Budget bad for property

The shortage of housing is now so severe in Britain – with 70,000 homes being built rather than the 240,000 target – it could trigger another major price boom in a year or two. The shortage is also certain to fire up demand for rental properties.

If the housing market is one of the great propellants of the British economy it was given insufficient and inappropriate fuel in the Budget yesterday.

There was hardly anything in it to encourage first-time buyers. Until first-timers return to the market the private property sector will remain in the doldrums.

The extension of the so-called stamp duty holiday – it’s going to be re-introduced at the start of next year – was met with widespread derision and condemned as tokenism.

It’s likely to benefit only homeowners in areas outside London and the south east where most homes already cost more than the £175,000 cut off. Anybody trying to buy property above that figure will still face the full cost of stamp duty.

It’s estimated that only 3,500 first-time buyers will be helped by the extra £80 million which the Chancellor pledged to the HomeBuy Direct shared equity scheme.

Over 4.5 million people are on waiting lists for council homes. The figure is certain to rise to 5 million as more homes are repossessed.

Housing groups wanted at least £6bn to build 100,000 low cost homes in the next two years. But there was no sign of any type of comprehensive building strategy. Smaller amounts – such as the £100m being earmarked for councils to build 900 homes on town hall land for social housing to rent – were described as piecemeal to paltry.

With the target of building 240,000 new homes a year being missed by a spectacular mile there will be an increase in the demand for rented property. Logic demands that the inevitable consequence of this will be seen in rising rents.

Landlords had been hoping for tax breaks or concessions to encourage them to stay in the market and to expand their portfolios. But there was no mention of any such scheme.

If buy-to-let landlords bail-out because rental returns hardly cover their mortgages – and capital appreciation is negligible – then the problem of providing sufficient accommodation for growing numbers of people will be exacerbated.

It was also a major disappointment to property professionals that nothing was being done to coerce lenders into offering a wider range of competitive mortgages at affordable rates, without vast deposits and free of impossibly harsh lending conditions.

Government backed mortgages possible

Alistair Darling’s plan to underwrite mortgages could give an important fillip to the property market – he’s hoping to inject £50bn into the scheme – but there are serious concerns that he is being wildly over-optimistic in his forecasts.

All should be revealed on Wednesday when he presents his pre-Budget Report – which in reality is effectively a second budget. It’s been widely reported that he will predict growth of 1 per cent next year. But critics claim it’s a nonsensical figure given that growth will have crashed by around 3.5 per cent this year.

He has to severely prune public spending – cut backs in the NHS and in education are being mooted – but his critics will be waiting to see if has any plans to curb public sector employment which continues to grow.

So-called Town Hall fat cats, gold-plated pensions for state workers, and high-level tax cheats evading their dues by using complicated accountancy ploys are an increasing embarrassment.

Plans to make £15 bn worth of ‘efficiency savings’ have already been announced.

The property market needs to be given a major boost with many first-time buyers being locked out of the market and a million householders in or close to negative equity.

In the past Gordon Brown – when he was Chancellor – targeted pensions. It caused uproar at the time and has had repercussions ever since. Given the scale of the deficit now facing the government pensions could again be in the frame. Higher rate tax relief on pension contributions could be scrapped in a move which would raise up to £7bn.

Falling prices spell negative equity

The Council of Mortgage Lenders has reported that almost a million people are now in negative equity because of the sharp fall in property prices.

Thirteen per cent of people who took out a mortgage between April 2005 and the end of 2008 are now in negative equity.

It’s estimated that a quarter of a million borrowers have a shortfall of nearly £20,000. About three in four have an average shortfall of between £6000 and £8000. Approximately 13,000 mortgagees are in negative equity by £37,000.

About 150,000 mortgagees in the South East owe more on their property than it is worth. This represents about 5.2 per cent of all households in the area. In the North the situation is worse with 70,000 homes worth less than the figure they were valued at when the mortgages were granted – which accounts for 9 per cent of households in the region.

Another 1.1 million borrowers have seen the equity stake in their home collapse to less than 10 per cent. Having only a small degree of equity in ones home makes it difficult to get a competitive fixed rate deal when their existing home loan comes to an end.

House prices have fallen by nearly 20 per cent since the market peaked two years ago.

Bad though they are the negative equity figures are still less than in the early 1990s property crash when there were more than 1.5 million householders in negative equity.
Recent figures predicting that 5 million people will move into negative equity were dismissed as alarmist by the Council of Mortgage Lenders.

Barclays shove mortgage costs up

There is still a mortgage famine – and despite the billions of pounds of public money being pumped into the banks – one of the leading lenders is going to increase the cost of fixed-rate mortgages.

