Mundy Morning Mail

Issue 5 No. 2 | June 2008

Mundy Comment: Correction or Crisis
Housing market in numbers
Noise maps for some
Property Investment
Property News

Mundy Comment: Correction or crisis? May was a bit of a roller-coaster ride for watchers of the property market. First there was a glimmer of light from the British Bankers' Association, which reported a rise in the number of loans for house purchases in April – a small rise, admittedly, and the month’s total was fully 39% down on April 2007. But then came the Nationwide, reporting a whopping 2.5% fall in average house prices; and that was immediately followed by the news of an increase in retail spending, which isn’t going to encourage the MPC by cutting interest rates – the risk of fuelling inflation might outweigh the benefits of reenergising the housing market via cheaper and presumably easier-to-find mortgages. And it wasn’t helped by housing minister Caroline Flint, who inadvertently displayed to waiting reporters a briefing note that forecast double-digit housing price falls. It might not be gloom all the way, however. Nationwide’s chief economist thinks the balance remains in favour of a rate cut “sooner than the markets currently expect". And despite the gloomy figures for house prices, they’re still 5% higher than two years ago and 10% up on May 2005. What’s more, Nationwide also takes the view that borrowers are much better placed to weather the storm than in the early 1990s. That’s because fewer people have bought at the top of the market, they are paying bigger deposits, and there are fewer interest- only mortgages. And even the credit crunch is A Good Thing Really: “more conservative lending will also lead to fewer borrowers falling behind on payments”. This view broadly shared by the Council of Mortgage Lenders, whose spokesman has said that "lower and more stable" loans make the risk of a repeat of the repossessions crisis of the early 1990s quite unlikely. So the current situation could be seen as very positive. Housing became overpriced as high loan-to-value loan-to-income mortgages became easy to obtain. Tighter credit might slow the market, but it will make for a more sustainable situation both for lenders (fewer loans, maybe, but safer) and for buyers and sellers (more realistic pricing and less opportunity to become overstretched – on which point, the finance website Moneynet reckons more than one in three home buyers is struggling to cope with repayments on a mortgage debt that is above three times their gross salary). And anyhow there are signs that the mortgage market is finally starting to respond to the improvement in LIBOR rates. Halifax has tweaked its fees for fixed rate three- and five-year mortgages, Nationwide has cut fees and rates for five-year terms. And Woolwich has just launched a 10-year mortgage fixed at a competitive 5.29%. There are of course losers in the short term. Estate agents won’t have so many properties to sell and they won’t sell so quickly; there will be casualties on the High Street (or perhaps more agencies will find more of their business being done online). House builders will probably need to retrench, though most should benefit from the stated plans of all current and potential governments to continue to promote new builds. Inevitably it’s those at the bottom of the heap who suffer most; for first-time buyers, the fall in prices is probably not going help much if they still can’t get a mortgage. But even then there’s a way out: canny landlord investors could well pick up some of the slack in the market, and while rental often doesn’t seem an attractive option to the first-time buyer, it could prove the better option in the long run. Admittedly, this is the glass-half-full principle. No-one can be certain of what’s going to happen next; the credit crisis appears to be easing slightly, but global economic conditions – the price of oil, the increasing cost of food – could well require all the spare cash in the bank’s coffers. But other things being equal, Mundy’s remains basically optimistic. As Morgan Stanley’s chief UK economist David Miles (“I am at the pessimistic end of the spectrum”) put it at a recent conference: “There are as many gainers as losers”. And here's a straw in the wind: Bradford & Bingley, which is Britain's biggest buy-to-let leader as well as a serious name in conventional mortgages, has clearly been having a tough time recently.  But a large (and presumably shrewd) American private equity firm, Texas Pacific Group, is reportedly about to invest £150m in buying a 20% stake in the bank – admittedly at a 20% discount on the share price and in the face of a potentially iffy result from a controversialrights issue. But someone clearly thinks there is money to be made here in the future ... Nick Mundy

