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Property sales still at historic low

September 30th, 2009

Yesterday reports were published on mortgage completions which fell very slightly from 52,404 in July 2009 to 52,317 in August 2009.  Commentators noted that this was the first monthly fall since November 2008, following which there had been steady monthly increases in mortgages completed. 

All well and good, but the facts are the number of completions are still at an historic low.  According to UK Government statistics there was an average of 136,000 completions per month during 2006 and 2007.  And since the late 1990s the normal level of completions has averaged over 100,000 per month. 

What this tells us is that we are still in a very abnormal property market, with mortgage completions at less than 50% of what is normal for this time of the year.  There are probably two main factors for this historically low level of mortgage completions:

1 – People do not want to buy right now.  Whilst this is difficult to determine without a large-scale survey, there may be some truth in this, whilst property prices may seem affordable to some, the worry of possible redundancy will clearly inhibit many from wanting to take on a new financial commitment.

2 – The banks simply are not lending to meet buyer demand.  There is plenty of anecdotal evidence of this, news articles are published almost daily about cases where applicants are denied mortgages.  With the high level of deposits required and increased “credit worthiness” requirements  it seems easier for the average person to run a marathon than it is to get a mortgage from a bank.

Whilst we could not find factual data to support our view it seems that the most significant factor preventing a recovery in the property market is the inability of banks to lend.

We found some other interesting data published by the Council of Mortgage Lenders (CML) which supports our views.  Each month the CML publishes figures on gross mortgage lending, in effect the total number of mortgages provided.  This is a better indicator to gauge banks performance in providing mortgages than the often published  “net lending”, as it is not distorted by the amount of debt repaid in any one month – gross lending = the total mortgages provided.

So what does the gross mortgage data tell us? Based on CML statistics gross mortgages advanced in the 2 years prior to the credit crunch were averaging £30 billion per month, but so far in 2009 mortgages are averaging just £11.8 billion per month. Perhaps even more surprisingly, for August 2009 gross mortgages totalled £12.6 billion compared with £19.9 billion in August 2008, that is over 36% down on the same month last year.

Overall there is some pretty compelling data that clearly shows the property market transactions and in particular bank lending is far below where it needs to be to support a healthy market … there are enough would-be property buyers, its just that they are finding is extraordinarily difficult to obtain a mortgage!

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Posted in UK House Prices

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Property prices, the confusion for buyers and sellers

September 29th, 2009

Whether you are a property buyer or a property seller it is confusing to hear the plethora of reports telling us what is happening to property prices.  Some of those publishing reports have a vested interest, for example those who represent banks and estate agencies.  To understand what is happening with property prices you need to be aware of some underlying factors to help interpret the reports published.

1 – The data set used.  Some examples are; the property valuations collated by new mortgage lending; the asking prices and agreed prices via estate agents; the land registry actual sold prices.  Each set of data will often provide a conflicting picture of what is happening with property prices.

2 – Timing of reports.  Data is often collated for the previous month, but in some cases it takes a longer period before historic data can be reported with any accuracy.  For example land registry updates after a purchase has completed, this can be weeks to many months.  Such delays make the accuracy of reporting on the “previous month” less accurate, it is only after a longer period has elapsed that more accurate reports can be produced.

3 – Sample size, e.g. how many sales are being completed.  With smaller volumes of transactions the accuracy of reports will reduce.  For example if 100 sales were completed across UK in September, then 200 in October, someone could report a 100% increase in house sales for October.  At the same time if the average sold price of the 100 properties in September was £150,000, then in October the average was £165,000, then someone could report prices had increased 10% in October!  These are clearly small numbers for the example, but they put the point across, until we reach a “normal” levels of sales activity the data will be less accurate.

To sum all of this up…

We will continue to see conflicting reports, some saying prices are increasing, others saying prices are falling.  The fact is that no one knows precisely what is happening with property prices.  Until market uncertainty reduces and banks provide a more “normal” level of lending there will continue to be a higher level of uncertainty about property prices. 

The best guess anyone can make is we are probably near the bottom of the market for residential properties, prices may fall a little further, especially in areas of the UK with poor local economies, but the worst is behind us.

If you are itnerested you can read more about what we think lies ahead for UK property prices in our blog here …. http://www.repaymortgage.co.uk/blog/2009/08/16/uk-house-price-predictions/

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Posted in UK House Prices

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Property repossessions falling

September 16th, 2009

At the depth of the property market crash in the early 1990s the number of repossessions peaked at over 70,000 per year, the good news for the current property market crash is that repossessions seems to be much less.

Data recently published by the FSA reported that the quarterly rate of repossessions is falling, the most recent figure was 13,610, a fall of 1,274 on the previous quarter.  Taking this on an annualised basis it would suggest that the total repossessions for 2009 are likely to be less than 60,000, well down on the 1990s property market crash.

