Posts Tagged ‘Hometrack’

Interview with a RICS Surveyor

February 10th, 2010
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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
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Posted in Business Management, Due Diligence, Tips for Property Investing, Viewing a Property | No Comments »

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

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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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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

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Hometrack Reports for Property Investors

October 21st, 2009
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PS Investor Services are very pleased to announce its partnership with the UK’s leading housing data specialist, Hometrack.   We are able to offer unlimited access to the reports at a very low cost of £25 per month (including VAT).  As a property investor using this service, you will be able to access a significant amount of information that is not available on the web. For more detail, a sample report and our FAQs please click on the following link :

Hometrack Reports for Property Investors (Unlimited Access)

Please also see an interview with National Sales Manager, Ben Squire, below:

How long has Hometrack been established for? Hometrack was set up in 1999…

How do you conduct your research? The national monthly housing market survey is based on a monthly survey of estate agents and surveyors across all postcode districts across England and Wales (e.g. SE5 and CB1 etc).  The survey was first published in mid 2000 and the results are based on the answers to a standard questionnaire of 11 questions which has been in place since the index was first created.  This approach to monitoring prices and other key market indicators is different to that employed by other published measures of house prices in that it tracks trends in areas where there are both strong and weak levels of market activity.

The questions are designed to capture a range of variables on local market conditions as well as the average price e.g. average time to sell, achieved price as % asking price, change in property listings, change in registered applicants, viewings per sale.  Hometrack look to obtain a minimum of two returns for each postcode district. In some areas they obtain many more than 2 returns.  The average monthly sample size is around 5,000-6,000 returns.

Who is responsible for the research and analysis you undertake as an organisation? Richard Donnell is Hometrack’s Director of Research and we also have an analyst who works alongside him.

Your ART Reports have a section that refers to ‘estate agents sentiments’ can you explain this a bit further? Each month we ask estate agents to comment on various market indicators. One of the questions we ask them is their sense of  how prices for each type of property are changing month on month. We then display this on a barometer which demonstrates the general sentiment of how local estate agents feel prices are changing in their area. As estate agents are working at the very front of the housing market we find it a useful way of gauging changes in the market as they happen

What other housing market activity signs can you point out? There are many different factors that affect the housing marker and these are always changing. Every month Hometrack release a summary from our House Price Survey along with analysis.  This is the best way to keep up to date with the UK housing market. This information can be seen by visiting:

How important is it to look at sold house pricing data  - such as from the Land Registry – as opposed to what estate agents are stating as values? When a prospective vendor initially looks into selling their property they will often look in the local newspaper and on the internet for an idea on what their property might be worth. However asking prices are often not a true reflection of what those properties are actually achieving when sold. In the Hometrack’s national house price we ask estate agents for data on the % of the asking price being achieved on sales. This figure can vary greatly from area to area based on the local market conditions. The variance from area to area can be as much as 10% which when looked at in monetary terms can be huge. If selling a property it’s essential to look at what similar properties are achieving rather than what the asking prices are. Hometrack’s house price data is updated every month and allows the public to keep track on both prices and market activity in their area.

Hometrack Reports for Property Investors (Unlimited Access)

For more information and to ask any further questions, please feel free to contact our head office at info@propertysolvers.co.uk or 0845-257-7549.

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