Housing market in numbers Who When Monthly change Average price Annual inflation Land Registry April -0.2% £186,009 +2.7% House Price Index March +1.1% £217,344 +5.2% Halifax April -1.3% £189,027 -0.9% Nationwide May -2.5% £173,383 -4.4% Rightmove May +1.2% £242,500 +2.2% Hometrack May -0.5% n/s -1.9% Home.co.uk May -0.3% £259,338 +5.2% House Price Index: The DCLG's mix-adjusted figures for March (which include the Land Registry’s) suggest the slowdown hadn't kicked in yet (they apply to completions not sales). Annual house price growth was highest in Scotland (9.3%); for Wales it was 4.1%, for England 5.2%. Halifax: The building society expects “a mid single digit percentage decline” in UK house prices this year, though with regional variations -- modest price rises in some areas (like Scotland) with above-average falls elsewhere (Wales and West Midlands). More interest rate cuts are expected over the coming months Nationwide: House prices fell by 2.5% in May – the biggest monthly fall ever recorded by the building society. The annual decline is also the biggest since December 1992. Nationwide said weak economic news in May added to “the gathering momentum of negative sentiment about the housing market". Rightmove: Dramatic regional differences produce a mixed national picture for house price movements, with “discretionary spring sellers” of larger homes in the south push up the national average and masking year on year falls in six out of ten regions. Hometrack:House prices fell for the eighth month in a row in May. On a year on year basis the annual rate of growth fell to -1.9%, from -0.9%, the lowest level since November 2005. Equally important is the shortage of buyers – 6.7% fewer registered with agents during May – while the supply of housing for sale continues to rise (up over 7% in the last two months and 20% higher than February). Home.co.uk: Monthly falls in the Home.co.uk Asking Price Index were observed in all regions of England, Wales and Scotland with the exception of East Anglia. Asking Prices in England and Wales have risen only 2.2% since May 2007, a fall in real terms of 1.6% relative to the Retail Price Index. Land Registry: Our own preference among the house price indexes (because it refers to completions and is uncomplicated by statistical smoothing) shows a UK average of £186,009, with enough detail in the full report (available here) to show just how much regional variation there is. Our immediate locale:   Average price Monthly change Annual change Gloucestershire £195,567 -0.4% 2.0% Herefordshire £201,105 -0.6% 2.5% Monmouthshire £201,049 0.5% 6.9% Powys £176,180 -2.2% 4.8% Shropshire £179,782 -0.5% 0.7% England & Wales £186,009 -0.2% 2.7% National Association of Estate Agents: M embers report regional variations in the Association’s April report but agreed that elements of the market are stabilising – including number of viewings before a sale is secured (14) and the average difference between asking and sales price (4.7%). The number of buyers on agents’ books has dropped slightly – 237 in April compared to 249 in March – but the number of properties increased to an average of 84 against 76 the month before. . Council for Mortgage Lenders: Mortgage lending in April totalled £25.3bn, a 5% increase on the previous month but still 8% down on April 2007. CML says lending levels will decline further before they pick up; it has amended its market forecast for 2008 and now thinks ... » House prices will end Q4 2008 7% lower than Q4 2007 » Property transactions will slump by 35% over 2008 » Gross lending will be around 21% lower than 2007, to total £285 billion » Repossessions will total 45,000 and arrears over three months will total 170,000 (both remain unchanged from the October forecast) » Base rate will end the year at 4.75% RICS:The balance of Chartered Surveyors reporting house price falls in the April RICS UK Housing Market Survey increased even further; 95.1% more reported a fall than a rise in house prices, an increase from 79.4% in March. But tight supply is limiting the extent of the decline, and the scale of house price falls remains relatively small at this stage compared to past downturns. British Bankers’ Association: April lending figures from the BBA saw a 7% increase in gross lending to £17.8bn – though this was still 40% lower than a year before. Remortgaging rather than new purchases appears to be behind the April rise. Morgan Stanley: House prices could fall by up to 20% over the next two years, according to Prof David Miles, chief UK economist at Morgan Stanley at a housing conference in central London. The biggest losers would be those who have paid over the odds to buy a home in the last couple of years. Jones Lang LaSalle: The Market will recover by 2010, says the estate agency. It predicts that a progressively weakening economy will have a short-term impact on the housing market, but only with falls of 1-2% in 2009. Recovery should see gains of 205% in 2010, with a surge to 10% by mid-2012 and an average of around 8% pa over 2011-2013. Hamptons: Despite a 10-15% fall in house prices since autumn 2007, realistically-priced properties are being sold – with a current average of six buyers per seller. Across London, viewing levels up 12% over the same time last year; April generated the strongest sales figures at Hamptons for five months.

