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Interview with a RICS Surveyor

February 10th, 2010

Whilst several indices are pointing to recent rises in house prices lead by more activity in the market place, investors are still finding it difficult to firmly establish the real value of property in the UK. We were therefore very pleased to be able to interview Charles Dixon – a RICS surveyor with over 26 years of experience in the industry. Charles provides some insightful information of much relevance to UK property investors including a definition of what ‘value’ means in 2010; modern day valuation techniques; due diligence tips; his own thoughts on the property market; regulation of the property industry and much more…

1) Can you explain a bit about your background? I have worked in the property world since graduating from Reading University in 1976 initially in the South Midlands and East Anglia, but for the last 26 years in the West Country counties of Cornwall, Devon, Somerset and Dorset. I have always worked within a private professional practice with a wide range of clients as well as participating on regulatory and ethics committees with the RICS nationally. I have always enjoyed this part of my career and, more recently, have been able to witness the surveying profession evolve into a system of self-regulation during a period of huge change in the property industry.

2) Why did you decide to write the book? I was introduced to Peter McGarrick, the founder of Quicklook Books, by a mutual friend. Peter was looking for someone to write a Quicklook@property and I was attracted to the project. Having never previously tried my hand at writing and thought that a modestly sized publication of this type might be within my capabilities as a novice! I am often asked about the Property profession as a career and it always strikes me how little school leavers and graduates understand about the very wide range of different activities in the property world – and so this book will help to inform those interested in entering the profession or anyone just curious about the UK property industry.

3) What is your definition of ‘value’ in the 2010 UK property market? Here is the non technical answer (the technical answer is the definition in the RICS Red Book): The UK property market is a largely open and free market made up of thousands of individual transactions made by people and organisations with wide-ranging objectives. A free flow of information in the market is essential in informing the decisions behind those transactions. The internet has revolutionised the availability of information on transactions and has made it accessible to everyone; whereas before only people in the industry had such information. This has enabled many more people to join the property owning community. Value is what one person will pay to another for a property and, if value is not to be distorted, both parties must be well informed and acting in an arms length relationship.

4) Would it be fair to say that most surveyors are taking a conservative view on the valuation of property due to the uncertainty of the market? Surveyors base their assessment of value not only on comparable evidence of similar transactions but also on their assessment of current market sentiment, the volume of properties available and being traded and of course many external factors that bear on the individuals undertaking a property transaction – for example: the general state of the economy, interest rates , taxation policies etc. If surveyors are taking a conservative view, this should reflect a conservative approach that parties are taking in actual negotiations and transactions and reflecting the uncertainty of the market of which they form part.

5) The majority of investors reading this are residential property buyers – one difficulty that has emerged as a result of the low market activity is the ability to obtain comparable sold data. What are the best steps that can be undertaken from your point of view? Data on property transactions is available through many free websites and through the Land Registry. Statistics on trends are also available free from the Department for Communities and Local Government and indices on house price movements from Halifax Bank and Nationwide Building Society. There are also subscription websites giving additional data which further knowledge about local markets (such as ‘Hometrack’). Agents are generally willing to help with information on transactions in their area provided they are approached tactfully and they are not restricted from giving information on a transaction by confidentiality. The current situation is dramatically better for individual investors than it has ever been and over time it is likely to improve further with the further development of the internet. However when there are so few transactions as we are currently experiencing, it is difficult find comparable evidence. This is a difficulty for professional Valuers as much as the general public. It needs deals to be done to establish the market. In these conditions investors may be taking greater risks as their decisions are less well informed. Property transactions have never been risk free and it may be that, after a long period of a rising market before this recession, some people became too complacent and assumed that their property transactions could not fail.

