U.K Housing Prices See Largest Annual Decline In A Decade

The U.K. has seen the largest annual reduction in housing prices in over a decade, with prices falling 3.8% since this time last year, and 2.4% since last month.

The Halifax stressed that this should be viewed in juxtaposition with the dramatic increases in the housing market over the past 6 years. Data put out by the Halifax has shown that, on average, houses in the UK went up by 79% between 2002 and 2005. This meant that the average house in Britain costs £88,000 more than it did in 2002.

According to a survey of economists conducted by the Dow Jones Newswires, there was an expectation that the housing market would see a steady decline this year, on average 1% from month to month, though the overall yearly expectation was a reduction of just 3.5%.

Chief economist for Halifax, Martin Ellis, said that home buyers have been put off in the last few years by the sky rocketing prices, which has subsequently seen prices start to come down again, though the current credit market turmoil and the reduction in spending power of consumers have also had a large effect.

The Organisation for Economic Co-operation and Development (OECD) has stated that the decline in the housing market is a mirror of broader economic issues within the UK. They went on say that the world is currently experiencing the most severe economic nosedive since the recession of the 1990s, and to warn of the danger faced by the UK in the coming months. The UK economy is singularly at risk of being among those hardest hit by the current economic situation, as the British government already has tax rates at a very low level, which means that they could not afford to reduce them at all. The OECD concluded by saying that the British could expect housing prices to reduce by as much as 10% this year, and that unemployment is going to reach levels not seen for the past ten years.

Chief economist at Global Insight, Howard Archer, has also given his opinion of the current decline, saying that the trends are concerning and that home loans are becoming more difficult to acquire due to home buyers being more financially strapped in general.

The bank of England is deliberating today, over whether to cut interest rates, which house builders have been strongly advocating, however concerns are now mounting over rising inflation which is likely to see the Bank put fears of a recession on the back burner, and leave interest rates as they are.

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http://www.fairinvestment.co.uk/mortgages-news-House-prices-fall-while-mortgage-lenders-attempt-to-stem-repossessions–1701.html
http://online.wsj.com/article/SB121265371457848059.html?mod=googlenews_wsj
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/05/bcnhalifax205.xml

NatWest provides help for first-time buyers

ermalink: NatWest provides help for first-time buyers

by Kay Murchie

A new savings account has been introduced by NatWest which is aimed at those saving a deposit to get onto the property ladder.

The First Home Saver Account offers a tax-free cashback of up to £5,000 upon completion of a NatWest mortgage.

The account can be opened with a minimum of £100 and under the terms, customers must make at least one regular monthly payment of at least £50 by standing order. However, additional deposits can be made whenever they want.

The final amount however depends on how much the customer has saved. This combination is equal to earning just under 20% AER on their savings, according to NatWest.

Customers must take their mortgage with NatWest and have the account open for at least 6 months.

A recent study by currency specialist, FC Exchange, has revealed that first-time buyers from the UK are increasingly considering investing abroad.

First-time buyers see the overseas property market as representing more opportunity for growth and better value for money, according to FC Exchange.

Cheltenham & Gloucester withdraws entire mortgage range

Permalink: Cheltenham & Gloucester withdraws entire mortgage range
by Kay Murchie

One of Britain’s biggest mortgage lenders, Cheltenham & Gloucester (C&G), has withdrawn its entire mortgage range.

C&G gave little notice and announced yesterday from close of business today, Monday May 19, we will be withdrawing and replacing our entire range of mortgage products.

C&G warned that when it does re-introduce its mortgage range, new deals will be more expensive.

Like many of its rivals, C&G has reduced its offerings and last week, withdrew a 5.89% buy-to-let mortgage and replaced it with a 6.29% 5-year fixed rate.

A recent report by Moneyfacts revealed that there are now 3,847 mortgage products available (including residential, sub-prime and buy to let), compared to 4,054 a month ago and 15,599 in July 2007.

Yesterday, however, internet bank first direct announced it will resume selling mortgages again to new customers and said it could now handle new applications.

On April 1, the bank withdrew all its mortgage products as it tried to clear a backlog of customer applications.

Commercial property could lose one third of value

Permalink: Commercial property could lose one third of value
by Lin Freestone

Several leading analysts in the commercial property industry agree that, by the end of 2008, commercial property will have lost 30% of its value. Prices have dropped by an estimated 20% at this stage in the year, and an additional 10% fall is a not unrealistic prediction.

