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Property Investor’s Factfile – October 2017 Commentary

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October 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, property asking prices dropped by 1.17% in September – representing the third fall in the previous four months.  Observing that some northern regions were still showing marginal signs of upwards price pressure, co-founder Miles Shipside repoted that: “estate agents are clearly advising many sellers that they have to lower their price expectations to fit in with buyers’ stretched financial resources, with that price compromise hopefully generating extra buyer interest”.  According to Rightmove, the drop has been “exacerbated” by London’s stagnating asking price values (which dropped by 2.92% between August and September);
  • The data was supported by Nationwide research that showed that London property prices have fallen 0.6% since September 2016. London was the weakest performing region in the UK for the first time since 2005. According to the research, outside of the Capital, the East Midlands saw the steepest year-on-year rise – where prices rose by 5.1% (followed by the South West by +4.8%, the West Midlands by +4.6%, Outer South East by +3.9%, East Anglia by +3.9%, the North West by +2.8%, Wales by +2.6%, Northern England by +2.5%, Northern Ireland by +2.4%, Outer Metropolitan / Greater London by +2.1%, Scotland by +1.9% and Yorkshire & the Humber by +0.4%);
  • Other regional-specific data by Hometrack’s Cities House Price Index reported solid year-on-year growth of 7.3% in Manchester, 6.7% in Birmingham, 6.6% in Edinburgh, 6.4% in Leicester, 6.2% in Nottingham, 5.9% in Southampton, 5.8% in Bournemouth and 5.6% in Glasgow.   The index also pointed out the Aberdeen has seen a 1.9% drop (between August 2016 and August 2017);
  • LSL/Acadata data reported a 0.5% drop in prices between July and August, whereas the Halifax house price index demonstrated a 1.38% rise in the same period.  Land Registry national data also pointed to a rise of 1.31% between June and July (note the 2-month time lag for these figures to appear in the public domain);
  • The London price drops reported by Rightmove and Nationwide have also been reflected by the Land Registry’s city-specific data, namely the City of Westminster (-1.15% between June and July) and the City of London (-4.27% between June and July).  However, Inner London [1] hand Outer London [2] prices grew by 0.52% and 0.90% respectively during the same period (indicating that there may be “pockets of value” in these areas);
  • According to UBS Wealth Management, London’s property market remains firmly in “bubble-risk territory” – coming marginally below Vancouver and Sydney:

UBS Wealth Management - Global Property Market - Housing Bubble League Table

  • Landlord bodies and even the charity Shelter have objected to Jeremy Corbyn’s proposals for rent caps, arguing that policy would exacerbate the UK’s housing crisis.  Alongside the restrictions on mortgage interest relief (Section 24), Prudential Regulation Authority (PRA) standards and the 3% Stamp Duty Land Tax (SDLT) surcharge, such proposals would certainly add more uncertainty and, some have argued, potentially fuel a black market.  Speaking to Radio 4’s Today programme, Polly Neate, chief executive of Shelter said: “what ends up happening is landlords will just sell because they can’t make any money.” David Cox, chief executive of ARLA Propertymark, said: “Landlords, agents, and successive Governments over the last 30 years have worked hard to improve the conditions of rented properties and this is like taking two steps backwards. Rent control is not the answer – to bring rent costs down we need a concerted house building effort to increase stock in line with ever-growing demand.”  RLA policy director David Smith also said: “The private rented sector is a key part of providing more housing and has invested in providing homes for the population, putting more homes into use than other landlord types. Rents are high due to the continued failures by successive governments of all stripes to build enough new homes in the right places. Instead of attacking landlords who are helping to provide homes, it would be better to treat them as part of the solution and to supplement their efforts with a sustained and well thought out building programme overseen by government;”
  • With inflation reaching 2.9% in August, despite questions around national productivity, the Bank of England continues to explore the possibility of an interest rate rise by the end of 2017.  According to Nationwide chief economist, Robert Gardner: “The impact of a small rise in interest rates on UK households is likely to be modest. This is partly because the proportion of borrowers directly impacted will be smaller than in the past. In recent years the vast majority of new mortgages have been extended on fixed interest rates. A 0.25% increase in rates is likely to have a modest impact on most borrowers who are on variable rates. For example, on the average mortgage, an increase of 0.25% would increase monthly payments by £15 to £665 (equivalent to £180 per year);”
  • With SWAP rates spiking after the September Monetary Policy Committee (MPC) meeting, a number of mainstream lenders have started to increase their rates.  However, these patterns have yet to be reflected in recent Special Purpose Vehicle (SPV) buy-to-let mortgage rates with Barclays BTL offering a 5-year fixed 2.79% pay rate with a £1,950 loan fee (with a higher rate of 3.19% without a fee).  The State Bank of India’s also continues its drive to expand into this space, offering a 5-year fixed SPV mortgage with a 2.99% pay rate and a £937 loan fee.  There are also some well-priced HMO products on the market.  For more information and to discuss your specific borrowing circumstances please get in touch with paul.lowcock@bespokefinance.info or direct on 01133 203240;
  • With revert rates reaching as high as 5.10% we strongly recommend investors make use of the PS Investors Stress testing section via our buy-to-let financial calculator bearing in mind that the rock bottom interest rate environment will not last forever.  The default rate on the spreadsheet is set at 5.5% with a rental coverage requirement of 145%, in line with Prudential Regulation Authority (PRA) criteria.  Officially speaking, Limited company buy-to-let lenders do not need to follow these rules;
  • 13,699 Help to Buy loans were granted in Q2 2017, which accounts for 40% of homes built over that period (34,250).  With another £10 billion injection, speculation that the programme was coming to end was quashed, adding a £1 billion to housebuilder valuations.  Market commentators and politicians continue to question Help to Buy’s inherently speculative nature and the inflationary effects on prices (the risks of which would be noticeably exacerbated in a downturn).

 

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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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