The reported fall in repossessions is down to two key factors.  Firstly the banks and lenders have been under pressure to repossess as a last resort, to give every chance for the borrower to resolve their financial predicament.  Secondly, mortgage interest rates have been historically low, thus giving a lifeline to those who would otherwise have been unable to manage their payments at “normal” mortgage rates.

Overall this is great news, less repossessions means less disruption to the lives of families across the UK.  However going forward into 2010 and 2011 we probably still experience a significantly high number of repossessions, this is due to a combination of factors.  Firstly unemployment is rising and will peak in 2010, but due to the need for cutting public spending the rate of decline in unemployment is likely to be slow, thus making repossessions for many more likely.  Secondly the mortgage interest rates will start to rise from 2010 and gradually move back toward the “normal” rates where mortgage interest of 5% or 6% is typical.  For many the increase in mortgage rates will seem painful and difficult to manage after they have become used to the lower rates.

Our view of a protracted and significantly high number of repossessions over a number of years will have an impact on property prices, whilst these will increase over the next few years the gains are unlikely to be spectacular whilst many are still being repossessed.

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Posted in Stop Repossession, UK House Prices

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What people are saying in August 2009

August 19th, 2009

Reading through the press reports today it seems that we have more contradictory information on the UK property market, however we still stand by our summary published on 16 August … http://www.repaymortgage.co.uk/blog/2009/08/16/uk-house-price-predictions/

One of the leading estate agency companies released a report stating that property asking prices have fallen 2.2% in August 2009, with the comment that this is not a double dip in property prices as they saw a similar fall in August 2008.  Well we disagree, we think that asking prices are volatile in the thin market where the volume of sales is well below the average, we remain confident that we will see prices falls over the winter of 2009 / 2010. 

RICS are reporting that 10% of sales are failing due to difficulties in obtaining mortgages, and this is causing whole chains of buy-sale transactions to fail.  With no short-term improvement seen for finance availability it is likely that this type of problem will continue for some time to come.

Some experts are reporting (such as David Smith of Carter Jonas) that a slight increase in interest rates could have a significant impact on the property market as more homes are put up for sale by those who can no longer afford their mortgages.  We agree with this viewpoint and expect it to have a significant impact especially when combined with increasing unemployment.

On the positive side there are noises coming from Barratt suggesting they maybe about to launch a £500m rights issue.  We think this may suggest they are gearing up for future house building, possibly seeing a demand increase from the back end of 2010.

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Posted in UK Economy, UK House Prices

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House Price Forecasts

August 11th, 2009

It is becoming a topic of almost constant debate; Are we at the bottom of the market? Are prices now increasing? Will prices fall back again?

Yesterday a report was published by RICS, the Royal Institute of Chartered Surveyors. The report was generally positive but caution was noted. The view was that an increased number of RICS surveyors did see prices increasing, but, and there is a but, this was seen largely due to the shortage of property for sale. In effect the current price rises reported are to be taken with caution as this is not a normal market with both buyer and seller behaviour affected by the ongoing economic difficulties.

The Bank of England has also warned that the recession is not yet over, and that recovery could be protracted with slower growth over a number of years. Such comments do not indicate a boom in property prices any time soon.

At the end of July 2009 we also commented in our blog that caution needs to be exercised with regard to increasing property prices ( you can read our previous post on house prices here ).  The reports now coming from RICS support our previously published views, essentially we could see property prices ease back during the winter of 2009 / 2010, with a recovery later in 2010.

Our views are based on a number of factors:

  1. Unemployment will continue to rise in the first half of 2010, this will have a negative effect on property prices.
  2. Mortgage finance availability will continue to be challenging for much of 2009, this will have a negative impact on property prices.
  3. The shortage of properties for sale will have a positive impact on property prices in 2009, during the winter of 2009 / 2010 there will be less buyers (seasonal effect) and thus the positive impact on property prices will reduce.
  4. Population growth will create an increased demand producing a positive impact on property prices from 2011.

Of the 4 factors above the most uncertain is mortgage finance availability.  As soon as banks start to lend “normally” it will stabilise property prices, at least stop them from falling.  Overall the combination of these factors would suggest a recovery in property prices from the second half of 2010 with a sustained recovery in subsequent years.

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Posted in UK House Prices

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Outlook for property prices is bleak

July 17th, 2009

This was an assessment of UK property investment made by the IMF in its recent “health check” on the UK economy.

The IMF gave a warning that the UK has far too much debt, so much so that it is testing the market’s confidence in sterling.  Why is this is important for the UK?  Put simply if markets lose confidence the value of the UK currency will fall, driving up import prices and creating inflation.  The latter is of particular concern when the economy is weak.

The figures being quoted are almost mind blowing, the IMF are warning that UK debt could equal the GDP (Gross Domestic Product), which is around £1.5 trillion.  The bottom line message from the IMF is that the UK needs to tackle public spending, costs have to be reduced.

