Archive for December, 2009

The Economy in 2009 for the Property Investor: Quarter 1

December 22nd, 2009
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The Economy in 2009 for the Property Investor: Quarter 1

January 2009
Bank Base Rate (BBR): 1.50%
Consumer Price Index (CPI): 3.00%
Retail Price Index (RPI): 0.1%
Several house prices indices pointed to the largest annual decline of house prices since
January 2001.  According to Richard Donnell, Director of Research at Hometrack, at the time: “The market is at the mercy of the economy; the short-term prospects for the economy and levels of unemployment are at the forefront of most consumers’ minds and these will be key to the performance of the housing market over 2009.”  According to Hometrack’s monthly survey of 5,800 estate agents, the average time that a property stayed on the market also grew to 12.3 weeks (a 45% increase from a year earlier).  On a wider economic scale, reports in
January pointed to a 1.5% contraction at the close of 2008, prompted by the seizing up of credit markets and declines in the services, manufacturing and construction industries.
Statistics also pointed to joblessness rising to a ten year high.  Gordon Brown promised use ’every weapon’ to cull the effects of the credit squeeze and pledged the second bailout
package for British banks in an attempt to spur lending as well as boosting its stake in the Royal Bank of Scotland Group Plc to 70%.
February 2009
Bank Base Rate (BBR): 1.00%
Consumer Price Index (CPI): 3.20%
Retail Price Index (RPI): 0.0%
Whilst the number of new buyers registering with estate agents and property companies
increased by 17% in the month; Hometrack (who monitor sold house prices via the Land
Registry) reported that three-fifths of the country had seen values falling with sellers
receiving 90 percent of their asking price.  A median survey of 14 house price forecasts
pointed to a 17.7% drop from a year earlier.  The average cost of a home in England and Wales had declined by 10 percent from the same period a year before (and dropped 0.8% from a month earlier) and, according to the Nationwide, consumer confidence held close to its lowest since at least 2004.  Banks and lenders across the globe were hoarding up cash after racking up more than $1.2 trillion in losses.  According to Martin Ellis, economist at the Halifax, at the time: “continuing pressures on incomes, rising unemployment and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are likely to mean that 2009 will be another difficult year for the housing market.”   Nevertheless, some positive news appeared with the fact that mortgage approvals rose to a nine-month high (over 38,000 new home loans were granted, up from a trough of 27,000 in November 2008).
March 2009
Bank Base Rate (BBR): 0.50%
Consumer Price Index (CPI): 2.90%
Retail Price Index (RPI): -0.4%
According to Nationwide, house prices rose by 0.9% (although it should be noted that this index is based on agreed sales prices and not actual sold data).  Both Hometrack and RICS data (which is evidentially more accurate) pointed to house prices falling at their slowest pace in 10 months as well as more buyers registering with estate agents.  The average cost of a 2 year fixed mortgage fell to 4.01 percent in March (the rate did not drop in line with the BBR but was still lower than the 6.08 percent average in August 2008).  The index of construction activity, according to the Chartered Institute of Purchasing and Supply, also rose (although still showed a contraction in the industry).  However, as Fionnuala Earley, chief economist at Nationwide, said in a statement at the time: “It is far too soon to see this as evidence that the trough of the market has been reached; the willingness of borrowers to return to the market is
encouraging and likely to in part reflect the falling cost of borrowing.”  The UK economy
contracted at its quickest pace since the 1980s prompting the Bank of England to bring the base rate to its lowest in three centuries at 0.5%.  The UK central bank commenced a £75
billion spending strategy on corporate and government bonds to stimulate spending
(‘quantitative easing’).  According to research published by the Halifax UK, homeowners at the time saw their spending power rise by over a tenth since the year previous.  Between March 2008 and March 2009, the average monthly discretionary income of a households with
mortgages increased from £892 to £989.  Private renters saw their discretionary income
remain generally flat rising by 0.3% between the same period (£801 to £804).

January 2009

  • Bank Base Rate (BBR): 1.50%
  • Consumer Price Index (CPI): 3.00%
  • Retail Price Index (RPI): 0.1%

Several house prices indices pointed to the largest annual decline of house prices since January 2001.  According to Richard Donnell, Director of Research at Hometrack, at the time: “The market is at the mercy of the economy; the short-term prospects for the economy and levels of unemployment are at the forefront of most consumers’ minds and these will be key to the performance of the housing market over 2009.”  According to Hometrack’s monthly survey of 5,800 estate agents, the average time that a property stayed on the market also grew to 12.3 weeks (a 45% increase from a year earlier).  On a wider economic scale, reports in January pointed to a 1.5% contraction at the close of 2008, prompted by the seizing up of credit markets and declines in the services, manufacturing and construction industries.  Statistics also pointed to joblessness rising to a ten year high.  Gordon Brown promised use ‘every weapon’ to cull the effects of the credit squeeze and pledged the second bailout package for British banks in an attempt to spur lending as well as boosting its stake in the Royal Bank of Scotland Group Plc to 70%.

February 2009

  • Bank Base Rate (BBR): 1.00%
  • Consumer Price Index (CPI): 3.20%
  • Retail Price Index (RPI): 0.0%

Whilst the number of new buyers registering with estate agents and property companies increased by 17% in the month; Hometrack (who monitor sold house prices via the Land Registry) reported that three-fifths of the country had seen values falling with sellers receiving 90 percent of their asking price.  A median survey of 14 house price forecasts pointed to a 17.7% drop from a year earlier.  The average cost of a home in England and Wales had declined by 10 percent from the same period a year before (and dropped 0.8% from a month earlier) and, according to the Nationwide, consumer confidence held close to its lowest since at least 2004.  Banks and lenders across the globe were hoarding up cash after racking up more than $1.2 trillion in losses.  According to Martin Ellis, economist at the Halifax, at the time: “continuing pressures on incomes, rising unemployment and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are likely to mean that 2009 will be another difficult year for the housing market.”   Nevertheless, some positive news appeared with the fact that mortgage approvals rose to a nine-month high (over 38,000 new home loans were granted, up from a trough of 27,000 in November 2008).

March 2009

  • Bank Base Rate (BBR): 0.50%
  • Consumer Price Index (CPI): 2.90%
  • Retail Price Index (RPI): -0.4%

According to Nationwide, house prices rose by 0.9% (although it should be noted that this index is based on agreed sales prices and not actual sold data).  Both Hometrack and RICS data (which is evidentially more accurate) pointed to house prices falling at their slowest pace in 10 months as well as more buyers registering with estate agents.  The average cost of a 2 year fixed mortgage fell to 4.01 percent in March (the rate did not drop in line with the BBR but was still lower than the 6.08 percent average in August 2008).  The index of construction activity, according to the Chartered Institute of Purchasing and Supply, also rose (although still showed a contraction in the industry).  However, as Fionnuala Earley, chief economist at Nationwide, said in a statement at the time: “It is far too soon to see this as evidence that the trough of the market has been reached; the willingness of borrowers to return to the market is encouraging and likely to in part reflect the falling cost of borrowing.”  The UK economy contracted at its quickest pace since the 1980s prompting the Bank of England to bring the base rate to its lowest in three centuries at 0.5%.  The UK central bank commenced a £75 billion spending strategy on corporate and government bonds to stimulate spending (‘quantitative easing’).  According to research published by the Halifax UK, homeowners at the time saw their spending power rise by over a tenth since the year previous.  Between March 2008 and March 2009, the average monthly discretionary income of a households with mortgages increased from £892 to £989.  Private renters saw their discretionary income remain generally flat rising by 0.3% between the same period (£801 to £804).

