this.”

“This cap would send a clear and simple statement to the public and the banking sector, managing expectations as to how much future house prices are going to rise. We believe firmly anchored house price expectations would limit excessive risk taking and, as a result, limit an unsustainable rise in debt.”

Sir Howard Davies, a former deputy governor of the Bank, does not think this kind of cap would work and said “The problem is that we are not building enough homes.”

This is a good point as it is clearly the lack of supply that is pushing up house prices especially in the capital rather than increased demand because we are all better off now than before the recession started.

Then there is the question of regional differences. Do you smother any potential housing market recovery in areas outside London that have not seen the same rises and if not how do you tell an National high street bank to have different criteria and systems in different parts of the country.

This would be clearly unrealistic, unworkable and unpalatable for lenders.

The Housing Market is very mature and almost free to work on the pure economic principles of prices being dictated by supply and demand. It is therefore very difficult to control directly without looking at all the factors that influence it.

Rics may be naive in thinking simplistic one sided controls like this are the answer to the problems of a very complex housing market and its demographic and social issues.

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.

“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?

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

Rightmove report holiday season price drop Landlord News, Latest Articles, Property News

Rightmove report a drop in August of 1.8% (-£4,459) in new sellers’ asking prices, which is the first monthly fall recorded in 2013.

However the recovering market means the traditional holiday season price dip is less pronounced than usual as the underlying recovery in the housing market continues, with the price of property coming to market up by an average of 8.8% (+£20,210) in the first eight months of the year.

August also saw a new record asking price for ‘flats and apartments’ property type. Buyer demand is set to increase further when Help to Buy starts assisting purchasers of second-hand property in January, highlighting the need for greater property supply to meet growing demand and mitigate unsustainable upwards price pressure. It is imperative that Government communications around January’s extension of Help to Buy do not neglect the need to stimulate supply as well as demand.

Demand from home-movers is already returning with the number of email leads sent from Rightmove to agents and developers up 17% year-to-date.
Property transactions are also up 5% while the supply of property coming to market lags behind increasing by a mere 0.2% so far this year – record prices for flats highlight the issue.

Miles Shipside, Rightmove director and housing market analyst comments:

“A holiday season price dip is the norm in August, with an average drop in the last five years of over 2%. Even with this month’s below par 1.8% fall, the national average asking price is still up by more than £20,000 so far in 2013. Demand is already on the up, and that’s before the roll-out of phase two of the Help to Buy stimulus. It is now critical that the supply of property improves so that the goal of a significant increase in transaction numbers is not over-shadowed by an unsustainable boom in property prices. Flats are most in demand by first-time buyers and buy-to-let investors and we have seen prices for this property type hit their highest ever level as supply fails to keep up with an increase in demand at the bottom of the market.”

The peak holiday month of August is traditionally volatile, with asking price falls recorded every year since 2007. Fewer sellers come to market, down 8% on last month, with discretionary sellers more focused on holidays and content to wait for the busier Autumn selling season. Sellers who do come to market during August tend to have a more pressing reason to sell and consequently price more aggressively.

Shipside observes: “The underlying recovery in the housing market continues, with the price of property coming to market up in seven out of the first eight months of the year. However, outside of London and the South East it is weaker than the 5.5% annual gain headline figure suggests. Prices in the capital are 10.2% higher than this time last year compared with an average of just 2.8% for the rest of the country. While prices are up, transaction volumes still remain constrained by risk-averse lenders’ high deposit requirements and a lack of fresh property supply”.

We are already seeing early signs of demand outstripping supply and the Government needs to ensure that the current new build Help to Buy scheme, and its extension in January to second-hand homes, deliver more properties onto the market as well as boosting demand. The number of properties coming to market so far in 2013 is up just 0.2% on the same eight months in 2012, an increase of just 1,664 properties. However, this marginal improvement in fresh supply is outstripped by a 5% jump in transactions1 and a 17% annual increase in email leads to agents and developers from Rightmove so far this year. The natural lag between an increase in demand and a corresponding increase in supply could cause a short-term step-up in house price inflation over and above what is currently being seen. When, or if, property supply responds will be key in determining how long and how marked any inflationary period might be.

It is therefore vital that the Government’s communication around the January extension of Help to Buy encourages sellers to take advantage of increased demand and put their property on the market, thus increasing supply. Economic recovery, low interest rates and Help to Buy are all positive factors boosting housing demand. However, to improve muted transaction volumes further and satisfy pent-up demand it needs to be balanced by more existing home-owners trading up, more landlords selling, more homes

CML reports 26% growth in Mortgage Lending Landlord News, Latest Articles, Mortgage News

The Council of Mortgage Lenders CML reports that total gross mortgage lending increased to £15 billion in June, which is 2% more than £14.7 billion in May this year and 26% higher than the total of £11.9 billion in June 2012.

This is the highest monthly figure for gross lending since October 2008.

Gross lending for the second quarter of 2013 was therefore an estimated £42 billion. This represents a 24% increase from the previous three months and is the highest quarterly estimate since Q4 2008.

CML chief economist Bob Pannell said:

“Improvements in the cost and availability of mortgage credit are underpinning a meaningful recovery in the housing market. In recent months, we have seen the strongest performance for mortgage lending since 2008.

“However, although the pace of first-time buyer activity is approaching a quarter of a million per annum, it is worth bearing in mind that this is still barely half of activity rates a decade earlier, and so far below what might be considered normal levels.”

NUS also report on The Private Rented Sector Review Landlord News, Latest Articles

The National Union of Students (NUS) has welcomed The Private Rented Sector review from the Communities and Local Government Select Committee on which has set out a series of proposals to correct serious flaws in the private rented housing market.

One of the report’s recommendations, which NUS suggested in its evidence, is to bring the level of regulation for letting agents up to the same level as that for estate agents. The report also proposes that agents be required to publish a full-breakdown of fees in adverts and that they be prevented from charging both tenants and landlords for the same things.

Students, often renting for the first time, can be the victims of unscrupulous letting agents and would be a major beneficiary should the government take the proposals forward.

Among the Select Committee’s recommendations are calls for tenants’ rights and responsibilities to be more widely promoted to them. This is an area where NUS and students’ unions could play a significant role as students are often not yet well versed in their rights and tend to move at similar times making the timing of promotional work easier.

NUS gave both written and oral evidence to the Committee during their inquiry in May 2013.

Colum McGuire, NUS Vice-President (Welfare), said:

“Substandard letting agents have been able to get away with overcharging and shoddy practice for far too long and it is imperative that the government quickly take forward these proposals.

“Tenants should be able to expect the same standards when they rent a home as they would if they were buying. The cost of student housing is rising at an alarming rate and while standards are improving in some places with the introduction of students’ union run landlord accreditation schemes, students need to know that their agent is not ripping them off.

“It is a pity that the Select Committee have not recommended a national registration which would be able to shut down bad landlords who operate nationwide but nonetheless their proposals would be a huge leap forward for beleaguered tenants.”

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