Newsletter 8 - Christmas newsletter
Hot Topics
Housing & Mortgage Market Update
"Many of the things you can count, don't count. Many of the things you can't count, really count." Albert Einstein
We hear on house Prices from the FT Academetrics Index, Calnea Analytics, Garrington Research and ij’s Principal, James Carter. We also get an interest rate forecast from the economists at RBS.
James Carter, Principal, Independent James
You may have read that there is more competition in the mortgage market at present, which can be backed up by the figures. There are new entrants coming into the market and also rates at higher Loan to values are improving. However, the criteria to obtain these loans are more difficult and any increase is from a historically low base. Please proceed with caution.
Increased competition is welcome as the market is presently restricted to a small number of lending groups with 5/6 of them taking 80% of the total market at present. The Government need to ensure that a level playing field is available for all but I must say overall a relative period of calm is welcome.
The big anomaly within the housing market at the moment, particularly in London is the lack of supply of properties. This is being helped by lenders more lenient approach to arrears handling and the low level of interest rates. If levels of repossessions are lower than anticipated the Government should be applauded for this despite previous failings. Coupled with low rates available for those with large deposits who are now ready to buy and the weakness of the pound encouraging overseas purchasers, prices are being supported. Have we over-reacted?
Comparisons are often drawn with the US and the fact that there market appears to be stabilizing and we tend to time lag them by 12 months. These links appear tenuous. However, the market in the US has been fuelled since the Clinton years by Government Sponsored Enterprises and there are different fundamentals. For example, in the US lending to low income and families was actively encouraged and their sub prime market was much larger. You can simply hand your keys back in the US whereas in the UK you can be pursued for any loss and there are also different sentiments towards home ownership.
I do still have some concern about the average income to house price ratio and the effect that increasing unemployment has on consumer spending. Government stimulus and stamp duty exemptions will be drawn back next year but let’s see what 2010 has in store for us and let’s see what everyone else thinks:
Peter Williams, Chairman of Acadametrics who produce the FT House Price Index comments on the regional trends in number of transactions and falling sales of flats:
“Overall, the number of housing transactions in England and Wales has increased by 4% over the last three months (August–October 2009) compared with the previous three months. However this single statistic hides two distinct underlying trends. The first trend is of a North/South/London divide in the increase in the number of houses sold. In the Northern regions and Wales there has been an average decline of 2% whereas, in the Midlands and Southern regions excluding London, there has been an increase of 5% in the number of properties sold. However, in London itself, there has been an increase of 14% in the number of properties sold, compared with the previous three months.
“The second trend is one of a continuing decline for the sale of flats which showed a fall of 3% in transaction numbers over the last three months, compared with the previous three months. By contrast, over the same time period, the number of semi-detached and terraced houses sold increased by 3% whilst the number of detached properties sold increased by 10%. Flats would, therefore, appear to represent the current “weak” sector in the market. These are traditionally associated with the „First Time Buyer‟ and
“Buy to Let‟ markets - both impacted by the continuing limited supply of mortgages and tighter loan terms. Although there is some suggestion that the flow of mortgage finance is beginning to ease, it is likely that any recovery will be slow.”
The December 09 Garrington Market Review is also cautiously optimistic:
As we near the end of an extraordinary year for the UK economy the property market remains volatile and, as illustrated by the Land Registry data, annual property price changes have varied extensively in different parts of England and Wales.
2009 has seen numerous conflicting reports on the state of the market with different commentators reporting opposing trends for the same reporting period. This highlights the truly splintered nature of the UK market and the emerging fact that the value of national statistics and averages has become significantly diluted. Across its operating regions Garrington has witnessed contrasting market conditions with both dramatic price falls and frenzied purchaser activity.
Prime Central London has led the recovery, which at the start of the year was being supported by demand from international purchasers taking advantage of lower prices and favourable foreign exchange rates. In recent months this has been further bolstered by local demand from chain free purchasers who have been patiently waiting in rented accommodation to “call” the bottom of the market.
Lack of supply of quality correctly priced property entering the market continues to mask true market demand. Best of breed homes are typically attracting early, multiple purchaser, interest and are selling at or close to asking prices, and consequently distorting some price trends.
This week’s pre-Budget report has further highlighted the precarious state of the economy and appears to have done little to sooth the fears of many to help generate a sustained mass market recovery. No stay of execution was offered in respect of VAT and Stamp Duty both of which will be reverting to their previous levels in the New Year.
Looking forward, the property market in 2010 is likely to remain volatile. A looming General Election is likely to result in subdued market conditions for the first half of the year, but for those prepared to take a longer term view may present favourable buying opportunities.
Calnea Analytics provide succinct comment for Mortgage Introducer magazine on the level of Prices. “The latest House Price Index report from Land Registry shows a positive monthly change of 0.9%. Annual house price change currently stands at -5.6%, which marks the fifth month in a row the rate of decline has eased. The average home in England and Wales is now worth £158,377.”
“Transaction numbers have fallen from last year. In April to July 2009, sales averaged 48.109 per month. The year before, the average was 59,677 per month.”
They also reconfirm the Capital bias in the current turnaround…
“London was the region with the strongest monthly growth in September, with a change of 1.3 per cent. This is now the fifth month in a row in which London’s monthly change has been positive. The capital also experienced the smallest annual price fall, at -3.2 per cent.”
Turning our attention to interest rates, RBS predict bank base rate will remain at 0.5% through 2010:
Monetary policy was left unchanged at the Bank of England's December meeting. Following the announcement of the extension of the asset purchase scheme by £25bn (to £200bn) in November, a shift in the policy stance is unlikely until the additional purchases are completed in January. The forecasting round that forms a central part of the February Inflation Report also provides a natural point for the Monetary Policy Committee to take stock and consider if any further stimulus is necessary.
A more detailed breakdown of economic activity in Q3 revealed broad weakness across the economy. Government spending provided a lift, but this was not enough to offset a decline in household spending and business investment. Interestingly, the biggest drag on UK growth came from net exports. British exporters proved unable to capitalise on the return to growth in Britain's largest trade partners. (Imports outpaced export growth and contributed 0.23 percentage points to the 0.3%. contraction in Q3.) Recent surveys of activity in the manufacturing and service sectors suggest that declines have bottomed out, and the economy is likely to post modest growth in Q4. Nevertheless, balance sheet strains are likely to exert a drag on the recovery through 2010.
Please do not hesitate to contact me to discuss any issues surrounding the mortgage and housing market.