—————————————————————————————————————————————————

In our full 2010 report, we look at what the all major house price indices / housing organisations are saying about the year ahead as well as some predictions for the economy in general (including relevant observations from the late 2009 Pre Budget Report). We then look at several investment property acquisition strategies (including lease options) followed, finally, by effective methods to conduct accurate due diligence in 2010.  To access the report (you will need to be a member of the Property Investor Hub), please click on the link below:

The Property Investor Report 2010

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The Economy in 2009 for the Property Investor: Quarter 2

December 22nd, 2009
No Comments
April 2009
Bank Base Rate (BBR): 0.50%
Consumer Price Index (CPI): 2.30%
Retail Price Index (RPI): -1.2%
House prices declined less than what
many economists and house price
indicators had forecast and many pointed
to improved affordability (several banks
began to indicate that lending will
increase).  However, A report produced
by Savills (the UK’s largest publicly traded
property broker) predicted that house prices may continue their decline until 2012 unless unemployment decreases and lending conditions improve.  As at mid-April, according to the Council of Mortgage Lenders, 900,000 British homeowners had mortgages greater than the value of their homes (the total number of UK home loans is 11.7 million).  As the effects of quantitative easing filtered through into the economy, the pound fell against both the euro and the dollar.  Nevertheless, Nationwide reported that its data on consumer confidence saw
statistics rise by 8 points from March.
The annual survey published by Liverpool Victoria – ‘The Cost of a Child’ showed that parents could spend £193,772 on raising a child from birth until the age of 21.  This equates to £9,227 a year, £769 per month or £25 per day.
May 2009
Bank Base Rate (BBR): 0.50%
Consumer Price Index (CPI): 2.20%
Retail Price Index (RPI): -1.1%
According to Hometrack, UK house prices stopped falling for the first time in 20 months with the average house prices in England and Wales held at £155,600.  Six of the 10 regions
monitored in detailed survey pointed to no change in house prices (in the the East Midlands, the North West, the West Midlands and Yorkshire values declined 0.1 percent from April).
According to Director of Research, Richard Donnell: “The survey shows that pricing
expectations among vendors has finally re-aligned to a level that is more in line with what the current pool of purchasers are prepared to pay.  However, the outlook for the economy
remains far from certain. It is too early to rule out future price falls.”  The number of new buyers registering with estate agents rose 6% from April and the sales to asking prices were achieving, on average, 90.3% – a rise from 89.6% on the previous month.
The Government proposed to set up a national register of UK Landlords with the aim of
protecting tenants which, whilst having good intention, was criticised by a number of bodies.  David Salisbury, Chairman of the National Landlords Association (NLA), stated: “We consider this to be overly intrusive and of no direct benefit to tenants or landlords. Landlords already face a heavy regulatory burden as it is.”  It was also pointed out that a similar scheme was set up in Scotland which was proven not to work.
Despite falls the month before the value of the pound rose and consumer confidence
continued to rise.  The Consumer Credit
Counselling Service (CCCS), whilst
reporting a significant drop in the amount
of people requesting for help, stated that
the average yearly income of a couple
contacting the organisation dropped 12%
between October 2006 and May 2009.
The report also stated that, whilst
essential living costs had broadly remained
the same, the amount of money people
had to repay their debts had dropped
from £197 to minus £114.  In the second
quarter of 2009, over 30% of clients using the CCCS were advised that there was no
immediate solution to their debt problem (they neither would be able to fund a debt
repayment plan or IVA nor qualify for a bankruptcy or debt relief order) – the best hope was to increase their income.  It was also reported that there were 5.84 million working age
benefit claimants – an increase of 694,000 in the year.  By the end of May, there were 12.5 million people of state pension age claiming benefits from the Department of Work and
Pensions (DWP) – an increase of 221,000 since a year before.
The Financial Services Authority (FSA) undertook a ‘stress test’ of the UKs major banks based on a 50% drop of residential property; a 60% drop in commercial prices; an unemployment rate over 12% and a peak-to-trough drop in GDP of over 6%.  The fact that full results were not made publically available sparked media debate with the FSA defending that the tests were designed to formulate a continuing review of regulatory decisions.  Barclays Plc were the only bank who disclosed its results which proved to have more than enough capital in a variety of ‘stressed’ situations.
June 2009
Bank Base Rate (BBR): 0.50%
Consumer Price Index (CPI): 1.80%
Retail Price Index (RPI): -1.6%
Despite rising optimism in previous months, the Halifax (who arguably take a more ‘liberal’ view on house prices) reported a slide of 0.5% in average house prices.  Martin Ellis, Housing Economist stated at the time that he expected to see: “continuing mixed pattern of monthly house price rises and falls over the remainder of 2009” and added, “whilst there have been encouraging recent signs of improvement, the outlook for the UK economy remains uncertain with unemployment set to continue rising for some time.”  The percentage of households with no adults at work by the end of June was at 16.9% (40.4% in lone parent households).
According to Job Centre statistics, the number of working-age people in workless households reached 4.8 million and there were 5.5 million households where at least one person above the age of 16 was in employment and the other was unemployed or inactive.
Concerns that insufficient bank lending will impede a full recovery were also becoming more and more apparent – Stephen Nickell, Chairman of the National Housing Planning and Advice Unit (and former Bank of England Monetary Committee member) commented at the time: “Mortgage rationing for first-time buyers is the fundamental factor; unless that eases, it’s
going to be very difficult for the market to recover and grow at previous levels. There’s no doubt that the rate of falls has slowed down at the moment, but I can’t see prices taking off.”  The Financial Services Authority estimated that there were 403,000 loan accounts in arrears representing a 30% on the same period a year before.  Research from ‘Shelter’ and ‘Money Advice’ showed that 1.3 low-income households were struggling with their finances (four in ten of those surveyed felt their debts were harming their physical and mental well being).
Indeed, in contrast to the CCCS decreasing enquiries figure in May, the Citizens Advice
Bureau reported dealing with 9,300 debt problems every day – a figure that shot up in the three months to the end of June.  Despite this, mortgage approvals increased to over 47,000 – the highest in over a year according to the British Bankers Association.  The Council of
Mortgage Lenders (CML) cut its forecast from 75,000 to 65,000 saying that low interest rates are helping homeowners keep up with their commitments.  The British Retail Consortium
indicated that shop-price inflation was slowing which, in turn, was helping purchasing power (the annual rate of price gains in UK shops was 0.5% in June, its lowest in seven months).
According to NS&I’s Quartely Savings Survey, the monthly amount saved per head across the UK declined slightly from £92.41 in spring 2009 to £90.73 in the summer.  The average amount saved as a percentage of income fell to 6.65% in the second quarter compared to the first quarter, despite an increase in the average monthly take-home income.

The Economy in 2009 for the Property Investor: Quarter 2

April 2009

  • Bank Base Rate (BBR): 0.50%
  • Consumer Price Index (CPI): 2.30%
  • Retail Price Index (RPI): -1.2%

House prices declined less than what many economists and house price indicators had forecast and many pointed to improved affordability (several banks began to indicate that lending will increase).  However, A report produced by Savills (the UK’s largest publicly traded property broker) predicted that house prices may continue their decline until 2012 unless unemployment decreases and lending conditions improve.

As at mid-April, according to the Council of Mortgage Lenders, 900,000 British homeowners had mortgages greater than the value of their homes (the total number of UK home loans is 11.7 million).  As the effects of quantitative easing filtered through into the economy, the pound fell against both the euro and the dollar.  Nevertheless, Nationwide reported that its data on consumer confidence saw statistics rise by 8 points from March.

The annual survey published by Liverpool Victoria – ‘The Cost of a Child’ showed that parents could spend £193,772 on raising a child from birth until the age of 21.  This equates to £9,227 a year, £769 per month or £25 per day.

May 2009

  • Bank Base Rate (BBR): 0.50%
  • Consumer Price Index (CPI): 2.20%
  • Retail Price Index (RPI): -1.1%

According to Hometrack, UK house prices stopped falling for the first time in 20 months with the average house prices in England and Wales held at £155,600.  Six of the 10 regions monitored in detailed survey pointed to no change in house prices (in the the East Midlands, the North West, the West Midlands and Yorkshire values declined 0.1 percent from April).

According to Director of Research, Richard Donnell: “The survey shows that pricing expectations among vendors has finally re-aligned to a level that is more in line with what the current pool of purchasers are prepared to pay.  However, the outlook for the economy remains far from certain. It is too early to rule out future price falls.”  The number of new buyers registering with estate agents rose 6% from April and the sales to asking prices were achieving, on average, 90.3% – a rise from 89.6% on the previous month.

The Government proposed to set up a national register of UK Landlords with the aim of protecting tenants which, whilst having good intention, was criticised by a number of bodies.  David Salisbury, Chairman of the National Landlords Association (NLA), stated: “We consider this to be overly intrusive and of no direct benefit to tenants or landlords. Landlords already face a heavy regulatory burden as it is.”  It was also pointed out that a similar scheme was set up in Scotland which was proven not to work.

Despite falls the month before the value of the pound rose and consumer confidence continued to rise.  The Consumer Credit Counselling Service (CCCS), whilst reporting a significant drop in the amount of people requesting for help, stated that the average yearly income of a couple contacting the organisation dropped 12% between October 2006 and May 2009.  The report also stated that, whilst essential living costs had broadly remained the same, the amount of money people had to repay their debts had dropped from £197 to minus £114.  In the second quarter of 2009, over 30% of clients using the CCCS were advised that there was no immediate solution to their debt problem (they neither would be able to fund a debt repayment plan or IVA nor qualify for a bankruptcy or debt relief order) – the best hope was to increase their income.  It was also reported that there were 5.84 million working age benefit claimants – an increase of 694,000 in the year.  By the end of May, there were 12.5 million people of state pension age claiming benefits from the Department of Work and Pensions (DWP) – an increase of 221,000 since a year before.