Noise maps for some A new government noise mapping service allows residents in 23 urban areas of England to access a snapshot of noise levels – including noise from major industries, road and rail networks - in their neighbourhoods. All EU member states have to produce maps under the Environmental Noise Directive. They will be used to draw up action plans to reduce unreasonable levels of noise. In the meantime, the general public can use the website to search by postcode for maps that show noise levels over an average 24 hour period or during the night-time only. The site also includes information on the number of people exposed to these levels of noise. Herefordshire isn’t included, presumably on the basis that it’s already too quiet here ...

Property Investment

Click on the headlines for the full story.

Rental incomes up15 May 2008
Rental incomes continued to rise in April, according to the Paragon BTL Index. At £12,048 pa they were up 0.1% from March and 3.8% from January. Other key findings:

Regions achieving the highest rental incomes in April were London (£20,924), the South West (£16,385) and East Anglia (£13,051)

» Property values fell slightly in April to £190,266, from £191,276 in March
» Rental yields remained stable at 6.3% for the fourth consecutive month and have risen 0.2% year-on-year
» Regions achieving the highest yields are Wales (7.3%), the North West (7.2%) and the North East (7.1%)
» Total returns on a property purchased 12 months ago stood at 16.0% in April.

Sales slump pushes property into lettings market22 May 2008
New instructions to let property increased significantly in Q1 2008, according to the RICS residential lettings survey for the first quarter. Owners experiencing difficulty selling their properties have turned to the rental market to take advantage of rising yields, says RICS; it reports the net balance of Chartered Surveyors reporting a rise in new landlord instructions increased to 29% compared to a fall of 2% in the previous quarter.

MPs criticise “perverse” housing taxes21 May 2008
A report by the Parliamentary Communities and Local Government Committee on 'The Supply of Rental Housing' says that “perverse” taxes have damaged the Government's efforts to deliver housing. It criticises tax disincentives that prevent improvements to properties and stops large investors from building new homes.

No deposit? No problem!28 May 2008
No Deposit, from lettings industry expert Paragon Advance, is an insurance policy that enables landlords to let accommodation without asking for any deposit. The policy costs a flat £145 and provides protection against loss or damage to the property caused by the tenant

Property News

Click on the headlines for the full story.

M&S 'Greener Living Spaces' projects announced6 May 2008
Marks & Spencer has introduced a 5p charge for single-use food carrier bags in nearly all UK stores, with profits being invested in a ‘greener living spaces' programme that funds the environmental charity Groundwork to create or improve parks, play areas and gardens in neighbourhoods around the UK.

'Kevin's house' comes to BRE Innovation Park7 May 08
'The House That Kevin Built', constructed by Kevin McCloud and team at the Grand Designs Live London exhibition, is to be reconstructed on the BRE Innovation Park after the exhibition closes. The house, built live on TV over six days, uses cutting edge building innovations all underpinned by green principles.

Repossession levels rise9 May 2008
During Q1 2008 some 38,688 claims for repossession were issued by UK lenders, according to the Ministry of Justice. That’s 7% up on the final quarter of 2007 and 16% more than the year before.

Hips final roll-out to be delayed8 May 2008
The government has delayed “until the end of the year” the extension of the Home Information Pack scheme to all properties. “We believe that a further period of the flexibility provided by the measure would be prudent,” said housing minister Caroline Flint.

Most people unafraid by house price falls12 May 2008
An ICM survey for the BBC found that 22% of the 1,005 people questioned wanted prices to go up – while 28% wanted house prices to fall. (And 46% want prices to stay the same.)

Taxman goes after second property owners12 May 2008
An HM Revenue & Customs campaign is targeting landlords who have not declared rent on their tax returns; HMRC thinks it can use information from stamp duty land tax returns to match properties owned to individuals’ declared principal private residences.

Rescue plan for first-time buyers14 May 2008
All first time buyers earning less than £60,000 a year are now eligible for the Government’s Homebuy shared-ownership and shared-equity schemes. Formerly available only to social tenants and key workers, the schemes allows borrowers to part-buy a housing association property or to take a cheap ‘equity loan’ on part of the property with a conventional mortgage on the rest.

