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The Property Investor' Blog

Commentary on the September 2017 Property Investor´s Factfile

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September 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 the latest Rightmove house price index, UK house prices fell 0.9% month-on-month in August but remained up 3.1% on the year. Rightmove director and housing market analyst Miles Shipside commented: “A combination of traditional summertime price blues and the chill of uncertainty in the air has cooled price growth in some parts of the country.  Affordability also remains very stretched. But despite these factors, high demand and limited supply are still driving momentum, especially in the counties in the middle of the country;”
  • The Nationwide house price index also demonstrated slightly lower year-on-year growth in prices at 2.1%, down from 2.9% in July and below original forecasts. Prices fell by 0.1 per cent on the month, from a gain of 0.2 per cent in July.  Speaking to the FT, Nationwide chief economist Robert Gardner said: “the slowdown in house price growth to the 2-3% range in recent months from the 4-5% prevailing in 2016 is consistent with signs of cooling in the housing market and the wider economy.  It may be that mounting pressure on household finances is exerting a drag. Wages have been failing to keep up with the cost of living in recent months and consumer sentiment has weakened”;
  • Chief economic adviser to the EY Item Club Howard Archer also commented to the FT that “the fundamentals for housebuyers are likely to remain weak over the coming months, with consumers’ purchasing power continuing to be squeezed by inflation running higher than earnings growth.”  Using ONS figures, inflation steadied in July – at 2.6% higher than a year ago which should stave off pressures for any interest rates rises. The minutes of the August Monetary Policy Committee meeting showed that two members, Michael Saunders and Ian McCafferty, suggested a ‘modest’ rise in rates. Despite three members voting for a rate rise in June, Governor of the Bank of England Mark Carney has consistently been reluctant to initiate such a move.  Mr Archer also commented that the scope for price drops should be limited by the limited supply of properties currently on the open market;
  • Late August research from Oxford Economics warned that the UK should expect the sluggish house price growth until 2021. According to the report, house prices are “caught between a lack of traditional drivers of accelerating growth, but equally an absence of forces which have typically caused prices to fall”;
  • Across the Capital, Rightmove reported a 1.88% drop in asking prices between July and August.  Land Registry figures for the City of London indicated a continued drop of 8.97% between May and June (following a 4.13% drop in the month previous).  According to the Land Registry, between May and June Inner London [1] houses prices grew by 1.09% and Outer London [2] prices marginally fell by 0.01%;
  • Regional-specific data by Hometrack reported solid year-on-year growth of 8% in Birmingham, 7.1% in Manchester, 6.9% in Nottingham, 6.5% in Southampton, 6.2% in Leeds, 5.8% in Leicester and 5.7% in Portsmouth;
  • Figures by the Office of National Statistics (ONS) demonstrated that private rents across the UK rose on average by 0.1% in June and 0.2 per cent in July. This left the average rent 1.8% higher in July 2017 compared to the same month in 2016.  Growth in private rents has slowed during the past 18 months, which has predominantly been driven by a slowdown in rent inflation in London. Rents have grown most rapidly in the East Midlands, which experienced 2.8 per cent growth in the year to July.  However, it is worth noting that national lettings agent franchise Your Move reported an average rental increase of £75 since January across England and Wales;
  • With growing resistance against new purchases in the buy-to-let sector given the ongoing tax relief restrictions, stamp duty surcharge impacts and Prudential Regulation Authority (PRA) affordability criteria, lenders are already pointing to noticeable drops in applications. Nationwide’s buy-to-let arm, for instance, reported a 50% year-on-year decrease in volumes.  In response to such news, investors could be in a good position to take advantage of an increasingly competitive market.  For example, Foundation Home Loans has dropped its £500 processing and administration fee for limited company buy-to-let applications.  The lender only operates through brokers and targets non-vanilla clients.  For more information and to discuss your specific borrowing circumstances please get in touch with paul.lowcock@bespokefinance.info or direct on 01133 203240;
  • Nonetheless, even after revising its forecast, the Council of Mortgage Lenders (now integrated into a new trade association UK Finance) still expects to £35 billion’s worth of buy-to-let lending in 2017 and £33 billion in 2018;
  • A six-month study into Help to Buy by Stockdale Securities analyst and Property Week columnist Alastair Stewart found that Help to Buy has inflated prices, failed to deliver new homes where they are most needed and could push buyers into negative equity if the housing market slumps. The scheme represents 50% of sales at Persimmon and over 40% of sales at Galliford Try, Redrow and Taylor Wimpey. The government has recently appointed the London School of Economics (LSE) to review the scheme which Stewart believes may now be “in play”.  He also commented that “Help to Buy prices paid by the main target group, first-time buyers (FTBs), have risen even faster than Help to Buy prices paid by non-FTBs” and also expressed concern that “an unintended political risk is that FTBs, particularly in the North, face effective negative equity and potentially insurmountable hurdles.”

 

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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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