6) Can you talk through the processes that you would undertake prior to visiting a property in terms of your own due diligence? Terms of business must be agreed with the client before visiting the property. Very often the client is pressing to have the advice/ survey/valuation as quickly as possible so that office based research sometimes happens after a visit rather than before. In any case, the Surveyor can target his research more efficiently if he has first visited the property and actually it and its location. Depending on the purpose of the report, the Surveyor will want to consider most of the following:

planning consents;
short, medium and long term planning issues in the area;
recent works of repair / improvement to the property;
available consents;
guarantees;
boundaries and related responsibilities;
location and routes of utilities;
environmental issues;
contamination issues;
presence of mines;
flood risks;
subsidence risks;
details of construction if it is non-standard;

Much of this information and more is available through a local Authority search and website enquiries from various organisations.

7) Similarly, if you are requested to undertake a ‘desktop’ valuation what steps would you take? Surveyors should be very wary of desktop valuations which can be misleading to the recipient if the basis of the valuation is not properly understood. In general, such valuations should only be undertaken when the property has been previously inspected and preferably not too long before. Such valuations must clearly state the assumptions on which they are made. They are best avoided when a surveyor is dealing with the general public who will probably expect the same level of knowledge of the property as if it had actually been inspected and may feel let down if they subsequently find changed conditions which had not been identified through the lack of an inspection. Having said that, Valuers will often give informal market advice on a property without having seen it recently or maybe at all, however investors generally understand the difference between a formal Valuation Report and an informal opinion often expressed verbally.

8)On the back of the last two questions, do you think residential house prices in the UK are still over-valued? In my opinion, residential house prices are too high in relation to salary levels – particularly if as a society we wish to encourage a home owning culture. This is not a fault of the property market, but of external factors that bear on home buyers such as a lack of new homes available to buy thus restricting supply. In an open market such as the property market in the UK, home buyers are competing for the available homes to buy with other types of purchasers such as foreign investors, buy to let investors, holiday home buyers etc. Unless the government intervenes to disadvantage these other types of purchasers (which I would not advocate) they key to reducing prices is to increase the supply of homes on the market.

9) Should residential property investors take more of a ‘value’ based approach – as is what is more common in commercial property? If the motive for purchase is property investment then yes, a value based approach is the best advice. However, when people buy for their own occupation and use they apply many different subjective criteria and will sometimes ignore the rational behaviour of the market and pay in excess of what the property could be resold for. This is a valid part of a diverse open market that sometimes makes it unpredictable for those observing it from a distance.

10) You are a major advocate of regulation of the property industry – and your book discusses this in detail – what kinds of measures do you think should be in place? I am an advocate of the proper regulation of individuals working within the property industry particularly to protect the inexperienced general public who occasionally participate. I do not particularly advocate regulation of property itself unless there is a clear need . In many parts of the property industry there is a clear need and obvious benefit from various types of regulation, however in general I feel that there has been excessive and too complex regulation in recent years to the extent that some people ignore areas of regulation or the regulation restricts the market. Regulation should be proportionate to the benefit achieved and should be simple and straightforward so that it is accessible and understood by everyone.

11) Is there a difference, in your opinion, between regulation to install professional principles into the industry and the government just sticking their oar in? Governments are motivated to regulate where they feel that consumers are adversely affected or if the market is acting imperfectly or against policy objectives. Governments are also motivated to find ways to tax property which is a good store of private wealth and an easy target for the raising of public finance. Sometimes Governments will regulate in pursuit of social policy objectives. In general, the government in the UK has not regulated much in pursuit of encouraging professional principles, but rather has relied on the industry self-regulating itself through its professional bodies such as the RICS and NAEA. The Government has resisted the temptation to statutorily regulate Estate Agents which it could have done at any time by using powers in the Estate Agents Act of 1979. This means that the professional bodies need to be constantly looking at themselves critically to ensure that they are reflecting public opinion and public concerns by adapting their regulatory arrangements to keep up with best practice.

