Abbey cuts deposits

At long last some rather more competitive deals are beginning to trickle into the mortgage market. Today (Friday) the UK’s second biggest lender, Abbey, owned by the Spanish Bank of Santander, is cutting the minimum deposit necessary for its best fixed-rate deals to 30 per cent from 40 per cent.

It means buyers will still have to find a hefty down payment – but slicing ten per cent off the required deposit can only be applauded.

Abbey is offering a two-year fixed rate at 3.65 per cent on deals worth 70 per cent of the value of a property. It will charge just under £1000 as the arrangement fee.

Given that the past months have seen nothing but a tightening of mortgages any loosening up will be seen as encouraging for the market and further evidence that the property market is slowly starting to pick up.

The Bank of England’s latest decision not to tamper further with interest rates – but to hold them at their historic low of 0.5 per cent - is being interpreted by many property professionals as a sign that rates will be kept low for at least another year, possibly two.
This view is compounded by the Bank’s view that recovery from the recession will be slow and protracted and will take longer to achieve than had been earlier predicted.

The Abbey cut is almost certain to trigger copy-cat moves by competitors which is good news for putative borrowers.

The property market, though, is still hampered by a reluctance on the part of sellers to bring their properties to market in the vain hope that increased stability will bring in its wake a rise in property prices. There is little evidence to support such hopes, and certainly not in the short term. In today’s property market cash remains king. And first-time buyers need either rich parents or friends to be able to stump up deposits.

A further brake is that even at 30 per cent the mortgage market is still a universe away from offering competitive pay-back rates and 10 per cent deposits, a combination which was commonplace when the market was buoyant.

When similar combinations are offered by lenders, who remain still largely timid and recalcitrant, and who are insisting that borrowers meet corset-tight lending criteria, that first-time buyers, who are vital to the market, will be able to get on the housing ladder.

Buy to let market still strong

The scarcity of properties being put up for sale is acting as a serious brake on the health of the housing market. Would-be-sellers are hanging on as long as they can in the hope that prices will begin to pick up.

The sentiment is understandable but given that demand is now strong they are probably making a mistake. If they dither for too long they could miss the boat.

The demand for buy to let properties is also increasing. Cash is still king. But for buy to let landlords who want a mortgage there are now a number of offers around which are beginning to look attractive.

Cheaper properties – and the sharp reduction in mortgage repayments – has caused a lot of investors to re-think their strategies. Buy-to-let is certainly a more seductive option than it seemed a few months ago. And if a reasonable mortgage can be found the yields are certainly better than in recent months.

The downside, of course, is that mortgage companies usually demand sizeable deposits, the putative landlord has to tie up his or capital for a lengthy period to see a sensible return, and there is also the expense of having to refurbish and maintain older properties.

Alternatively, if would-be landlords want to buy new-build – the cyclone which has hit developers has produced cheap flats in empty blocks. – they come with risks attached.
The price might appear juicy but starter-landlords could find they have invested in a block in which most flats stay empty for years. This creates a moribund feel, which over time becomes one of dereliction, with an inevitable collapse in rents and yields

The pitifully poor rates for savers – many banks are paying almost zero interest – savers are plumping to put their money into bricks and mortar. Some are helping offsprings purchase their first property – stumping up the chunky deposit many mortgage lenders now demand – while others are putting a first toe into the buy to let market.

The old adage that property always comes back remains true. It is a tangible asset in an unstable climate in which so many bankers and politicians who control the levers of the economy have been exposed as flaky and untrustworthy.

More good property news. Or is it?

More figures showing that the property market is improving. This time from the Halifax. But they have been followed by the customary gloomy forecasts of several economists who argue that the market is still too fragile to start making optimistic forecasts.

Over the past few weeks it’s become almost a game. A group of supposed experts will produce cheery figures and another group will shoot them down. So what’s going on? The truth is that nobody really knows. The property market has taken a Hellish beating and is still in a state of volatility and uncertainty.