Barclays is pulling its 3.99% four year fixed rate deal which was on offer to borrowers with a 40% deposit. The offer was a market leader.

It also going to raise the cost of its three and four-year fixed rate mortgages by up to 0.4 percentage points.

The move by Barclays is likely to trigger similar moves by other lenders.

The Barclays price hike comes in the face of massive public and political criticism. The government has pumped in millions of pounds worth of taxpayers money to save the banks from collapse and the government has implored banks to start offering a wider range of competitively priced mortgages without demanding a massive deposit.

The rise comes despite the Bank of England leaving rates untouched earlier this month after a series of swingeing cuts which have left interest rates at an historic all-time low of just 0.5 per cent. It also comes at a time when banks such as Goldman Sachs have said they will persist with massive 33 per cent salary hikes – despite the public’s outrage over bankers greed and the bonus culture.

Woolwich – the mortgage limb of Barclays – says it is having to raise rates because of the rising cost of longer-term wholesale borrowing with which it funds mortgage lending.

Other mortgage providers are thought likely to follow the Barclays/Woolwich move and brokers are predicting a rush of people trying to secure longer-term fixed rate mortgages before anymore rises take place.

The lack of appropriate mortgages in the market is acting as a major brake on the property market.

Latest figures show that there has been a four-fold increase in the number of good – or credit-worthy borrowers – being turned down by lenders. Nearly nine per cent of applications have been rejected by lenders – compare with 2.3 per cent in 2007.

Mortgage misery continues

Despite having billions of pounds of taxpayers’ money pumped in by the government banks are still being highly recalcitrant in offering mortgages to anybody who does not have a flawless credit-record and who can stump up a hefty deposit.

One estate agent in west London said he recently had a professional couple who were both earning over £100,000 a year in secure jobs but lenders had turned them down on a house valued at £650,000 because they could not raise a 40 per cent deposit of £260,000.

“ It’s an absolute scandal,” said the estate agent, who did not want to be named. “ Even trying to get a 10 per cent deposit at anything like an affordable rate of interest is proving almost impossible as there are so few lenders in the market offering sensible deals.”

Another big problem is that very few properties are being put up for sale. An estate agent in Hampshire said: “ People are hanging on trying to get a better price. They are living in cloud-cuckoo land if they think prices are going to rocket in a short space of time.

“ The market is definately getting better. But it will take a while. There is a great upsurge in interest. People want to buy. But with mortgages thin on the ground and so few properties for sale the market still has a way to go. The banks and lenders have got to start living up to their side of the bargain. They’ve been saved from bankruptcy with public money and it’s now high time they started showing a little appreciation.”

HSBC fires 10% mortgage salvo

At long last there’s some seriously good news for people trying to hunt down a competitively priced mortgage.

It is especially heartening news for first time buyers and for those who can only raise a 10 per cent deposit.

Property experts are wondering if HSBC’s move will now trigger a lending war.

It is – perhaps – one of the first fruits to come out of the Bank of England’s high-risk strategy of continually slashing bank rates. Today the BoE held bank rate at its record low of 0.5 per cent.

HSBC has cut hard into loan rates for those buyers who can raise only a small deposit. To date this has been one of the biggest brakes on the housing market.

It could bring back into the property sector the first-time buyers. Their re-entry could be the spark which lights up the property sector.

HSBC is offering a tracker deal at 4.59 per cent for those with a 10 per cent deposit. It is also offering a fixed-rate deal for two years at 4.99 per cent for a 10 per cent deposit.

The two-year fixed deal has a £1499 arrangement fee but both deals are considerably cheaper and more competitive than those offered by rivals.

There is a catch. Anybody who signs up to one of the HSBC deals must also sign up for one of its new fee-paying current accounts costing £12.95 every month.

But even when this is included repayments on an average size loan seriously undercut any of the offerings from rival lenders.

The monthly repayments on a typical £150,000 mortgage work out at £854 for the 4.59 per cent tracker with a 10 per cent deposit.

Monthly repayments on the 4.99 per cent two-year fixed deal work out at £889. Tha include the current account fee that is necessary.

The move by HSBC could trigger a cut-price mortgage war but lenders will be wary not to let it get out of control – a root cause of the present recession.

Best mortgages beyond reach of first-time buyers

A Bank of England survey shows that building societies and banks are expected to lend more money to would-be homebuyers – and to businesses – over the next three months.

This is more encouraging news for the property sector which has shown distinct signs recently of beginning to perk up.

But there is still a sizeable downside to the more positive news. It is likely that lenders will be tightening – not easing – their lending criteria over the coming quarter. This, plus a dearth of competitive deals which are available to the majority of putative buyers is still acting as a brake on the property sector.