The IMF also warned of the risk of a Double Dip recession where following a short period of recovery in the UK economy we enter another period of recession.

Overall it is gloomy stuff from the IMF, but it does not mean this is where the UK economy is heading, its a bit like the doctor telling you to change your life-style habits to avoid future illness.  The key thing here is for the UK to take note and follow the doctors orders.

So lets end on a positive note.  It is hard to see that the UK government will not take the action needed to cut spending, so we can reasonably expect to the UK recover from recession and for the economy to start growing in a more sustainable way.  It will not be a return to the heady days of a few years ago, it will be a slower recovery over a pro-longed period, but a recovery it will be.

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Posted in UK Economy, UK House Prices

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Future house prices

July 15th, 2009

Today two very respected organisations published reports on the prospects for UK house prices.

Firstly RICS, the Royal Institute for Chartered Surveyors.  For those who do not know, when you get a mortgage on a property it needs to have a valuation by a surveyor who is a member of RICS, thus they have much knowledge on UK property prices.  RICS identified that the modest increases recently experienced have been primarily due to the lack of housing supply on the market, thus creating a shortage for the relatively few buying.  The bottom line form RICS was that they do not see a prospect of a sustained upturn in property prices until the availability of mortgages improves.

Then there was PwC, Price Waterhouse Coopers, a much respected consultancy company.  The PwC assessment of the UK property market was that they expected to see further falls in property prices in 2009 and 2010.  PwC also indicated that by 2020, even with subsequent growth in property prices, they may not reach 2008 levels, thus it could be well over 10 years for house prices to recover to their former peak.

The house4sale view is that PwC are being a little over-pessimistic, the detail of their analysis is not known, but whilst economic growth is challenging the UK population is growing at the rate of 1% p.a., this in itself would have an upward effect on house prices due to the current lack of supply.

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Posted in UK House Prices

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BCC – Recession is not over yet

July 7th, 2009

The British Chamber of Commerce (BCC) reported that it is “far too early” to forecast the end of the recession in the UK.  In particular BCC noted that unemployment was expected to reach around 3.2 million  by mid 2010.  Perhaps more worryingly the BCC commented that without more measures to minimise effects of the  recession  the UK economy could “drop off” … I guess by this they mean enter into a depression (a prolonged and deep recession).

The BCC is a highly respected group, and its report is based on a survey of 5,000 businesses in the 3 months to June 2009, thus it is certainly a report that should not be ignored.

So what should the Government do to alleviate the concerns about the UK economy?  There is no magic bullet here, but key is building business and consumer confidence, financial liquidity, and perhaps reducing the burden on businesses to help with employment – such as cancelling the NI tax increase scheduled for 2011.

As reported in other posts on house4sale, such feedback from business experts suggests that we are far from the point of recovery in house prices.  Since starting this blog a month ago, and taking account of all of the reports studied, it would seem that we are at least 12 months away before we see any sustainable recovery in property prices.

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Posted in UK Economy, UK House Prices

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Mayfair property & Monopoly

July 2nd, 2009

A report published in several leading newspapers today highlighted how the credit crunch has affected property prices in one of London’s most exclusive areas, Mayfair.

Many of us will know of the game Monopoly and be familiar with the huge rents you paid when “landing on Mayfair”, often enough to wipe you out of the game.  Well maybe things are about to change.

Mayfair had become the home of hedge fund managers, with their companies often making vast profits and paying out huge salaries, they could afford to pay high rents, and probably even helped to increase rents from their demand for prestigious properties. 

Now times have changed, some companies have closed, others relocating, and many fund managers no longer make the huge salaries and bonuses that had become the norm in recent years.  The upshot is rental demand has fallen, and of course this has fed into a huge drop in rents and property prices.  Mind you, for most of us Mayfair is still hugely expensive, but maybe it will get “relegated” in the game of Monopoly.

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Posted in UK House Prices

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UK economic outlook

June 30th, 2009

The UK Government Office of National Statistics (ONS) has reported the UK’s fastest rate of economic decline in over 50 years of reporting.  The statistics show the UK economy shrank by 2.4% in the first 3 months of 2009.  Perhaps more worryingly was the comment that these were far worse than expected by ONS who had previously forecasted a 1.9% decline.

Many are now starting to talk about a “double dip” recession, e.g. we will start to come out of recession later in 2009, then we will sink back into recession in 2010.  The double dip theory is based on the potential impact of high unemployment which is expected to reach over 3 million in 2010. 

No one seems yet to have reported on the regional effects of the projected 3 million unemployment in 2010, clearly there will be some parts of the UK worse hit than others, and no doubt it will be these areas that see the greatest negative impact on property prices.

For details of statistics published by the ONS please visit … http://www.statistics.gov.uk/hub/index.html

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Posted in UK Economy, UK House Prices

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