A number of factors stand out. It is indisputable that there is a far greater interest being shown in buying property than has been the case for many months. House price falls have begun to level off. Sales are up – but only fractionally. Lenders are still nervous and their continuing intransigence is acting as a brake on the market.

The latest goodish figures come from the Halifax. They show that the rate at which house prices fell tailed off marginally in April. The average price for a property in the UK dropped to 1.7 per cent compared with 1.9 per cent for March.

These encouraging signs of stabilisation are due to the government printing money – quantitative easing – and filtering it into the market in the hope that the banks and other lenders will begin to lend it back into the property sector. It is also to do with the very sharp blade with which the Bank of England has hacked into interest rates, producing far cheaper mortgages for millions of people as a direct consequence.

But, and this is where it gets murky, any improvements are to do with a sense of confidence on the part of the consumer. And this is extremely difficult to gauge.

Nationwide sponsors a consumer confidence index. It showed that 19 per cent of people in March thought things were getting better. But their latest survey shows a jump to 26 per cent in April. That’s very good news.

But such surveys must not be judged as the Tablets from the Mount. Indeed, cynics and pessimists would argue that they add up to little more than a bag of piffle. But if they are to be believed – and after all, when it comes to it, there’s not much else to go on – each contributes, in its own small way, to an overall feel-good factor.

Services and retailing – the latter led by the John Lewis group who have announced expansion plans – have just turned in some good figures. When those reports are added to the tiny green shoots in the property sector even the most pessimistic of the seers might dare to think that perhaps the worst of the recession is over or is drawing to a close.

Few real deals for first-time buyers

Reports of an apparent race to attract first-time buyers by mortgage companies have been met with widespread scepticism by property professionals.

First timers with small deposits are still desperate to find mortgages which offer a competitive rate.

There have recently been a clutch of incentivised offers that have suddenly flooded on to the market, a number of which appear quite attractive.

But mortgage offers which address the central issue of small deposits and cheap rates are still exceedingly thin on the ground. The scarcity of such offers is one of the principal brakes on the well-being of the property sector.

As well as the limited choice of such offers banks are also insisting that borrowers have an impeccable credit record and are in ‘safe’ jobs. Such criteria can be difficult to reach. First-time buyers – generally young people – often do not have any sort of credit record on which their loan-suitability can be assessed. Only the most optimistic or ingenuous in any sector could describe their job as ‘safe’ in the UK’s depressed and highly volatile market in which something like 3,000 people a week are being thrown out of work.

First-time buyer mortgages shrank in January to 8,900, the lowest number since records began. Buyers had to save – on average – almost £31,000 in deposit compared to £12,000 before the Great Crash.

HSBC were the first off the block in trying to attract first-time buyers. They recently cut the price of a mortgage to 4.99 per cent for buyers with a ten per cent deposit. Now other lenders have begun to follow suit with a range of different incentives.

Abbey – owned by the Spanish conglomerate Santander – has reduced its five-year fixed rate deal for those with a ten per cent deposit to 6.89 per cent and cut its fee from £2500 to £1000. The Halifax will pay stamp duty for anyone buying for the first time. They recently announced a similar deal to pay a percentage of council tax.

The Co-op Bank – soon to join forces with the Britannia Building Society – has said it will allow first-timers to use the income of a relative or family friend to guarantee repayments.

One estate agent who wished to remain anonymous said: “ It’s all very well offering sweeties but an awful lot of first-timers still need rich parents to stump up deposits and to help with repayments if they are going to be able to buy a home.”

There has been a big increase in the interest buyers are showing in wanting to purchase property. But the demand is being stifled by the nervousness of banks and lenders.

Government must not wreck buy to let market

The announcement that the government is intending to bring in legislation which will hit landlords has been presented in a way which is both pernicious and inaccurate.

The government is suggesting that it wishes to tighten up on unscrupulous landlords who treat their tenants in a shoddy fashion. Few would disagree with such aims – though the broad-brush condemnation of landlords is unfair in the extreme.

Only a tiny minority of landlords would be foolish enough to behave in such a way given the torrent of legislation which already exists to protect tenants rights.

