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Commentary on the June 2017 Property Investor´s Factfile

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June 2017 Property Investor´s Factfile

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

  • Nationwide reported average prices in the UK reaching £208,711, slowing down annual growth to 2.1 per cent – the lowest in four years.  Despite the national unemployment rate hitting a 42-year low in the quarter preceding March, Robert Gardner the building society´s chief economist pointed out that real incomes were under pressure due to inflation overtaking wage growth. Speaking to the Guardian, Gardner commented that there is further evidence “that the housing market is losing momentum” which “may be indicative of a wider slowdown in the household sector, though data continues to send mixed signals in this regard.”  Nationwide believes therefore that property prices will grow by 2% this year (resulting in an overall drop in real terms).  The Land Registry reported a price slowdown (of 0.76%) between February and March (taking into account the time lag for the data to appear in the public domain), as did the Halifax (of 0.55%) between March and April;
  • The Rightmove House Price Index reported the average value of property coming to market continued to grow at 1.16% between April and May – whether this spring surge in asking values will be reflected in actual sold prices (at the Land Registry) remains to be seen;
  • Rightmove data also indicated that London asking prices grew by 2.06% (between April and May). Comparing February with March, more cohesive Land Registry-indexed data pointed to a notable drop of 2.48% in the City of Westminster and a more subdued level of growth in the City of London of 0.93%. In spite of these negative patterns, according to a recent research paper by Savills entitled “Global Real Estate Capital: Ebbs & Flows” there has been a notable influx of Asian investors in search of trophy assets in these central London micro-markets – which are still perceived as safe havens for long-term capital.  Many of these investors will also be benefitting from a discounted Sterling value;
  • Other Land Registry data, between February and March, pointed to a 0.88% decline in Inner London [1] prices and a relatively slower growth of 0.32% in Outer London [2] values;
  • According to the latest Hometrack UK Cities Index, headline UK city house price inflation was running at 5.3% in April (down from 8.7% in the same month of 2016).  In the first quarter of 2017, the data pointed to average prices increasing by 3.2% with noteable growth recorded in larger cities such as Manchester (4%), Birmingham (3.8%) and Edinburgh (3.7%).  Leicester, Birmingham, Nottingham, Southampton, Bristol, Edinburgh, Bournemouth, Portsmouth, Leeds and Sheffield all saw solid year-on-year growth.  London prices, however, rose at their lowest rate for five years;
  • According to the latest latest Homelet report, average UK rents have marginally fallen for the first time in eight years by 0.3% (the last time an annual reduction occurred was in December 2009). Observing that only five of the twelve UK regions actually witnessed drops, interestingly, the average rental value in Greater London (£1,502) has reduced by 3.0% compared to the same period last year (£1,548) whereas the estimates in the East Midlands, North West and South West have grown by 3.3%, 2.2% and 2.1% respectively.  Data from Index of Private Housing Rental Prices figures (via the Office of National Statistics) can also be viewed on page three of the factfile;
  • Connells reported that buy-to-let’s share of property valuations carried out by the estate agency dropped to 7% in April, a decrease from the five-year April average of 13%.  According to John Bagshaw, corporate services director, the stamp duty surcharge on second homes and the phased erosion of mortgage interest relief are both contributory factors.  At the same time, however, Connells also reported that “valuations carried out for buy-to-let remortgaging surged, as landlords sought to take advantage of low interest rates and competitive mortgage deals to reduce their monthly payments.”  As an example, Platform, the Co-operative Bank’s brand for intermediaries, has recently reduced select fixed rate buy-to-let mortgage pay rates by as much as 0.25 percentage points (with two-year fixed buy-to-let mortgages from 1.34%, three-year fixed deals from 2.04% and a five year fixed rate from 2.34%).  Readers should, however, observe the stricter financing criteria imposed by the Prudential Regulation Authority (PRA) since January 2017 which will, by and large, require a higher equity input and undergoing other stress-testing criteria to secure these competitive rates;
  • More common for buy-to-let acquisitions moving forward, the factfile highlights a handful of the longer term Limited Company (SPV) buy-to-let mortgages (at the bottom of page 1). The Bank of India continues to offer some of the lowest rates in this segment of the marketplace (with five- year 2.99% tracker and 3.59% fixed pay rates based on a 75% loan to value). 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;
  • Data from L&C Mortgages has found that 1.4 million UK households are struggling to pay their mortgage and 2.6 million people think their monthly mortgage payments are too high (although ascertaining genuine sentiment from such a large sample size could be called into question).    David Hollingworth, associate director of communication, commented to the Mortgage Strategy portal that “we know that British households last year ran down their savings to a record low and that the cost of basics such as energy and the weekly shop are continuing to rise – so it’s no wonder that people are feeling the pressure when it comes to their monthly mortgage payments.  The problem is that although people feel they are struggling, they are not taking steps to manage their mortgage”. The data also revealed that 36% of homeowners are still on standard variable rates;
  • The Home Builders’ Federation recently called for an extension of the Help To Buy (HTB) scheme past its current 2021 cut-off date.  Lauding the scheme as a “phenomenal success” and estimating that 120,000 households have bought a new build home since April 2013 (80% being first time buyers), the organisation has requested for more certainty in order to assess land development opportunities.  However, it was also commented that the scheme itself may need to be “tweaked to ensure it has most impact on increased housing supply” as a result of criticism that people who are not necessarily in need have been benefitting.

 

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[1] 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.

[2] 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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