Offices and shopping centres that have tenants on short-term leases are particularly susceptible to a decline in value, as they cannot provide a guaranteed income stream for the property’s owner for the next few years.

Companies are taking advantage of the current state of the market. Rom Capital, founded in 2001 to specialise in the acquisition and active asset management of property companies and portfolios, has established a £400m vulture fund to take advantage of low property prices.

Last week it bought Broadwalk Retail Park in Walsall, from the CB Richard Ellis pension fund, for £22.5m. This was a saving of £6.5m, or 22.4% on its initial sale price.

It is predicted that the continuing slide in values will not pick up until the fourth quarter of next year.

Land Securities, the UK’s biggest listed property group, announced last week that it was wiping £1.3bn off its real estate portfolio. This represented an 8.8% fall to £13.6bn. The group revealed a pre-tax loss of £888.8m, against a pre-tax profit of nearly £2bn last year.

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Demand for new homes slump

According to the Office for National Statistics (ONS), demand for private new-build residential property fell sharply during the first 3 months of the year.

When compared to the last quarter of 2007, demand for new homes was down 27%, and was down 36% when compared to the same period last year.

Furthermore, demand for new construction fell from 8.3 million in the last quarter of 2007 to 7.7 million during the first quarter of 2008.

The news follows announcements from several housebuilders who are suffering as a result of the fall in property prices.

Last week, housebuilder Persimmon announced it is to stop building on new sites until market conditions improve, which could result in tens of thousands of job losses.

Persimmon said sales in the first four months of 2008 had declined 24%.

Traditionally, April is the busiest time for housebuilders but Persimmon said that in the last 3 weeks it had experienced lower sales volumes and increased cancellation rates.

Furthermore, Taylor Wimpey, the UK’s largest housebuilder, warned that the fall in property prices is turning into a disaster for housebuilders.

Last week, Taylor Wimpey said it is being hit by a 26% collapse in business – a much sharper fall than estimated at its last market update six weeks ago.

Worldwide credit crunch will hit homeowners the hardest

Jim O’Neill, chief economist at Goldman Sachs, has warned that UK homeowners will suffer the most as Britain takes the biggest hit of the worldwide credit crisis.

Out of all the world’s economies, Britain is likely to be the worst affected. According to Mr O’Neill, the UK has a heavy reliance on financial services and was in the eye of the storm of a deleveraging world economy.

Mr O‘Neill, who is renowned for making far-sighted calls, warned that the ensuing slowdown will be passed on to homeowners.

The news comes as the Nationwide said that UK property prices are lower than they were a year ago.

Prices dropped by 1.1% in April, the sixth consecutive monthly fall, and were down 1% from the levels seen compared with April last year according to the Nationwide. The fall represented the first for over a decade.

Last year, Mr O’Neill predicted the collapse of the US property market which subsequently sparked the sub-prime mortgage crisis. Mr O’Neill said the UK mortgage market is effectively frozen.

He added that house prices are going to go through negative changes and it’s going to be a challenge for UK policymakers.

Goldman Sachs is forecasting that the UK economy will slow to an annual rate of growth of 1.8% this year and in 2009, down from 3% in 2007.

Mortgage approvals fall almost 50%

by Kay Murchie

According to figures from the British Bankers Association (BBA), there were just 35,417 new mortgages approved for house purchases last month – 18% lower compared with the previous month.

Compared to March 2007, approvals were down 46% – the lowest figure for over a decade.

The slump in mortgage lending by the UK’s biggest banks is a result of the credit squeeze and how banks are tightening their lending criteria as they find themselves restricted by the shortage of funds.

David Dooks of the BBA said the consequences of low banking sector liquidity show up clearly in March data – reduced product ranges and tighter criteria resulted in slower mortgage lending and significantly fewer loan approvals.

The BBA’s members make up approximately 70% of all mortgage lending in the UK.

The tightening in the credit crunch is continuing to take its toll on the residential property market, according to Simon Rubinsohn of the Royal Institution of Chartered Surveyors.

The Bank of England’s latest swap scheme with the banking sector should help provide a little more liquidity for lenders, but is not going to turnaround the current challenging environment overnight, added Mr Rubinsohn.

Banks are warning that mortgages won’t become cheaper and could get even more expensive over the next few months.

