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Commentary on the July 2017 Property Investor´s Factfile

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July 2017 Property Investor´s Factfile

The Property Investor Blog´s monthly factfile presents a range of 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:

  • According to Rightmove asking prices for UK homes fell by 0.37% in June, the first price drop in the month since 2009. Director Miles Shipside attributed this to buyers´ confidence being “affected by inflation outstripping their pay packets” in addition to “current political events”. The figures were indeed based on properties advertised between May 14 and June 10 (therefore largely covering the weeks preceding the general election);
  • Data from the Halifax reported a 0.48% rise in prices between and April and May;
  • Whilst the latest Nationwide house price index reported growth of 1.24% betweeen May and June, the same data also indicated that annual house price growth in the London has slowed to 1.2% (reportedly the weakest growth in the Capital since 2012).  Land Registry data between March and April pointed to growth in the City of Westminster, Inner [1] and Outer [2] London at at 0.65%, 0.33% and 0.32% respectively.  Over the same period however, prices in the City of London fell by 7.05%.  It will be interesting to see if this palpable Central London drop will filter out into the rest of Greater London in the coming months;
  • Interestingly, the EG Residential Research register of all completed units (not just those officially for sale) also stated that 9,214 units remain unsold across London.  The data backs Savills research indicating that between 2013 and 2016 13,500 more homes were started than sold.  The general consensus is that many of the units of for sale are too expensive and fuelling a widening demand and supply mismatch.  58% of demand for London property is below the £45o per ft² mark – which accounts for only 15% of the five-year supply – whereas units at £1,000 per ft² and over account for nearly half of the overshoot;
  • The latest Hometrack Cities Index data also supported an annual slowdown in London property prices at 3.3%. Relatively sluggish year-on-year growth was also reported in Oxford (1.6%) and Cambridge (2.0%). Although arguably recovering from an extended post-recession period of stagnancy, Birmingham (growing at 7.7%) alongside Manchester, Nottingham and Leicester (all growing at 6.8%) continued to outshine the all of the Southern cities analysed (also suggesting that these regions are holding price growth up for the rest of the country);
  • Despite the post election and Brexit negotiation market jitters, former Bank of England MPC member David Miles commented that house prices are likely to stay at high levels and potentially keep on rising over the coming decades, as large economic and demographic trends show no sign of abating.  According to Miles, prices have continued to grow much faster than incomes since the 1970s and the gap is unlikely to narrow given the issues of ongoing population growth and the scarcity of housing.  In the 1970s, he believes, more people were commuting long distances into cities for work which had the effect of opening more land to use for housing.  As this process gradually disappeared, the amount of available land to build on decreased which, in turn, has driven up prices.  Readers interested on the topic of land supply´s relationship with house prices may be interested in listening to a recent panel discussion on Radio 4´s “The Bottom Line” (search for the title “Land – the mother of all monopolies” on iTunes or Stitcher);
  • The Council of Mortgage Lenders (CML), in association with researchers Neal Hudson (@resi_analyst) and Brian Green (@brickonomics), reported that the drop from 1.6 million home sales before recession to approximately 1.2 million today is due to the phenomenon of “missing movers” i.e.  mortgaged home-owners who are not able to move up the housing ladder.  According to the research (that can be read in full here), there are less mortgaged property owners (who tend to be older and therefore less likely to move).  Also, there are around 140,000 “missing moves” attributed to a drop in the rates of moving amongst homeowners with mortgages.  Three factors determine the moving rate among these groups: their desire to move, the availability of a home they want to buy and the availability of sufficient funds / equity. Of these three factors, the research suggests that the latter issue is typically holding back the mortgaged mover rate;
  • The CML also reported a “weak start” to 2017 for the buy-to-let lending sector. Total lending to the sector has been revised downwards to £35bn in 2017 (from a previously expected £38 billion). According to director general Paul Smee: “while falling mortgage interest rates have helped support borrowing, tax and prudential measures are exerting pressure on the buy-to-let market”;
  • Buy-to-let mortgage brokers and investors are being warned to prepare themselves for delays and “log jams” in lender services when new Prudential Regulation Authority (PRA) underwriting rules for portfolio landlords come into play from 30th September. Lenders are likely to demand detailed information on income (bank statements, payslips and other necessary documentation) as well as cashflow forecasts and business plans.  Where possible, borrowers are therefore being encouraged to secure financing during the summer months. It should be observed that such PRA underwriting criteria does not apply to buy-to-let borrowing through Special Purpose Vehicles (limited companies);
  • On this latter question, with the Mortgages for Business Limited Company Buy to Let Index reporting that over half the value of buy-to-let lending in Q2 was provided to limited companies, a number of interesting products are appearing in the marketplace including a 10-year LIBOR-linked 3.70% pay rate product from peer-to-peer lender Landbay and a 5-year fixed rate at 3.39% from Precise Mortgages.  Please note that specific rules and conditions will apply – for more information and to discuss your specific borrowing circumstances please get in touch with paul.lowcock@bespokefinance.info or direct on 01133 203240;
  • The West One Bridging Index reported that Q1 gross annual bridging lending increased to £4.2bn in April, attributed to a Post-Brexit sector recovery (after a noticeable decline in during the second half of 2016);
  • Figures published by the DCLG towards the end of June demonstrated that the Help to Buy Isa has now helped 960,000 people between 1st December 2015 and 31st March 2017. Some 62,528 property completions have been supported by the Isa, with the highest number (7,156) in March this year. In addition, 86,128 bonuses have been paid, with an average value of £625 and a total value of £54m. The mean value of a property purchased through the scheme is £170,464.

 

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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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December 2019

Property Investor Factfile
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National Landlords Association The Property Ombudsman Approved Code
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