The real and unstated aim of the new legislation is to help the government to dig itself out of the financial black hole it has created by the bail out of the banks with public monies.

The Treasury and the Inland Revenue are under orders to claw back and to scavenge for every penny they can in a desperate bid to make up the massive short fall.

That’s the real reason the government’s beady eye has fallen on landlords and the buy-to-let market. It also has a cheap vote-catching appeal playing on 1960s fears and clichés about Rachman style-landlords.

The proposals have the same populist, greed and envy scent, as those which crack down on high earners (the new 50 per cent tax bracket ) and announcements that the Revenue is going after tax dodgers in havens like Switzerland, Monaco and the Cayman Isles. All very praiseworthy perhaps – why shouldn’t the vulgar rich be clobbered? – but in reality such moves will raise peanuts when judged against the enormity of the national debt.

The Inland Revenue knows that a number of landlords are not declaring all their takings and are being paid cash by their tenants. It’s well known that some of the worst offenders are in areas with high numbers of immigrants who are often working in the UK illegally.

It’s the oldest trick in the book to let a property to a person listed as the official tenant and then to cram the accommodation with many more people who are all paying in cash.

Sometimes tenants paying in cash work shifts and have to ‘hot-bed’ – using beds vacated by others on different shifts. Sometimes camp beds are crammed into rooms and the roof space in properties in which many people have to share a single kitchen and bathroom.

Such arrangements can be dangerous and unhealthy – especially in the era of swine flu and the like – and are open to abuse and exploitation by unscrupulous landlords. This type of practice is known to be prevalent in certain areas of London and in some provincial towns and cities such as Bradford, Leeds, Manchester and Rochdale.

But given the overall size of the letting market the level of abuse is still small. A healthy buy to let market is essential to the well-being of the UK, especially as the government’s property building programme has now fallen several universes behind its stated targets.

If buy to let landlords decide to pull out of the market – because of yet more government interference - the accommodation situation is going to become far worse.

If buy to let landlords don’t offer reasonable accommodation who will house the millions of people who cannot find – or do not wish – to buy a home? Certainly not the government and for one very simple reason. It’s skint. Bust. Bankrupt.

The government needs to encourage buy to let landlords. It must not frighten them off with a welter of punitive red tape and licensing costs. Already buy to let landlords have been seriously discouraged by seeing their capital investment – the worth of their properties – plummet when the property market went into freefall.

More government legislation would also increase the state bureaucracy – thousands of civil servants and pen-pushers and inspectors would be needed to enforce the proposed new legislation. This at the very time that the government is trying to curb public spending which the electorate knows is running out of control.

So any savings the government comes up with by cracking down on a few unscrupulous landlords would disappear on paying the wages of a new army of bureaucrats.

It should not be beyond the wit of government – utilising existing resources rather than adding to them – to finger the unscrupulous minority. Everybody knows who they are. Only the other day an inspector who surveys for Warm Front, the government’s scheme to insulate houses, said he had inspected a house in Peterborough where there were half a a dozen camp beds in every room. In another house he would not check the attic because junkies lived in the house and threw their discarded needles up into the loft.

Instead of jeopardising law-abiding buy to let landlords the government should be encouraging them with tax breaks and other incentives.

After all, with falling property prices, and the need to invest and to tie up capital in buying and maintaining property ( property is always a long-term investment) there are not that many reasons left for people to enter the sector.

Crack down on the unscrupulous by all means – but don’t use the same brush to tar and to imperil the whole letting market. That would be detrimental not just to the sector – but especially to the government and its responsibility to help accommodate its citizens.

If buy to let landlords are scared off it can only worsen the plight of first-time buyers. In spite of widespread criticism and the bail-out with billions of pounds of public money mortgage lenders continue to make impossible demands.

Lenders want big deposits, credit ratings which are almost impossible to fulfil, and costly repayments that most people cannot afford – or are frightened of committing to given the volatility of the UK economy in which 3,000 people a week are losing their jobs and where the unemployment total will undoubtedly exceed three million by 2010.