The Financial Services Authority (FSA) undertook a ‘stress test’ of the UKs major banks based on a 50% drop of residential property; a 60% drop in commercial prices; an unemployment rate over 12% and a peak-to-trough drop in GDP of over 6%.  The fact that full results were not made publically available sparked media debate with the FSA defending that the tests were designed to formulate a continuing review of regulatory decisions.  Barclays Plc were the only bank who disclosed its results which proved to have more than enough capital in a variety of ‘stressed’ situations.

June 2009

  • Bank Base Rate (BBR): 0.50%
  • Consumer Price Index (CPI): 1.80%
  • Retail Price Index (RPI): -1.6%

Despite rising optimism in previous months, the Halifax (who arguably take a more ‘liberal’ view on house prices) reported a slide of 0.5% in average house prices.  Martin Ellis, Housing Economist stated at the time that he expected to see: “continuing mixed pattern of monthly house price rises and falls over the remainder of 2009” and added, “whilst there have been encouraging recent signs of improvement, the outlook for the UK economy remains uncertain with unemployment set to continue rising for some time.”  The percentage of households with no adults at work by the end of June was at 16.9% (40.4% in lone parent households).

According to Job Centre statistics, the number of working-age people in workless households reached 4.8 million and there were 5.5 million households where at least one person above the age of 16 was in employment and the other was unemployed or inactive.

Concerns that insufficient bank lending will impede a full recovery were also becoming more and more apparent – Stephen Nickell, Chairman of the National Housing Planning and Advice Unit (and former Bank of England Monetary Committee member) commented at the time: “Mortgage rationing for first-time buyers is the fundamental factor; unless that eases, it’s going to be very difficult for the market to recover and grow at previous levels. There’s no doubt that the rate of falls has slowed down at the moment, but I can’t see prices taking off.”  The Financial Services Authority estimated that there were 403,000 loan accounts in arrears representing a 30% on the same period a year before.  Research from ‘Shelter’ and ‘Money Advice’ showed that 1.3 low-income households were struggling with their finances (four in ten of those surveyed felt their debts were harming their physical and mental well being).

Indeed, in contrast to the CCCS decreasing enquiries figure in May, the Citizens Advice Bureau reported dealing with 9,300 debt problems every day – a figure that shot up in the three months to the end of June.  Despite this, mortgage approvals increased to over 47,000 – the highest in over a year according to the British Bankers Association.  The Council of Mortgage Lenders (CML) cut its forecast from 75,000 to 65,000 saying that low interest rates are helping homeowners keep up with their commitments.  The British Retail Consortium indicated that shop-price inflation was slowing which, in turn, was helping purchasing power (the annual rate of price gains in UK shops was 0.5% in June, its lowest in seven months).

According to NS&I’s Quartely Savings Survey, the monthly amount saved per head across the UK declined slightly from £92.41 in spring 2009 to £90.73 in the summer.  The average amount saved as a percentage of income fell to 6.65% in the second quarter compared to the first quarter, despite an increase in the average monthly take-home income.

—————————————————————————————————————————————————

In our full 2010 report, we look at what the all major house price indices / housing organisations are saying about the year ahead as well as some predictions for the economy in general (including relevant observations from the late 2009 Pre Budget Report). We then look at several investment property acquisition strategies (including lease options) followed, finally, by effective methods to conduct accurate due diligence in 2010.  To access the report (you will need to be a member of the Property Investor Hub), please click on the link below:

The Property Investor Report 2010

Share and Enjoy:
  • Digg
  • del.icio.us
  • Facebook
  • Google Bookmarks
  • email
  • LinkedIn
  • Live
  • MSN Reporter
  • PDF
  • RSS
  • Twitter
  • Yahoo! Bookmarks
  • Yahoo! Buzz
  • Reddit
  • StumbleUpon

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,
Posted in Economics for the Property Investor | No Comments »

The Economy in 2009 for the Property Investor: Quarter 3

December 22nd, 2009
No Comments
July 2009
Bank Base Rate (BBR) – 0.50%
Consumer Price Index (CPI): 1.80%
Retail Price Index (RPI): -1.4%
Hometrack reported that the house prices in England and Wales held their value as the credit crunch and recession continued to stifle the property market from improving.  The average cost of a property in England and Wales was £155,600, 7.7% lower than their estimation in July 2008.  Eight out of the 10 regions monitored by Hometrack showed no changes, whilst London and East Anglia both had an increase of 0.1%.  According to Richard Donnell, Director of Research at Hometrack: “The housing market remains in a fragile state. A sustainable and broad based recovery needs to be founded on both an improving economic outlook and
availability of mortgage finance.”  With intense media reporting that the market was on the way to recovery, home sellers rasied asking prices; the average ‘shop window’ price rose by 0.6% to £227,864.  However, many debated that house prices were set to fall further and the increases (such as those widely reported in June and August) were summer ‘blips’.  Although mortgage approvals had increased (50,123), Bank of England data showed that banks had
approved less than half the amount of mortgages when compared to the same month two years before (as the property market was peaking).  Property investors offering sell and rent back to homeowners were required to adhere to regulatory standards set up by the Financial Services Authority (FSA).  The regulation was largely a result of unscrupulous property
investors taking advantage of vulnerable homeowners’ positions and a need to have an
‘adequate’ framework for the industry to operate in.  There remain a few high profile sell and rent back companies operating in the UK.
M4, the broadest measure of UK money supply, rose more than forecast (at a rise of 1.5% on the month and 14.5% on the year).  Other statistics revealed that the overall UK economy contracted by 0.8% in the second quarter of 2009 (over twice as much as economists had forecast) as the finance and manufacturing industries slumped.  Net credit card lending fell to 92 million pounds (its lowest since December 2008) and the British Bankers Association
reported that 768,000 applications for consumer credit were rejected at month end.
August 2009
Bank Base Rate (BBR): 0.50%
Consumer Price Index (CPI): 1.60%
Retail Price Index (RPI): -1.3%
As the 2 year anniversary of the onset of the credit crunch passed, the Halifax reported that house prices have fallen 20% with almost £40,000 wiped off the average home since August 2007.  According to the Land Registry, average house prices rose the most in five years and at their fastest pace in 2 ½ years.  UK homebuilders Taylor Wimpey stated the market as being ‘significantly more stable’ and applications for new build homes increased 2.5% in the three months prior to August, according the National House Building Council.  As a result of the marginal increase in house prices, the British Retail Consortium noted that shop-price
inflation was slowing, thereby improving purchasing power (the annual measure of price gains was 0.5% in June, is lowest in seven months).  Unemployment figures continued to increase as the economy, overall, continued to shrink (reaching a 14 year high).  After initially
considering whether to hold back, Bank of England policy makers extended their bond-
purchase program to £175 billion to ‘cement’ the recovery.  The increasing popularity of using lease options to control property was gaining popularity amongst UK property investors and even appeared in the mainstream media as shown by this link from the Times.
September 2009
Bank Base Rate (BBR): 0.50%
Consumer Price Index (CPI): 1.10%
Retail Price Index (RPI): -1.4%
According to an average of nine house price indices, house prices increased by 0.6% (the Halifax house price index pointed to average valuations climbing 1.6% to an average of £163,533).  Housing Economist at the Halifax, Martin Ellis, at the time stated: “The
combination of increased demand and a low level of properties available for sale has pushed up house prices in recent months.  The marked improvement in affordability due to the
reduction in both property prices and interest rates since mid 2007 has been a key factor in stimulating higher demand.”  Lenders granted 56,215 home loans in September, the most since March 2008, according to the Bank of England.  The number of homeowners in arrears also decreased (194,600 mortgages at the end of September compared to 204,200 at the end of June).  Nevertheless, several prominent economists and housing analysts pointed to the ‘irrational’ rally of property price increases to wane over the subsequent 18 months.
Evidence was illustrating more of a ‘W’ shaped cycle where the house price bounce would tail off and fall back in 2010 before recovering fully in 2012.  According to CML statistics at the time, 195,000 people were in arrears of at least 2.5% of their outstanding mortgage at the end of September, the equivalent of 1.77% of all mortgage customers, which has decreased 204,200 or 1.86% at the end of June.  According to the Department for Communities and
Local Government (DCLG), at the end of September, the average house price in the UK for first time buyers was at £147,517 – an annual decrease of -1.3%.  The average first time buyer deposit stood at £37,225 (25%) with an earnings to mortgage ratio of 3:1.
The service industry grew at its fastest pace with increased consumer confidence yet policy makers said that rising unemployment, persistent credit strains, impending tax increases and spending cuts (to rein in a record budget deficit) mean that the economy could take years to recover.  Unemployment reached 2.46 million (7.8%): an increase of 30,000 from the previous three months – this was the highest quarterly figure since quarter one of 1995.  2,247 people a day at the time were declaring themselves redundant and government statistics noted a gap of 820,000 between the number of unemployed people and the number of people claim Jobseekers’ Allowance (1.64 million).  The proportion of young people, aged 18-24, not in
education, employment or training (NEET) increased by 113,000 when comparing quarter 3 with the same period in 2008 (a total of 933,000).  The proportion of 16 to 18 year olds
defined as being in the NEET category  stood at 261,000.  The total of 16 to 24 year olds
classified as NEETs stood at 1.082 million – the highest on record.  By the end of
September, the unemployment rate for 18 to 24 year olds increased by 3.3% (24,000) from quarter 2 and 25.5% (165,000) when compared to quarter 3 of 2008 – the highest figures recorded since records began in 1992.  As at the end of quarter 3, the number of people aged 50+ out of work was 367,000, increase of 37.7% from the year before.  The number of people over the state pension age that were choosing to continue work also increased with a rise of over 76,000 when compared to quarter 3 of 2008.  Scottish Widows figures pointed to the fact that one in six retired people still have an outstanding mortgage with an average debt of £50,100 and also that 34% are in the red on loans and credit cards (the average outstanding non-mortgage debt was reported to be £7,344).  The Prudential stated that one in 10
workers who have state pension have reduced the amount they are contributing or have stopped altogether.  Government statistics illustrated that there are more people of state
pension age then under 16s.  Statistics compiled during ‘Financial Planning Week’ reported the following:
•  more than a quarter of Brits are relying on winning the Lottery to help improve their financial situation;
•  over half of Brits stated they were having difficulty keeping up with bills and other commitments  - although 5% stated they were falling behind;
•  26% have a budget they strictly stick to;
•  31% have made a will.