12) Can you please explain more about your book and how readers can access it? The Quicklook Books series is designed to wet the appetite of the reader by giving a broad view of what may be a deep and complex subject by giving a brief overview in a light and readable format. Being purchased over the internet gives the reader a range of convenient formats ranging from printing their own copy to reading on a PC or e-reader. The quicklook series are excellent value for money at £2.99 each and enables the reader to investigate a subject without spending fortune on an expensive textbook. The e-format will enable the Authors and Publisher to regularly review and refresh the content to keep it relevant and uptodate without the usual costs of conventional printing and publication. There has been doubts raised by many in the publishing world about whether fiction publishing will move easily into e-books, however technical and business publishing is already well developed on the internet and Quicklook books is a new development of this growing trend for the accessing of information.

Quicklook@property takes the reader through the history and structure of the UK property market. The working of the market is explained and the roles of some of the main occupations in the industry such as Architects, Surveyors and Town Planners. The book goes on to discuss the regulation of the property industry and explains the workings of the development industry. I have highlighted just a few of the well known people and property development projects of the last half century in order to illustrate the level of complexity and sophistication that the property industry has achieved in the UK. The reader is also invited to mentally participate in the execution of a fictional development project in “Exchester” and considers some of the likely future areas of evolution for this key sector of the UK economy. Quicklook@property is available from by clicking on the following link: purchase the Quicklook@property for only £2.99.

Can you explain a bit about your background?

I have worked in the property world since graduating from Reading University in 1976 initially in the South Midlands

and East Anglia, but for the last 26 years in the West Country counties of Cornwall, Devon, Somerset and Dorset.

Over this period I have worked for a wide range of clients and undertaken a very wide range of professional work.

I have always worked within a private professional practice . I have participated on regulatory and ethics

committees at the RICS nationally and have enjoyed this work, particularly seeing the way in which the surveying

profession has evolved a system of self-regulation during a period of huge change in the property industry.

Why did you decide to write the book?

I was introduced to Peter McGarrick, the founder of Quicklook Books, by a mutual friend. Peter was looking for

someone to write a Quicklook@property and I was attracted to the project, having never previously tried my hand at

writing and thought that a modestly sized publication of this type might be within my capabilities as a novice!

I am often asked about the Property profession as a career and it always strikes me how little school leavers and

graduates understand about the very wide range of different activities in the property world – and so this book

will help to inform those interested in entering the profession or anyone just curious about the UK property

industry.

What is your definition of ‘value’ in the 2010 UK property market?

Here is the non technical answer ( the technical answer is the definition in the RICS Red Book):

The UK property market is a largely open and free market made up of thousands of individual transactions made

by people and organisations with wide-ranging objectives. A free flow of information in the market is essential

in informing the decisions behind those transactions. The internet has revolutionised the availability of

information on transactions and has made it accessible to everyone; whereas before only people in the industry

had such information. This has enabled many more people to join the property owning community. Value is what one

person will pay to another for a property and if value is not to be distorted both parties must be well informed

and acting in an arms length relationship.

Would it be fair to say that most surveyors are taking a conservative view on the valuation of property due

to the uncertainty of the market?

Surveyors base their assessment of value not only on comparable evidence of similar transactions but also on

their assessment of current market sentiment, the volume of properties available and being traded and of course

many external factors that bear on the individuals undertaking a property transaction – for example the general

state of the economy, interest rates , taxation policies etc. If surveyors are taking a conservative view, this

should reflect a conservative approach that parties are taking in actual negotiations and transactions and

reflecting the uncertainty of the market of which they form part.

The majority of investors reading this are residential property buyers – one difficulty that has emerged

as a result of the low market activity is the ability to obtain comparable sold data. What are the best steps

that can be undertaken from your point of view?

Data on property transactions is available through many free websites and through the Land Registry website.

Statistics on trends are also available free from the Department for Communities and Local Government also the

Land Registry and indices on house price movements from Halifax Bank and Nationwide Building Society. There are

also subscription websites giving additional data which further detailed information (such as ‘Hometrack’). Agents

are generally willing to help with information on transactions in their area provided they are approached tactfully

and they are not restricted from giving information on a transaction by confidentiality. The current situation is

dramatically better for individual investors than it has ever been and over time it is likely to improve further

with the further development of the internet. However when there are so few transactions as we are currently

experiencing, it is difficult find comparable evidence. This is a difficulty for professional Valuers as much as

the general public. It needs deals to be done to establish the market. In these conditions investors may be taking

greater risks as their decisions are less well informed. Property transactions have never been risk free and it may

be that, after a long period of a rising market before this recession, some people became too complacent and assumed

that their property transactions could not fail.