A senior City source warned for now, mortgage pricing will remain high. If anything, it will increase in the short term.

The City source blamed the ’stubbornly high’ cost of raising money in the money markets, which banks use to lend to customers.

Michael Coogan of the Council of Mortgage Lenders said in the short term the trend of increasing prices and products being removed from the market is not going to be reversed.

As and when the banks start lending to each other, the rate for lending will go down and that means that that will start to bring the price down but it is not going to be a dramatic reversal. It is going to be a slow process at best, concluded Mr Coogan.

Housebuilder Persimmon shuts new sites

by Kay Murchie

Housebuilder Persimmon has announced it is to stop building on new sites until market conditions improve, which could result in tens of thousands of job losses.

The country’s biggest housebuilder by market value and No.3 by homes built said sales in the first four months of 2008 had declined 24%.

Traditionally, April is the busiest time for house builders but Persimmon said that in the last 3 weeks it had experienced lower sales volumes and increased cancellation rates.

Chief executive, Mike Farley, blamed the fall on unprecedented conditions in the mortgage market and urged the Government to scrap stamp duty for purchases under £250,000 for all first-time buyers for at least a year.

Mr Farley added it is entirely possible the industry could build only 110,000 homes or less this year.

Shares in the housebuilder fell 6% following the news.

According to building industry sources, the Northern and Yorkshire regions had already experienced job losses.

Many contractors believe the downturn could be worse than the early 1990s slump. When half a million construction workers were laid off between 1989 and 1994.

Last month, the housebuilder said the numbers of visitors to its show homes this year is improving but converting those to sales ‘remained challenging’.

Last year, Persimmon completed 15,905 homes, down 4.8%, while average selling prices increased 1% £189,558.

In January 2006, Persimmon acquired UK housebuilder Westbury plc for a consideration of £643 million.

Property prices could now fall 30% warns fund manager…M&G Optimal Income fund

by Kay Murchie

Recent reports have suggested property prices in the UK could fall anywhere between 5% and 20%.

However, a leading fund manager has warned that house prices in the UK could crash by around 30% from their highest levels recorded last summer.

Richard Woolnough, who manages the M&G Optimal Income fund, said history suggests when the UK housing market crashes, it tends to fall about 25-30% from peak to trough in real terms.

But given that UK house prices increased around 270% from 1995 to the end of 2007, there is a risk that this crash could be worse, explained Mr Woolnough.

Mr Woolnough’s predictions echo those of the International Monetary Fund (IMF) who recently said UK property is overvalued by 30%.

In addition, figures from the British Bankers Association (BBA) show there were just 35,417 new mortgages approved for house purchases last month – 18% lower compared with the previous month.

Compared to March 2007, approvals were down 46% – the lowest figure for over a decade.

Mr Woolnough believes mortgage approvals are a reliable predictor of UK house prices six or seven months ahead and current data imply year-on-year falls of between 5-10% by early autumn.

A projection is likely to worsen, said Mr Woolnough, because the banks are becoming increasingly reluctant to lend, which means mortgage approvals, and therefore house prices, could fall much further.

Mr Woolnough believes the only solution is for the Bank of England to slash interest rates in order to encourage borrowing again, which will eventually revive the housing market.

Rental demand rises 33%

by Gill Montia

The first quarter of 2008 saw a sharp rise in demand for rental property outside London.

Letting agent, Hamptons International, reported a 33% increase in tenancies across all regions beyond the capital, on the back of a slowdown in the housing market.

Over three quarters of Hamptons’ tenancies are currently being renewed beyond their initial terms and new applications received have risen sharply.

In addition to the difficulties faced by potential first-time buyers in securing a mortgage, many are waiting in rental accommodation to see how far house prices will fall.

Their caution is being heightened by fears that the UK economy will enter a recession this year.

Latest property surveys indicate that confidence in the UK housing market is at an all time low and while Hamptons has reported that supply in the rental sector remained stable during the first three months of the year, stock is increasingly under pressure.

Fortunately, widespread predictions that amateur landlords would flee the buy-to-let sector in the face of falling house prices and increased mortgage interest rates have so far proved to be unfounded.

According to the agent’s data, the UK’s leading cities for landlords outside London (in terms of yields) are as follows: Brighton (4.32%), Hove (4.22%) and St Albans (4.02%).