The Economy in 2009 for the Property Investor: Quarter 3

July 2009

  • Bank Base Rate (BBR) – 0.50%
  • Consumer Price Index (CPI): 1.80%
  • Retail Price Index (RPI): -1.4%

Hometrack reported that the house prices in England and Wales held their value as the credit crunch and recession continued to stifle the property market from improving.  The average cost of a property in England and Wales was £155,600, 7.7% lower than their estimation in July 2008.  Eight out of the 10 regions monitored by Hometrack showed no changes, whilst London and East Anglia both had an increase of 0.1%.  According to Richard Donnell, Director of Research at Hometrack: “The housing market remains in a fragile state. A sustainable and broad based recovery needs to be founded on both an improving economic outlook and availability of mortgage finance.”  With intense media reporting that the market was on the way to recovery, home sellers raised asking prices: the average ‘shop window’ price rose by 0.6% to £227,864.  However, many debated that house prices were set to fall further and the increases (such as those widely reported in June and August) were summer ‘blips’.  Although mortgage approvals had increased (50,123), Bank of England data showed that banks had approved less than half the amount of mortgages when compared to the same month two years before (as the property market was peaking).  Property investors offering sell and rent back to homeowners were required to adhere to regulatory standards set up by the Financial Services Authority (FSA).  The regulation was largely a result of unscrupulous property investors taking advantage of vulnerable homeowners’ positions and a need to have an ‘adequate’ framework for the industry to operate in.  There remain a few high profile sell and rent back companies operating in the UK.

M4, the broadest measure of UK money supply, rose more than forecast (at a rise of 1.5% on the month and 14.5% on the year).  Other statistics revealed that the overall UK economy contracted by 0.8% in the second quarter of 2009 (over twice as much as economists had forecast) as the finance and manufacturing industries slumped.  Net credit card lending fell to 92 million pounds (its lowest since December 2008) and the British Bankers Association reported that 768,000 applications for consumer credit were rejected at month end.

August 2009

  • Bank Base Rate (BBR): 0.50%
  • Consumer Price Index (CPI): 1.60%
  • Retail Price Index (RPI): -1.3%

As the 2 year anniversary of the onset of the credit crunch passed, the Halifax reported that house prices have fallen 20% with almost £40,000 wiped off the average home since August 2007.  According to the Land Registry, average house prices rose the most in five years and at their fastest pace in 2 ½ years.  UK homebuilders Taylor Wimpey stated the market as being ‘significantly more stable’ and applications for new build homes increased 2.5% in the three months prior to August, according the National House Building Council.  As a result of the marginal increase in house prices, the British Retail Consortium noted that shop-price inflation was slowing, thereby improving purchasing power (the annual measure of price gains was 0.5% in June, is lowest in seven months).  Unemployment figures continued to increase as the economy, overall, continued to shrink (reaching a 14 year high).  After initially considering whether to hold back, Bank of England policy makers extended their bond-purchase program to £175 billion to ‘cement’ the recovery.  The increasing popularity of using lease options to control property was gaining popularity amongst UK property investors and even appeared in the mainstream media as shown by this link from the Times.

September 2009

  • Bank Base Rate (BBR): 0.50%
  • Consumer Price Index (CPI): 1.10%
  • Retail Price Index (RPI): -1.4%

According to an average of nine house price indices, house prices increased by 0.6% (the Halifax house price index pointed to average valuations climbing 1.6% to an average of £163,533).  Housing Economist at the Halifax, Martin Ellis, at the time stated: “The combination of increased demand and a low level of properties available for sale has pushed up house prices in recent months.  The marked improvement in affordability due to the reduction in both property prices and interest rates since mid 2007 has been a key factor in stimulating higher demand.”  Lenders granted 56,215 home loans in September, the most since March 2008, according to the Bank of England.  The number of homeowners in arrears also decreased (194,600 mortgages at the end of September compared to 204,200 at the end of June).  Nevertheless, several prominent economists and housing analysts pointed to the ‘irrational’ rally of property price increases to wane over the subsequent 18 months.   Evidence was illustrating more of a ‘W’ shaped cycle where the house price bounce would tail off and fall back in 2010 before recovering fully in 2012.  According to CML statistics at the time, 195,000 people were in arrears of at least 2.5% of their outstanding mortgage at the end of September, the equivalent of 1.77% of all mortgage customers, which has decreased 204,200 or 1.86% at the end of June.  According to the Department for Communities and Local Government (DCLG), at the end of September, the average house price in the UK for first time buyers was at £147,517 – an annual decrease of -1.3%.  The average first time buyer deposit stood at £37,225 (25%) with an earnings to mortgage ratio of 3:1.

The service industry grew at its fastest pace with increased consumer confidence yet policy makers said that rising unemployment, persistent credit strains, impending tax increases and spending cuts (to rein in a record budget deficit) mean that the economy could take years to recover.  Unemployment reached 2.46 million (7.8%): an increase of 30,000 from the previous three months – this was the highest quarterly figure since quarter one of 1995.  2,247 people a day at the time were declaring themselves redundant and government statistics noted a gap of 820,000 between the number of unemployed people and the number of people claim Jobseekers’ Allowance (1.64 million).  The proportion of young people, aged 18-24, not in education, employment or training (NEET) increased by 113,000 when comparing quarter 3 with the same period in 2008 (a total of 933,000).  The proportion of 16 to 18 year olds defined as being in the NEET category  stood at 261,000.  The total of 16 to 24 year olds classified as NEETs stood at 1.082 million – the highest on record.  By the end of

September, the unemployment rate for 18 to 24 year olds increased by 3.3% (24,000) from quarter 2 and 25.5% (165,000) when compared to quarter 3 of 2008 – the highest figures recorded since records began in 1992.  As at the end of quarter 3, the number of people aged 50+ out of work was 367,000, increase of 37.7% from the year before.  The number of people over the state pension age that were choosing to continue work also increased with a rise of over 76,000 when compared to quarter 3 of 2008.  Scottish Widows figures pointed to the fact that one in six retired people still have an outstanding mortgage with an average debt of £50,100 and also that 34% are in the red on loans and credit cards (the average outstanding non-mortgage debt was reported to be £7,344).  The Prudential stated that one in 10 workers who have state pension have reduced the amount they are contributing or have stopped altogether.  Government statistics illustrated that there are more people of state pension age then under 16s.  Statistics compiled during ‘Financial Planning Week’ reported the following:

  • more than a quarter of Brits are relying on winning the Lottery to help improve their financial situation;
  • over half of Brits stated they were having difficulty keeping up with bills and other commitments – although 5% stated they were falling behind;
  • 26% have a budget they strictly stick to;
  • 31% have made a will.