Can you talk through the processes that you would undertake prior to visiting a property in terms of your own

due diligence?

Terms of business must be agreed with the client before visiting the property. Very often the client is pressing

to have the advice/ survey/valuation as quickly as possible so that office based research sometimes happens after

a visit rather than before. In any case, the Surveyor can target his research more efficiently if he has first

visited the property and actually it and its location. Depending on the purpose of the report, the Surveyor will

want to consider one or all of the following : planning consents / related policies applying; recent works of

repair / improvement to the property; available consents; guarantees etc. A plan of the boundaries and

responsibility for the boundaries. location and routes of utilities. A search for environmental or contamination

issues in the area including possibility a mining search and certainly a flood risk search. The risk of subsidence

in the location. The details of construction if it is non-standard. Much of this information and more is available

through a local Authority search and website enquiries form various organisations.

Similarly, if you are requested to undertake a ‘desktop’ valuation what steps would you take?

Surveyors should be very wary of desktop valuations which can be misleading to the recipient if the basis of the

valuation is not properly understood. In general, such valuations should only be undertaken when the property has

been previously inspected and preferably not too long before. Such valuations must clearly state the assumptions

on which they are made. They are best avoided when a surveyor is dealing with the general public who will probably

expect the same level of knowledge of the property as if it had actually been inspected and may feel let down if

they subsequently find changed conditions which had not been identified through the lack of an inspection. Having

said that, Valuers will often give informal market advice on a property without having seen it recently or maybe at

all, however investors generally understand the difference between a formal Valuation Report and an informal

opinion often expressed verbally.

On the back of the last two questions, do you think residential house prices in the UK are still over-valued?

In my opinion residential house prices are too high in relation to salary levels, particularly if as a society

we wish to encourage a home owning culture. This is not a fault of the property market, but of external factors

that bear on home buyers such as a lack of new homes available to buy thus restricting supply. In an open market

such as the property market in the UK, home buyers are competing for the available homes to buy with other types of

purchasers such as foreign investors, buy to let investors, holiday home buyers etc. Unless the government

intervenes to disadvantage these other types of purchasers (which I would not advocate) they key to reducing prices

is to increase the supply of homes on the market.

Should residential property investors take more of a ‘value’ based approach – as is what is more common

in commercial property?

If the motive for purchase is property investment then yes, a value based approach is the best advice, however

when people buy for their own occupation and use they apply many different subjective criteria and will sometimes

ignore the rational behaviour of the market and pay in excess of what the property could be resold for on the

open market. This is a valid part of a diverse open market that sometimes makes it unpredictable for those

observing it from a distance.

You are a major advocate of regulation of the property industry – and your book discusses this in detail – what kinds of measures do you think should be in place?

I am an advocate of the proper regulation of individuals working within the property industry particularly to

protect the inexperienced general public who occasionally participate in the industry. I do not particularly

advocate regulation of property itself unless there is a clear need . In many parts of the property industry there

is a clear need and obvious benefit from various types of regulation, however in general I feel that there has been

excessive and too complex regulation in recent years to the extent that some people ignore areas of regulation or

the regulation restricts the market. Regulation should be proportionate to the benefit achieved and should be

simple and straightforward so that it is accessible and understood by everyone.

Is there a difference, in your opinion, between regulation to install professional principles into the industry

and the government just sticking their oar in?

