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Commentary on March / April Property Investor´s Factfile

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March / April 2017 Property Investor´s Factfile

The Property Investor Blog´s monthly factfile aims to present relevant data including national / London house prices, the latest buy to let Limited Company (SPV) loan rates, LIBOR / SWAP rates, rental data, mortgage debt figures and information on the first-time buyer sector.  Some noteworthy observations from the last month are outlined below:

  • The Nationwide house price index reported a drop of 0.3% between February and March 2017, annual growth softening to 3.5% as well as “some convergence in regional price growth, with the gap between weakest and strongest performing regions narrowest since 1978.” Rightmove´s most recent national asking price index indicated a 1.27% rise in prices between February and March and (arguably more reliable) data from the Land Registry reported a 0.59% drop between December and January[1];
  • In Greater London, Westminster´s noteworthy property price growth of 2.52%[2] between November and December 2016 slowed to 0.23% in the following month (although lower sales volumes should be factored in when looking at this area specifically). As the City of London saw a 0.59% price dip between December and January 2017, Inner[3] and Outer London[4] prices continued to grow by 1.28% and 1.22% respectively. Hometrack, however, recently reported that Brexit uncertainty has been “driving down house price growth in the Capital, now at its lowest level since May 2013” – with price growth in cities like Manchester and Bristol outstripping London. Savills has also recently predicted that buyers are likely to be more cautious in London, given that buying a home in the capital is a bigger financial commitment than elsewhere in the country. Greater London investors / developers may be interested in an excellent price per square foot tool produced by @resi_analyst and @danc00ks0n (using Land Registry, Office of National Statistics, Department for Communities and Local Government, Royal Mail and Ordnance Survey data sources);
  • The majority of properties that are coming onto the market are existing homes and not new builds. As highlighted in a Royal Institute of Chartered Surveyors survey, low levels of home movers translates to few properties for sale – reflecting the supply/demand disequilibrium that has existed since late 2013. In turn, prices continue upwards especially in larger cities.  In London, for example, there is currently the lowest number of home movers for 25 years;
  • The role of “Help to Buy” as a means of sustainably boosting homeownership was called in to some disrepute at the start of April.  Research conducted for the government found that approximately 4,000 English households earning an annual salary of over £100,000 are accessing the equity loan scheme on an annual basis. The official figures up to December 2016 showed that over 20,000 households who have accessed the scheme are not first-time buyers and 57% of those who signed up said they would have been able to buy even without access to the scheme.  The government has allocated £8.6 billion for Help to Buy and the scheme will continue to run until 2021;
  • According to the Council of Mortgage Lenders (CML), the housing market has been building up momentum since the start of 2017 with transactions reaching the 100,000+ mark for the second month in a row and lending remaining fairly stable since April 2016 (averaging at just over £20 billion a month).  In the 12 months to January 2017, there were 340,200 first-time buyers in total, the highest level of any 12 month period since early 2008. Buy to let house purchases were reportedly down compared to March 2016 (however, it should be noted that this was a month that witnessed a noticeable spike in purchases as buyers sought to avoid the introduction of the Stamp Duty surcharge in April 2016);
  • The CML also recently observed that the increased levels of competition amongst lenders has been fuelled by both the Term Funding Scheme and the post-referendum interest rate cut. As home-mover purchases were also down, remortgage activity growth has been more than 20% year-on-year – a pattern that is expected to continue as homeowners continue to have access to competitive pay rates (in spite of weightier deposit requirements);
  • In response to the first phase of the Section 24 Finance Act 2015 legislation implemented from the new 2017/18 financial year, the number of Limited Company (SPV) acquisitions and transfers looks set to grow. Eager to get a foothold in the marketplace, the State Bank of India are offering 3 and 5-year tracker rates at 2.89% and 2.99% respectively based on a 75% loan to value ratio basis with loan fees of £937 (over £550 cheaper than most competitors).  Note that specific rules and conditions will apply – for more information and to discuss you specific borrowing circumstances please get in touch with paul.lowcock@bespokefinance.info or direct on 01133 203240;
  • UK LIBOR and SWAP rates steadily remain at historically low levels;
  • Index of Private Housing Rental Prices figures (via the Office of National Statistics) grew the strongest South East England followed by the East and West Midlands (at very similar rates);
  • Rents in England have continued to grow strongly; Welsh rental figures have been broadly flat since 2012, as has Scotland´s since late 2015 (after a relatively strong growth period in the preceding years);
  • From a wider perspective, despite the uncertainty surrounding the triggering of Article 50 of the Lisbon Treaty, unemployment has fallen to its lowest rate for 12 years.  However, average weekly earnings growth remains weak, with growth in wages dropping to 2.2% in January.  CPI-linked inflation reached 2.3% in February, exceeding the Bank of England´s target for the first time in over three years.  With real wages expected to stagnate for the remainder of the year and lower consumer spending levels (retail sales have contracted over three consecutive months to the last week of March), the Bank estimates that inflation should not move above 2.7% by early 2018. The Monetary Policy Committee also indicated that rising interest rates to counter inflation could result in higher unemployment and weaker income growth. Whether this will occur in the coming year (even by as little as 25 basis points) remains to be seen.

 

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[1] Land Registry property data typically has a 2 month time lag (the delay is owed to formal registration of sale).

[2] Readers may note that we reported a 2.90% increase in Westminster in the February / March Property Investor´s Factfile.  As advised by the Land Registry, there is a time lag of between 2 weeks and 2 months between the sale of a property and the subsequent registration on the register. As a result, UK House Price Index data for the two most recent months is subject to revision as more data is incorporated into the index.

[3] The Land Registry classifies Inner London as constituting the following boroughs: Camden, City of London, Hackney, Hammersmith & Fulham, Haringey, Islington, Kensington and Chelsea, Lambeth, Lewisham, Newham, Southwark, Tower Hamlets, Wandsworth and Westminster.

[4] Informally referred to as the “donut” areas of London: Barking & Dagenham, Barnet, Bexley, Brent, Bromley, Croydon, Ealing, Enfield, Greenwich, Harrow, Havering, Hillingdon, Hounslow, Kingston upon Thames, Merton, Redbridge, Richmond on Thames, Sutton and Waltham Forest.

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