—————————————————————————————————————————————————

In our full 2010 report, we look at what the all major house price indices / housing organisations are saying about the year ahead as well as some predictions for the economy in general (including relevant observations from the late 2009 Pre Budget Report). We then look at several investment property acquisition strategies (including lease options) followed, finally, by effective methods to conduct accurate due diligence in 2010.  To access the report (you will need to be a member of the Property Investor Hub), please click on the link below:

The Property Investor Report 2010

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Posted in Economics for the Property Investor | No Comments »

The Economy in 2009 for the Property Investor: Quarter 4

December 22nd, 2009
No Comments
October 2009
Bank Base Rate (BBR): 0.50%
Consumer Price Index (CPI): 1.50%
Retail Price Index (RPI): -0.8%
Homeowners continued to receive optimistic news that house prices were up for another month (albeit marginally).  However, as pointed out by Martin Gahbauer from Nationwide, several indices pointed to slowing growth rates:  “I would not say the market is particularly healthy, but at the beginning of the year there were few economists predicting house prices would be at this level by October.   The overall number of transactions is still low, however, and prices are still vulnerable to increases in supply.”  Howard Archer, Chief Economist at IHS Global Insight, also warned that homeowners could be in for a tough 2010, with prices expected to fall:  “While the Nationwide data indicates that house prices are still on an upward track from their February low, October’s significantly reduced month-on-month increase fuels our suspicion that the recent rally in house prices is unsustainable and will fizzle out before long.  We believe house prices will be at least 5 per cent lower at the end of 2010 compared to now, and the slippage could very well be greater still.”  Other news reported that mortgage lender GMAC were fined £2.8 million by the FSA for levying unfair charges on borrowers in arrears.
UK mortgage approvals climbed to their highest level in 1 ½ years.  Yet, there was an increase in the amount of compulsory liquidations and creditors’ voluntary liquidations by 14.6% in quarter 3 of 2009 when comparing the same period the year before.  In the same quarter, there was an increase of 9.3% on the same period in 2008 of receiverships (410), administrations (974) and company voluntary arrangements (194).  The Insolvency Service reported there were 35,242 individual solvencies in England and Wales (equivalent to 1 every 3.72 minutes) in the third quarter on a seasonally adjusted basis.  This was an increase of 6.6% on quarter 2 and a 28.2% increase when compared to the same period in 2008.  Figures showed public sector net debt (PSND) increased to £829.7bn (59.2% of gross domestic product and £33,188 per household).  The PSND increased by £135bn in 12 months (or £4,268 per second).  The interest paid on the PSND by the Government from between April and October was £15.4bn (equivalent to £1,056 per household per annum).  Another statistics released by the British Bankers Association pointed to total credit card debt in the UK was £54.5 billion (the UK collective credit card limit on credit cards is £158 billion).
The M4 measure that the Bank of England uses to monitor the effectiveness of quantitative easing fell 0.7% from September and was down an annualised 5.3% in the three months through to October (note that The gauge excludes financial companies that specialize in intermediating between banks, such as holding companies and non-bank credit grantors).  The Centre for Economics and Business Research predicted that the Bank of England will key the base rate at 0.5% until 2011 at least, remaining below 2.0% to 2014 stating: “The forecasts are based on the assumption that the incoming government will need to take fiscal action of around 100 billion pounds in tax rises and spending cuts to correct the fiscal deficit. If — as the bookmakers expect — the new government is Conservative, the forecasts suggest tax rises of 20 billion pounds and spending cuts of 80 billion pounds.”
November 2009
Bank Base Rate (BBR): 0.50%
Consumer Price Index (CPI): 1.90%
Retail Price Index (RPI): -1.4%
Hometrack reported a fourth consecutive monthly rise as a ‘shortage of homes sustained the property market’.  The UK’s largest residential housing developer – Barratt – pointed to an increase of reservations per site by over 30% compared to the same period in 2008.  However, Hometrack also stated that the pick-up in prices has not been felt throughout the country and there are several parts that have been consistently falling. The number of active buyers which has propped up the market this year is drying up with new buyer registrations were up at  just 0.1% in November, the lowest level since the start of the year.  Rightmove also reported that average prices in November fell by 1.6% – according to Miles Shipside, Commercial Director: “In all but the most buoyant of markets, home moving comes second to Christmas festivities.  While the market has recovered from some dreadful lows, this month’s price fall proves that it does not yet have the strength to buck seasonal trends.”  The Bank of England stated that the outlook for the housing market “will depend, in part, on the supply of mortgage credit.”
Howard Archer, an economist at Global Insight, said: “House prices will probably keep rising in the next few months but are likely to suffer a relapse next year in the face of higher and still rising unemployment, muted earnings growth and the recent worsening in affordability due to house prices rising from their early-2009 lows.”
Despite a slight rise in actual quarter 2 – overall, there was positive news for UK repossessions with most areas reporting significant decreases in statistics when comparing quarter 3 of 2008 and 2009 (see our repossession statistics report).  Note the number of buy to let properties taken into repossession in the third quarter compared to the second rose from 1,400 to 1,600 – however, for the third quarter in a row, there was a decline in the number of buy to let
mortgages falling into arrears (a decrease of 1.7% when comparing quarter 2 with quarter 3).  The Council of Mortgage Lenders cut its forecast for repossessions in 2009 to 48,000 pointing to strong indicators of increased lender forbearance, Government schemes to help people stay in their homes and the impact of low interest rates.  For investors in Scotland, news pointed to a 20% rise in mortgage actions taken to court in 2008-09 and a 50% rise in decrees granted.
Mervyn King stated that the pace of economic growth may be ‘pretty buoyant’ in the short term even if the recovery is not ‘pretty strong’.  A Gfk NOP report stated that Consumer confidence fell 4 points to minus 17 in November and gauge of whether people think this is a good time to make major purchases dropped seven points to minus 19.  Policy makers expanded their bond-purchase plan up to £200 billion with the Governor also saying he had an ‘open mind’ on whether to increase it further to aid the economy.  A report by the British Chamber of Commerce showed that UK companies have found it harder to obtain credit – with 64% saying it was their biggest obstacle to growth in the coming years.
December 2009
Bank Base Rate (BBR): 0.50%
Consumer Price Index (CPI): 1.5%
Retail Price Index (RPI): -0.8%
An end-of-year analysis of the top 10 cities by the ‘Local Data Company’ showed revealed 142 of 900 estate agents were closing down, with chain operations being the worse hit.  Leeds was the worst hit and Bristol, Liverpool, London and Glasgow saw about a sixth of estate agencies closing in 2009.  The same survey showed Halifax has closed a third of its branches; Bairstow Eves has become a dominant chain (despite reducing branch numbers by a fifth) and the upmarket estate agents have broadly remained resilient (Savills have only closed six out of its 80 branches).  Proposals to invigorate the Residential Mortgage Backed Security (RMBS) market were announced in the form proposals of finding alternative finance to the UK.  The Treasury stated: “Developing non-bank lending channels would help to improve the future resilience of the economy in the face of financial shocks.”
Research published by the National Landlords Association (NLA) pointed to almost three
quarters of landlords have experienced tenant rental arrears – 43% of which occurred in the last 12 months.  The NLA also appealed to the government to make major changes to the administration of the Local Housing Allowance (LHA) – it is estimated that total arrears across the UK could be as high as £220 million as landlords are not being passed the rent.   Vacant retail premises have also doubled from 7% at the start of the year to 15% in December with some town centres recording vacancy rates of over 40%.
GDP statistics demonstrated that the UK economy declined by 0.3% in quarter 3 of 2009 meaning that UK has been in recession for 18 months (the longest period since records began in 1955).  The Policy Exchange pointed to the fact that, whilst most people realised the
burgeoning national public debt, the extent of the public sector pension debt remain hidden from view.  This debt has grown as public sector workers have been promised pension
benefits often worth two thirds of final salary, index-linked for life.  The debt now stands at 78% of GDP (£1.1 trillion) with debt servicing costing close to £45.2 billion.
Many households across the UK throughout the year have struggled with fuel debts and the Citizens Advice Bureau (CAB) reported a 46% rise of people seeking assistance.  The most common reasons were low income, over-commitment, illness, disability and job loss.  They also pointed to irresponsible lending and poor financial skills adding to peoples debt problems.  According to late 2009 statistics by the life insurance brokers ‘Bright Grey’, 12m Brits (25%) are struggling to cope with their monthly bills and 39% of people have budgets so tight that they would be in trouble if they had to find an extra £50 each month.  The report also stated that essential bills (rent/mortgage payments, utilities, food, household costs etc.) now account for 68% of the average Brits household income (equates to £1,378 on average each month per person and £2,001 for families).
By the end of the year, uSwitch estimated the 7.3 million consumers withdrew over 38 million cash withdrawals using a credit card and also pointed out that the interest applied has increased significantly by 41% from 21.22% APR in 2005 to just under 30% APR.  The average interest rate on a credit card, at December 2009, is 18.04%.  The British Banking Association also stated that the proportion of balances bearing interest from December 2008 had fallen marginally by 0.6% to 65.3%.  A Price Waterhouse Coopers report estimated that, in 2009, the average borrowing per credit card has increased by 5% and surpassed £1,000 for the first time.  Research based on a Brit survey published by NS&I revealed that 63% of the
population have become more aware of their finances as a result of the credit crunch and are, in turn, making a concerted effort to look after their affairs.  48% stated they knew how much they had and owed in all their accounts (although older age groups tended to be surer of their finances than younger). The survey also pointed out that 31% of savers do not think they would have enough money to cope in an emergency.  The Financial Services Authority (FSA) published research indicating that the improvement of financial capability is directly
proportional to psychological well-being (moving to average levels of financial capability increases psychological wellbeing by over 5% and decreases anxiety and depression by 15%).
End of year statistics by moneysupermarket.com revealed that over 10 million people were overdrawn in the last 12 months since December 2008 (2.1 million have not come out) and people in employment wait for 27 days before dipping into their overdraft.  Research published by Abbey Savings highlighted the over one in four (28%) of British parents with young
children do not have any savings or ‘nest egg’ investments for their children and a further 20% of these parents have less than £1,000 to fall back on.  Their statistics did point out that the average saver is increasing the amount they put away 26% (£206 per month compared to £163 at the beginning of the year) but the number of people depositing into their savings
accounts has decreased by 6% since the start of 2009.