Governments are motivated to regulate where they feel that consumers are adversely affected or if the market is

acting imperfectly or against policy objectives. Governments are also motivated to find ways to tax property which

is a good store of private wealth and an easy target for the raising of public finance. Sometimes Governments will

regulate in pursuit of social policy objectives. In general, the government in the UK has not regulated much in

pursuit of encouraging professional principles, but rather has relied on the industry self-regulating itself

through its professional bodies such as the RICS and NAEA. The Government has resisted the temptation of statutorily

regulating Estate Agents which it could have done at any time by using powers in the Estate Agents Act of 1979.

This means that the professional bodies need to be constantly looking at themselves critically to ensure that they

are reflecting public opinion and public concerns by adapting their regulatory arrangements to keep up with best

practice.

Can you please explain more about your book and how readers can access it?

The Quicklook Books series is designed to weet the appetite of the reader by giving a broad view of what may be a

deep and complex subject by giving a brief overview in a light and readable format. Being purchased over the

internet gives the reader a range of convenient formats ranging from printing their own copy to reading on a PC or

e-reader. The quicklook series are excellent value for money at £2.99 each and enables the reader to investigate a

subject without spending fortune on an expensive textbook. The e-format will enable the Authors and Publisher to

regularly review and refresh the content to keep it relevant and uptodate without the usual costs of conventional

printing and publication. There has been doubts raised by many in the publishing world about whether fiction

publishing will move easily into e-books, however technical and business publishing is already well developed on

the internet and Quicklook books is a new development of this growing trend for the accessing of information.

Quicklook@property takes the reader through the history and structure of the UK property market. The working of the

market is explained and the roles of some of the main occupations in the industry such as Architects, Surveyors and

Town Planners. The book discusses the regulation of the property industry and explains the workings of the

development industry. The book highlights just a few of the well known people and property development projects

of the last half century in order to illustrate the level of complexity and sophistication that the property

industry has achieved in the UK. The reader is invited to mentally participate in the execution of a fictional

development project in “Exchester” and considers some of the likely future areas of evolution for this key sector

of the UK economy. Quicklook@property is available from http://www.quicklookbooks.com

Share and Enjoy:

Tags: Accur, available consents, boundaries and related responsibilities, Charles Dixon, Department for Communities and Local Government, desktop property valuation, details of construction if property is non-standard, Due Diligence, environmental or contamination issues, estate agency regulation, flood risks, guarantees, Halifax, Hometrack, house, house price crash, location and routes of utilities, medium and long term planning issues, NAEA, Nationwide, Open Market Value, planning consents, presence of mines, property industry regulation, property over valued, Property Valuation, Quick Books Property, recent works of repair / improvement to the property, RICS Red Book, Royal Institute of Chartered Surveyors (RICS), short, subsidence risks, surveying, surveyors, value, value based approach to investment
Posted in Business Management, Due Diligence, Tips for Property Investing, Viewing a Property | No Comments »

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%

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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Tags: bank bailout, bank base rate, Bank of England, Chartered Institute of Purchasing and Supply, construction activity, consumer price index, february 2009, Gordon Brown, Halifax, Hometrack monthly survey, incomes, january 2009, joblessness, Land Registry, march 2009, median survey of 14 house price indices, Nationwide, retail price index, Royal Bank of Scotland Group Plc, Royal Institute of Chartered Surveyors (RICS)
Posted in Economics for the Property Investor | No Comments »

The Economy in 2009 for the Property Investor: Quarter 3

December 22nd, 2009

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July 2009

Bank Base Rate (BBR) – 0.50%

Consumer Price Index (CPI): 1.80%

Retail Price Index (RPI): -1.4%

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%

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%

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.

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.

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

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.

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The Property Investor Report 2010

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Tags: august 2009, bank base rate, Bank of England, British Bankers Association, British Retail Consortium, consumer confidence, consumer credit, consumer price index, Financial Services Authority, Halifax, Hometrack, house prices, Housing analysts, Jobseekers' Allowance, july 2009, M4, mortgage finance, National House Building Council, NEET, new build homes, Prudential, Quantitative easing, rally of property prices, retail price index, Scottish Widows, september 2009, state pension, Taylor Wimpey
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