Barratt warns on profits14 May 2008
Britain's second largest house builder Barratt Developments reported a profits warning following a 26% decline on forward orders over the last year. Barratt said: "Since the end of March market conditions have deteriorated significantly as a result of an unprecedented reduction in mortgage availability and tightening lending criteria, combined with a decline consumer confidence ... We do not expect to see a meaningful upturn in the housing market until there are improvements in the availability of mortgage finance."

New housing starts down by a quarter15 May 2008
The Department of Communities and Local Government said the number of new housing starts in the first quarter of 2008 was 32,144, down by nearly 25% against Q1 07 and 21.5% lower than for the final three months of 2007.

80% of new build can't meet zero carbon16 May 2008
Four out of five new housing sites will never be able to generate enough power on site to reach the government’s zero-carbon target, according to the government’s Zero Carbon Task Group. Its report recommends that developers should have the option of paying a Community Energy Fund levy which would be used to buy carbon savings elsewhere.

Solicitors get lion's share of HIPs business18 March 2008
A survey from SearchFlow and the Law Society survey suggests that solicitors and conveyancers are taking the initiative in the HIP market – 47% of instructions now come directly from sellers, another quarter via referrals from estate agents. Said the Law Society spokesperson: “It is clear that many sellers, as well as estate agents, identify solicitors as being best placed to produce the Packs”.

Rogers: Eco-towns "a big mistake"23 May 2008
Lord Rogers, once New Labour’s favourite architect, has strongly criticised the Government's plans to invest in 15 new eco-towns rather than urban regeneration. Lord Rogers branded the proposed zero-carbon projects as "one of the biggest mistakes the Government can make. They are in no way environmentally sustainable".

Boris cuts affordable housing targets24 May 2008
Plans by the new mayor of London to slash affordable housing requirements across the Capital have been welcomed by the British Property Federation and Home Builders Federation. Boris Johnson’s planning advisors want to lower the affordable housing targets to encourage more housing development.

MPs: “feeble excuses” from builders25 May 2008
MPs on Parliament’s Environmental Audit Committee have accused the housebuilding industry of making “feeble excuses” to avoid making new homes zero carbon by 2016 and “dragging its feet on renewables”. They said progress in other countries made a mockery of industry claims that renewable technology was immature; the NHBC representatives from the NHBC told the committee that they were protecting consumers from the uncertainty of new technologies.

Support for VAT cut on property repairs27 May 2008
A coalition called ‘Cut the VAT’ made up of 11 organisations from the Countryside Alliance to the National Landlords Association is calling for a cut in VAT to 5% on all building repair and maintenance work. A recent survey found that a majority of MPs would back the proposal.

Government plans to sustain regeneration of run-down areas27 May 2008
The Government has commissioned a study of the consequences of the current global credit crunch on regeneration. Local Government Minister John Healey declared the Government's determination to see the continued transformation of Britain's most run-down areas.

Estate agent loses out in court28 May 2008
The Court of Appeal has ruled estate agency Foxtons is not entitled to commission for a house sale despite having shown the buyer around it. At the time the buyer had decided not to proceed because the house needed too much work; he later changed his mind when he was contacted by another estate agency, Hamptons. The judges ruled that Foxtons needed to have "introduced the purchaser to the purchase" and not just to the property.

Funding guide to aid regeneration28 May 2008
The BPF and Davis Langdon have published a guide to help developers get public funding for regeneration projects; public funding streams are available, but developers are not always sure how to access this money.

Young ex-offenders turn over a green leaf28 May 2008
Young ex-offenders from across the UK are getting practical support to help them turn their lives around thanks to a groundbreaking voluntary work experience initiative run by environmental charity Groundwork.

Half of agreed sales fall through29 April 2008
Property sellers face a one in two chance of their sale falling through, according to research from Quickmovenow.

Credit crunch takes toll on emerging market investors29 May 2008
Investors are falling out of emerging markets as they struggle to overcome financial liquidity constraints despite tenant demand remaining positive, says the RICS Global Commercial Property Survey. Transaction activity fell in Emerging Europe and Latin America, and growth stagnated across emerging Asia.