The Economy in 2009 for the Property Investor: Quarter 4

October 2009

  • Bank Base Rate (BBR): 0.50%
  • Consumer Price Index (CPI): 1.50%
  • Retail Price Index (RPI): -0.8%

Homeowners continued to receive optimistic news that house prices were up for another month (albeit marginally).  However, as pointed out by Martin Gahbauer from Nationwide, several indices pointed to slowing growth rates:  “I would not say the market is particularly healthy, but at the beginning of the year there were few economists predicting house prices would be at this level by October.   The overall number of transactions is still low, however, and prices are still vulnerable to increases in supply.”  Howard Archer, Chief Economist at IHS Global Insight, also warned that homeowners could be in for a tough 2010, with prices expected to fall:  “While the Nationwide data indicates that house prices are still on an upward track from their February low, October’s significantly reduced month-on-month increase fuels our suspicion that the recent rally in house prices is unsustainable and will fizzle out before long.  We believe house prices will be at least 5 per cent lower at the end of 2010 compared to now, and the slippage could very well be greater still.”  Other news reported that mortgage lender GMAC were fined £2.8 million by the FSA for levying unfair charges on borrowers in arrears.

UK mortgage approvals climbed to their highest level in 1 ½ years.  Yet, there was an increase in the amount of compulsory liquidations and creditors’ voluntary liquidations by 14.6% in quarter 3 of 2009 when comparing the same period the year before.  In the same quarter, there was an increase of 9.3% on the same period in 2008 of receiverships (410), administrations (974) and company voluntary arrangements (194).  The Insolvency Service reported there were 35,242 individual solvencies in England and Wales (equivalent to 1 every 3.72 minutes) in the third quarter on a seasonally adjusted basis.  This was an increase of 6.6% on quarter 2 and a 28.2% increase when compared to the same period in 2008.  Figures showed public sector net debt (PSND) increased to £829.7bn (59.2% of gross domestic product and £33,188 per household).  The PSND increased by £135bn in 12 months (or £4,268 per second).  The interest paid on the PSND by the Government from between April and October was £15.4bn (equivalent to £1,056 per household per annum).  Another statistics released by the British Bankers Association pointed to total credit card debt in the UK was £54.5 billion (the UK collective credit card limit on credit cards is £158 billion).

The M4 measure that the Bank of England uses to monitor the effectiveness of quantitative easing fell 0.7% from September and was down an annualised 5.3% in the three months through to October (note that The gauge excludes financial companies that specialize in intermediating between banks, such as holding companies and non-bank credit grantors).  The Centre for Economics and Business Research predicted that the Bank of England will leave the base rate at 0.5% until 2011 at least, remaining below 2.0% to 2014 stating: “The forecasts are based on the assumption that the incoming government will need to take fiscal action of around 100 billion pounds in tax rises and spending cuts to correct the fiscal deficit. If — as the bookmakers expect — the new government is Conservative, the forecasts suggest tax rises of 20 billion pounds and spending cuts of 80 billion pounds.”

November 2009

  • Bank Base Rate (BBR): 0.50%
  • Consumer Price Index (CPI): 1.90%
  • Retail Price Index (RPI): -1.4%

Hometrack reported a fourth consecutive monthly rise as a ‘shortage of homes sustained the property market’.  The UK’s largest residential housing developer – Barratt – pointed to an increase of reservations per site by over 30% compared to the same period in 2008.  However, Hometrack also stated that the pick-up in prices has not been felt throughout the country and there are several parts that have been consistently falling. The number of active buyers which has propped up the market this year is drying up with new buyer registrations were up at  just 0.1% in November, the lowest level since the start of the year.  Rightmove also reported that average prices in November fell by 1.6% – according to Miles Shipside, Commercial Director: “In all but the most buoyant of markets, home moving comes second to Christmas festivities.  While the market has recovered from some dreadful lows, this month’s price fall proves that it does not yet have the strength to buck seasonal trends.”  The Bank of England stated that the outlook for the housing market “will depend, in part, on the supply of mortgage credit.”

Howard Archer, an economist at Global Insight, said: “House prices will probably keep rising in the next few months but are likely to suffer a relapse next year in the face of higher and still rising unemployment, muted earnings growth and the recent worsening in affordability due to house prices rising from their early-2009 lows.”

Despite a slight rise in actual quarter 2 – overall, there was positive news for UK repossessions with most areas reporting significant decreases in statistics when comparing quarter 3 of 2008 and 2009 (see our repossession statistics report).  Note the number of buy to let properties taken into repossession in the third quarter compared to the second rose from 1,400 to 1,600 – however, for the third quarter in a row, there was a decline in the number of buy to let mortgages falling into arrears (a decrease of 1.7% when comparing quarter 2 with quarter 3).  The Council of Mortgage Lenders cut its forecast for repossessions in 2009 to 48,000 pointing to strong indicators of increased lender forbearance, Government schemes to help people stay in their homes and the impact of low interest rates.  For investors in Scotland, news pointed to a 20% rise in mortgage actions taken to court in 2008-09 and a 50% rise in decrees granted.

Mervyn King stated that the pace of economic growth may be ‘pretty buoyant’ in the short term even if the recovery is not ‘pretty strong’.  A Gfk NOP report stated that Consumer confidence fell 4 points to minus 17 in November and gauge of whether people think this is a good time to make major purchases dropped seven points to minus 19.  Policy makers expanded their bond-purchase plan up to £200 billion with the Governor also saying he had an ‘open mind’ on whether to increase it further to aid the economy.  A report by the British Chamber of Commerce showed that UK companies have found it harder to obtain credit – with 64% saying it was their biggest obstacle to growth in the coming years.

December 2009

  • Bank Base Rate (BBR): 0.50%
  • Consumer Price Index (CPI): 1.5%
  • Retail Price Index (RPI): -0.8%

An end-of-year analysis of the top 10 cities by the ‘Local Data Company’ showed revealed 142 of 900 estate agents were closing down, with chain operations being the worse hit.  Leeds was the worst hit and Bristol, Liverpool, London and Glasgow saw about a sixth of estate agencies closing in 2009.  The same survey showed Halifax has closed a third of its branches; Bairstow Eves has become a dominant chain (despite reducing branch numbers by a fifth) and the upmarket estate agents have broadly remained resilient (Savills have only closed six out of its 80 branches).  Proposals to invigorate the Residential Mortgage Backed Security (RMBS) market were announced in the form proposals of finding alternative finance to the UK.  The Treasury stated: “Developing non-bank lending channels would help to improve the future resilience of the economy in the face of financial shocks.”

Research published by the National Landlords Association (NLA) pointed to almost three quarters of landlords have experienced tenant rental arrears – 43% of which occurred in the last 12 months.  The NLA also appealed to the government to make major changes to the administration of the Local Housing Allowance (LHA) – it is estimated that total arrears across the UK could be as high as £220 million as landlords are not being passed the rent.   Vacant retail premises have also doubled from 7% at the start of the year to 15% in December with some town centres recording vacancy rates of over 40%.

GDP statistics demonstrated that the UK economy declined by 0.3% in quarter 3 of 2009 meaning that UK has been in recession for 18 months (the longest period since records began in 1955).  The Policy Exchange pointed to the fact that, whilst most people realised the burgeoning national public debt, the extent of the public sector pension debt remain hidden from view.  This debt has grown as public sector workers have been promised pension benefits often worth two thirds of final salary, index-linked for life.  The debt now stands at 78% of GDP (£1.1 trillion) with debt servicing costing close to £45.2 billion.