Homebuyers who cannot rake together a chunky 40 per cent deposit are still excluded from the most competitive mortgage deals – and people who can only muster 10 per cent of the purchase price or less will have to pay high rates of 6 per cent or more.

These factors, plus a shortage of properties coming to market for sale, are impeding the recovery of the property sector.

One of the UK’s major lenders, HSBC – the biggest bank in Europe – has said that it’s going to ease its criteria for lending from today.

Until now only buyers with a 40 per cent deposit would have been eligible for a competitive 2.95 per cent tracker deal. But from today it’s lowering the required deposit to 25 per cent.

This is clearly good news for property buyers – but it still rules out a huge swathe of first-time buyers who simply cannot raise a quarter of the asking price of a property.

A slight rise in property prices has been recently reported – and a surge in interest from would-be buyers.

In parts of London it is reported that boom conditions are beginning to reveal themselves with some agents talking about gazumping and interest from buyers being so intense in a number of isolated incidents that sealed bids are once again in evidence.

The most common complaint from estate agents remains, however, that competitive 10 per cent mortgages are virtually non-existent and there are too few properties to sell.

Rental demand increases

There is now little doubt that encouraging signs are cropping up all over the property sector. The rental sector is beginning to look especially encouraging.

Recently there have been a surplus of properties to rent. But the demand for rental properties is increasing rapidly. There are a number of reasons for this.

One is that repossessions are rising so the pressure on social housing is increasing. There is not enough social housing so rented properties are coming into play. A massive 67,000 repossessions are predicted for this year.

Another factor is that first time buyers still cannot get on the property ladder because they have insufficient monies for the chunky deposits demanded by the majority of lenders.

Again, frustrated buyers are choosing to rent while they save for a big enough deposit to buy their first home.

Life could get even tougher if 100 per cent mortgages are definitely going to be banned by the Financial Services Agency and if mortgages are going to be restricted – as in the distant past – to three times a borrower’s income.

Grainger, which is the UK’s largest residential landlord with a portfolio of 14,000 tenanted properties, will be letting a third of its new flats on the Hornsey Road, in north London, with rents starting at about £220 a week.

Developers are choosing to let their properties rather than selling them – for some of them, of course, it is a last resort – but for the first time in more than two years landlords are buying more homes than they are selling.

A number of surveys have suggested that in ten years time one in five homes in the UK will need to be in the rental sector to meet demand.

It is likely that housing patterns are shifting in the UK. House ownership in Britain was falling even before the Great Crash, partly, a tendency quickened by the sudden boom in prices which caused the lower end of the market – that for first-time buyers – to stall.

But the UK still has the second highest percentage of owner occupied properties in Europe at almost 69 per cent. Spain is the highest, with 82 per cent. Germany has only 43 per cent.

In Germany – when people first buy they are likely to be aged in their forties. One reason is that German property is very expensive.

But in Britain it is still seen as the norm for twenty-somethings to get on the property ladder, something which will become rarer in the UK over the coming years.

It is widely predicted that now, in the UK, with the demand for big deposits, restrictions on the amounts of money which will be lent, and deep-seated fears about job security – 3000 people a week in Britain are still losing their jobs – the age at which the average British person will get on to the property ladder will rise to between thirty and forty.

If the British rental market begins to mirror the German market, for instance, there could be some seismic changes in the relationship between landlords and tenants.

In Germany the majority of landlords are small operators with small portfolios. As an incentive they are given tax breaks by the government to encourage them as buy to let landlords. It is something which any UK administration would be wise to consider, although given the parlous state of the economy any tax giveaways would seem unlikely.
Germany also allows tenants to negotiate lower rents the longer they stay in a property.

Property Prices Up

Experts were predicting today that some small encouraging signs in the property market could herald a more durable recovery.

On the day it was revealed that house prices rose in March for the first time since October – by 0.9%- comes news that householders have been paying off their mortgages at a record rate.

Mortgagees reduced their debt by £8bn between October and December of last year. This was the third consecutive quarter that repayments have outstripped equity withdrawals.

Much of it is because interest rates have plummeted – giving millions of people much cheaper mortgage repayments.

The big amounts that householders are choosing to pay back on their mortgagees reflects widespread uncertainty in the jobs market and abysmal rates offered to savers by banks.

Many people think it’s more prudent to reduce their mortgage commitment than to splash out on spending – or to save the monies from reduced mortgage costs in a bank account.

The news that house prices have had a slight bounce – as reported by the Nationwide building society – does not mean that the market has turned.

But it is good news coming on top of reports from the Royal Institute of Chartered Surveyors saying that there is a marked rise in interest from putative property buyers.

The total number of mortgages approved by lenders rose from 32,000 in January to 38,000 now. The average price of a house in the UK is £150,946.