Many households across the UK throughout the year have struggled with fuel debts and the Citizens Advice Bureau (CAB) reported a 46% rise of people seeking assistance.  The most common reasons were low income, over-commitment, illness, disability and job loss.  They also pointed to irresponsible lending and poor financial skills adding to peoples debt problems.  According to late 2009 statistics by the life insurance brokers ‘Bright Grey’, 12m Brits (25%) are struggling to cope with their monthly bills and 39% of people have budgets so tight that they would be in trouble if they had to find an extra £50 each month.  The report also stated that essential bills (rent/mortgage payments, utilities, food, household costs etc.) now account for 68% of the average Brits household income (equates to £1,378 on average each month per person and £2,001 for families).

By the end of the year, uSwitch estimated the 7.3 million consumers withdrew over 38 million cash withdrawals using a credit card and also pointed out that the interest applied has increased significantly by 41% from 21.22% APR in 2005 to just under 30% APR.  The average interest rate on a credit card, at December 2009, is 18.04%.  The British Banking Association also stated that the proportion of balances bearing interest from December 2008 had fallen marginally by 0.6% to 65.3%.  A Price Waterhouse Coopers report estimated that, in 2009, the average borrowing per credit card has increased by 5% and surpassed £1,000 for the first time.  Research based on a Brit survey published by NS&I revealed that 63% of the population have become more aware of their finances as a result of the credit crunch and are, in turn, making a concerted effort to look after their affairs.  48% stated they knew how much they had and owed in all their accounts (although older age groups tended to be surer of their finances than younger). The survey also pointed out that 31% of savers do not think they would have enough money to cope in an emergency.  The Financial Services Authority (FSA) published research indicating that the improvement of financial capability is directly proportional to psychological well-being (moving to average levels of financial capability increases psychological wellbeing by over 5% and decreases anxiety and depression by 15%).

End of year statistics by moneysupermarket.com revealed that over 10 million people were overdrawn in the last 12 months since December 2008 (2.1 million have not come out) and people in employment wait for 27 days before dipping into their overdraft.  Research published by Abbey Savings highlighted the over one in four (28%) of British parents with young children do not have any savings or ‘nest egg’ investments for their children and a further 20% of these parents have less than £1,000 to fall back on.  Their statistics did point out that the average saver is increasing the amount they put away 26% (£206 per month compared to £163 at the beginning of the year) but the number of people depositing into their savings accounts has decreased by 6% since the start of 2009.

—————————————————————————————————————————————————

In our full 2010 report, we look at what the all major house price indices / housing organisations are saying about the year ahead as well as some predictions for the economy in general (including relevant observations from the late 2009 Pre Budget Report). We then look at several investment property acquisition strategies (including lease options) followed, finally, by effective methods to conduct accurate due diligence in 2010.  To access the report (you will need to be a member of the Property Investor Hub), please click on the link below:

The Property Investor Report 2010

Share and Enjoy:
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  • del.icio.us
  • Facebook
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Posted in Economics for the Property Investor, Repossession / Repossessed Property | No Comments »

Property Investor Facts and Figures at the Start of 2010

December 22nd, 2009
No Comments
•  The average car costs £15.13 to run every day.

Below are a handful of facts and figures obtained at the end of 2009:

  • The average household debt is increasing by £0.20 per day (it grew by £11.11 per day January 2008);
  • An average of 267 mortgage possession claims and 188 mortgage possession orders are being issued on a daily basis;
  • 368 landlord possession claims are being issued and 253 landlord possession orders are being made on a daily basis;
  • 128 properties were repossessed every day during the last 3 months to the end of September (see our latest repossession statistics);
  • 386 people are declaring themselves insolvent or bankrupt (the equivalent to 1 person every 3.72 minutes);
  • On average, unemployment increased by 1,723 people every day during 12 months to the end of September (although there has been a slight decline towards the end of the year);
  • 2,247 reported they had become redundant every day during 3 months to the end of September 2009;
  • The Government Public Sector net debt (PSDN) is increasing by £369m per day (equivalent to £4,268 per second);
  • The Government has to pay £72m interest per day on the UKs net debt of £830bn;
  • 25,250 applications for consumer credit are being rejected on a daily basis;
  • 21.9 million card purchase transactions are being made every day with a total value of £1.05 billion;
  • 8.1 million cash withdrawals are being made on a daily basis with a total value of £530 million;
  • 1,000 people are seeking some form of debt reduction or re-structuring every working day;
  • 230,137 phone calls are made to UK consumers daily by debt management and personal loan companies;
  • The UK population is projected to grow by 1,100 people a day for the next 10 years;
  • In the 12 months preceding December 2009, consumers saved an average of £2.98 every day;
  • The Citizens Advice Bureau (CAB) are dealing with 9,300 new debt problems on a daily basis in England and Wales;
  • 300 young people (aged 16 to 24) have become not in education, employment or training (NEET) every day in 2009 (a statistic that has remained relatively stable when compared to the same period in 2008);
  • The average car costs £15.13 to run every day…
    UK Personal Debt as at the Start of 2010

    UK Personal Debt as at the Start of 2010

    In our full 2010 report, we look at what the all major house price indices / housing organisations are saying about the year ahead as well as some predictions for the economy in general (including relevant observations from the late 2009 Pre Budget Report). We then look at several investment property acquisition strategies (including lease options) followed, finally, by effective methods to conduct accurate due diligence in 2010.  To access the report (you will need to be a member of the Property Investor Hub), please click on the link below:

    The Property Investor Report 2010

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Posted in Economics for the Property Investor, Repossession / Repossessed Property | No Comments »

The Property Investors Report 2010

December 17th, 2009
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Property Investors Report 2010

Please click on the above to access our latest report aimed at anyone with an interest in UK investment property (note that you would have to be a member of the Property Investor Hub to download it).

We have started by giving a detailed account of the events of this year in terms of both the housing market and the economy.  After that, we look at what the all major house price indices / housing organisations are saying about 2010 as well as some predictions for the economy in general (including relevant observations from the late 2009 Pre Budget Report). We then look at several investment property acquisition strategies (including lease options) followed, finally, by effective methods to conduct accurate due diligence in the year ahead.

Click here to gain direct access to the report and we would very much appreciate if you would forward the following link to your investor / prospective investor contacts who may not know about us:

http://www.psinvestors.co.uk/resources/property-buyers-toolkit/2010-property-investors-report.pdf

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Posted in Business Management, Due Diligence, Economics for the Property Investor, Tips for Property Investing | No Comments »

December Property Investor Factsheet

December 10th, 2009
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December Property Investor Factsheet

Please see the last of 2009’s factsheets by clicking on the link above.  Most UK house price indices - including the Land Registry – are pointing to the rally in the market that has been witnessed in Quarters 3 and 4.  The latest Royal Institute of Chartered Surveyors (RICS) questionnaire also pointed to 37% of surveyors reporting a rise in house prices (6% up from the month previously).  However, it is worth noting that as the year draws to a close, RICS have stated that these rises are likely to end in the not-too-distant future and further drops are to be expected in 2010 (a sentiment echoed by several other indices).

Lending levels across the economy remain broadly similar to those in November and, as demonstrated in our recent statistics, repossession levels are down – as is the case with unemployment (albeit marginally).   To see the factsheet in full, please click here (note you will have to be a member of the ‘Property Investor Hub’ to access it).

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Posted in Economics for the Property Investor, Property Investor Factsheet | No Comments »

Your Credit Rating

December 2nd, 2009
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In the current difficult lending environment, we thought it would be a good idea to speak to a credit agency for some insights on subjects such as the importance of maintaining a good file as a property investor / landlord; the ‘6 year rule’; expected lending practices in 2010; ‘tarnishes’ and improving your own rating to name a few.  Here’s a short interview with Richard Catlin from ‘Checkmyfile‘.

First off, can you let readers know about what you do at ‘Check my File’ (for those that don’t know already)?
checkmyfile were the first company in the UK to give consumers online access to their credit files, and the first in the World to lift the lid on credit scores. We’re still the only place where consumers can view their credit reports based on data from all three credit reference agencies together – all presented in the same easy-to-understand format. Consumers can also check their credit scores, find out how their postcode is rated, assess whether they are vulnerable to identity theft, and get advice on dealing with debt – all completely for free. We also help consumers to turn the tables on lenders and find out who they are matched to based on their credit rating – vastly improving their chances of being accepted.
Most of our members are property investors and landlords – how important is it for them to keep an eye on their credit file?
A good credit rating really is an asset that you should look to protect. It’ll not only determine whether you are accepted for credit, but also the rate you’ll be asked to pay. Not only that, but for landlords in particular (with buy-to-let properties for example), it’s important to monitor your credit file for early warning signs of attempted identity theft. Credit files show all ‘linked’ address and so it’s a great way of checking you aren’t at risk.
Are there different kinds of credit ‘tarnishes’ (ie. some that can do more damage than others)?
It’s fair to say that some elements of credit files carry more weight than others. Some are obvious – bankruptcy for example – but people are often surprised at the impact less well known entries such as an “Arrangement to Pay” can have. When it comes to late payments, it often depends on how many ‘clean’ accounts are recorded on the file, and how long ago the payments were lodged. By checking your credit report online, you’ll be able to see which parts of your file give your score a boost and which might drag it down, and act accordingly.
Many people talk about the ‘6 year rule’ that if you default, on a credit card for example, that is the period it will take for your credit file to be cleared (and therefore for you to be more credit-worthy) – how accurate is this, particularly in the current climate?
Most credit account information does indeed remain on your file for six years from the date it is lodged, before being removed automatically. Similarly, most court information stays on your file for six years. Remember though, once adverse information is removed, your credit rating could improve dramatically overnight, and so it’s important to be aware of when that will happen and make sure that the rest of your file is as good as it can be.
If you had a CCJ against your name – does that mean that it would be impossible to get any kind of credit (secured or unsecured)?
It’s not impossible, even in the current market, but it will certainly restrict your borrowing options.  Additionally, the practice of ‘rating for risk’ will mean that any lender who does approve your application is likely to charge a higher APR and may ask for a bigger deposit or security. Even if you’re aware that a CCJ is likely to show up on your file, it’s important to check that the ’status’ has been updated correctly, especially if you’re settled the debt.
At the moment, many investors are seeing lenders take a particularly strict view on all kinds of borrowing.  For example, with mortgages, more of a deposit is required – from your point of view, are we likely to see a change in the near future (in 2010 for example)?
Whilst LTV ratio’s may improve slightly in 2010, lenders are likely to remain picky over who they lend to, and certainly over who qualifies for the best rates. Again, it’s likely to be consumers with the best credit ratings who get cherry picked for the best deals. Even in the recession, the housing market will follow seasonal trends, and so although we should expect a lull to be reported in the press in the next month or so (for the end of 2009), with any luck we’ll see another uplift in the Spring.
Do you have any tips for people who may have low credit ratings?
Check your credit report online so that you can diarise when any adverse information is likely to be removed. Make sure that any credit accounts you have open now are set up on Direct Debit to avoid late payments, and double check that you’re listed on the latest version of the Electoral Roll (the credit reference agencies are due to update their version of the 2010 register in the next few weeks).
Where can people get advice on improving their credit gaining ability?
We’d like to think we can help! Because we don’t have ties to any lenders, we can offer impartial advice about what you can do to improve your credit rating, and help on finding cheaper credit elsewhere.
The two main well known agencies for credit checking in the UK are ‘Experian’ and ‘Equifax’ – is there any way that borrowers can see which agency the lender they are approaching uses?
It’s important to remember that there are three credit reference agencies in the UK. Although Callcredit are the newest of the three, the credit reports we supply based on their data are actually the most in depth, and certainly worth checking alongside the other two. Picking lenders based on which agency they use is almost impossible. It’s much more practical to check for yourself what each agency holds about you, and then use your credit score to decide which lender you should apply to – more on that below.
We have been using Check-my-file for some time now and notice that you have a suggestions of unsecured loans and credit card companies that people should apply for – how accurate and reliable is this system?
The scorecard that we use to generate credit scores and match consumers to lenders is based on the same principles as the  version that lenders themselves use to make decisions, and so is a very powerful tool. By using your credit rating in this way,  you’re able to turn the tables on lenders, increasing the chances of them saying “yes” considerably.
Please provide us with some information about what you offer at ‘Check My File’ and how our members can tap into your service?
In-depth, but easy-to-understand credit reports with great customer support have always been our aim. Obviously, we hope that everyone finds their credit rating to be excellent, but when people do need that extra bit of advice, we’re here to help.

1) First off, can you let readers know about what you do at ‘Checkmyfile’ (for those that don’t know already)?

‘Checkmyfile’ were the first company in the UK to give consumers online access to their credit files and the first in the World to lift the lid on credit scores. We’re still the only place where consumers can view their credit reports based on data from all three credit reference agencies together – all presented in the same easy-to-understand format. Consumers can also check their credit scores; find out how their postcode is rated; assess whether they are vulnerable to identity theft; and get advice on dealing with debt – all completely for free. We also help consumers to turn the tables on lenders and find out who they are matched to based on their credit rating – vastly improving their chances of being accepted.

2)  How important is it for property investors and landlords to keep an eye on their credit file?

A good credit rating really is an asset that you should look to protect. It’ll not only determine whether you are accepted for credit, but also the rate you’ll be asked to pay. Not only that, but for landlords in particular (with buy-to-let properties for example), it’s important to monitor your credit file for early warning signs of attempted identity theft. Credit files show all ‘linked’ address and so it’s a great way of checking you aren’t at risk.  Landlords can also use our services to verify potential tenants for their properties.

3) Are there different kinds of credit ‘tarnishes’ (ie. some that can do more damage than others)?

It’s fair to say that some elements of credit files carry more weight than others. Some are obvious – bankruptcy for example – but people are often surprised at the impact less well known entries such as an “Arrangement to Pay” can have. When it comes to late payments, it often depends on how many ‘clean’ accounts are recorded on the file, and how long ago the payments were lodged. By checking your credit report online, you’ll be able to see which parts of your file give your score a boost and which might drag it down and act accordingly.

4) Many people talk about the ‘6 year rule’ that if you default, on a credit card for example, that is the period it will take for your credit file to be cleared (and therefore for you to be more credit-worthy) – how accurate is this, particularly in the current climate?

Most credit account information does indeed remain on your file for six years from the date it is lodged, before being removed automatically. Similarly, most court information stays on your file for six years. Remember though, once adverse information is removed, your credit rating could improve dramatically overnight, and so it’s important to be aware of when that will happen and make sure that the rest of your file is as good as it can be.

6) If you had a CCJ against your name – does that mean that it would be impossible to get any kind of credit (secured or unsecured)?

It’s not impossible, even in the current market, but it will certainly restrict your borrowing options. Additionally, the practice of ‘rating for risk’ will mean that any lender who does approve your application is likely to charge a higher APR and may ask for a bigger deposit or security. Even if you’re aware that a CCJ is likely to show up on your file, it’s important to check that the ’status’ has been updated correctly, especially if you’ve settled the debt.

7) At the moment, many investors are seeing lenders take a particularly strict view on all kinds of borrowing.  For example, with mortgages, more of a deposit is required – from your point of view, are we likely to see a change in the near future (in 2010 for example)?

Whilst LTV ratios may improve slightly in 2010, lenders are likely to remain picky over who they lend to and certainly over who qualifies for the best rates. Again, it’s likely to be consumers with the best credit ratings who get cherry picked for the best deals. Even in the recession, the housing market will follow seasonal trends and so, although we should expect a lull to be reported in the press in the next month or so (for the end of 2009), with any luck we’ll see another uplift in the Spring.

8)Do you have any tips for people who may have low credit ratings?

Check your credit report online so that you can diarise when any adverse information is likely to be removed. Make sure that any credit accounts you have open now are set up on Direct Debit to avoid late payments, and double check that you’re listed on the latest version of the Electoral Roll (the credit reference agencies are due to update their version of the 2010 register in the next few weeks).

9) Where can people get advice on improving their credit gaining ability?

We’d like to think we can help! Because we don’t have ties to any lenders, we can offer impartial advice about what you can do to improve your credit rating, and help on finding cheaper credit elsewhere.

10) The three main well known agencies for credit checking in the UK are ‘Experian’ and ‘Equifax’ and ‘Call Credit’ – is there any way that borrowers can see which agency the lender they are approaching uses?

Picking lenders based on which agency they use is almost impossible. It’s much more practical to check for yourself what each agency holds about you, and then use your credit score to decide which lender you should apply to – more on that below.

11) We have been using ‘checkmyfile’ for some time now and notice that you have a suggestions of unsecured loans and credit card companies that people should apply for – how accurate and reliable is this system?

The scorecard that we use to generate credit scores and match consumers to lenders is based on the same principles as the  version that lenders themselves use to make decisions, and so is a very powerful tool. By using your credit rating in this way,  you’re able to turn the tables on lenders, increasing the chances of them saying “yes” considerably.

12) Please provide us with some information about what you offer at ‘Check My File’ and how our members can tap into your service?

In-depth, but easy-to-understand credit reports with great customer support have always been our aim. Obviously, we hope that everyone finds their credit rating to be excellent, but when people do need that extra bit of advice, we’re here to help.

Please click here to head straight to the ‘Checkmyfile’ website.

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Posted in Business Management, Credit Rating, Tips for Property Investing | No Comments »