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House prices tick up after falls

Nationwide’s monthly housing market index has reported a small uptick in annual property price growth.

Published today (27 April), the index showed annual house price growth rose to 2.6 per cent in April, from 2.1 per cent in March.

House prices also rose by 0.2 per cent over the month, after taking account of seasonal factors.

Robert Gardner, chief economist at Nationwide, said this comes after February saw a softening in house purchase approvals to 64,000 cases, following a surprise rise in January.

He added: “These figures are broadly in line with our expectations and close to the average for the last three months of 2017.

“Surveyors continue to report subdued levels of new buyer enquiries and recent months have also seen a softening in new instructions.”

He said the share of cash transactions has declined a little over the past eighteen months. This is partly due to the introduction of the additional stamp duty levy on second properties, which has impacted the purchase of second homes and rental properties, a large proportion of which tend to be conducted in cash.

He added cash buyers continue to play an important role in the housing market, accounting for around a third of transactions.

The report added that house prices are set to rise by around 1 per cent over the course of 2018.

Jonathan Samuels, chief executive of the property lender Octane Capital, said the 0.2 per cent  rise in April negates March’s drop and neatly symbolises a market that lacks momentum.

He added:  “While the annual rate of growth has nudged up slightly, it’s unlikely to break out of the very low single digit bracket in 2018.

“At the same time, low stock levels and continued cheap borrowing rates mean that while the market is cooling in parts of the country, above all the capital, prices will not collapse.

“While inflation has fallen and a rate rise next month is no longer the dead cert many had it down as, households still feel squeezed and transaction levels remain low.

“The high inflation and low wage growth we’ve endured will take time to work itself out of the system.”

Commenting on the results, Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “The small increase in house price growth is probably more to do with a lack of supply rather than a burst of springtime activity.

“Nevertheless, a rise is more welcome than a fall and in line with other recent statistics shows that the market is continuing to follow a slow upward path, albeit without any fireworks.”

Nicholas Finn, executive director of Garrington Property Finders, said after making a brittle start to the year, the property market is settling back into a period of cautious normality.

He added: “Last year’s snap election cheated the market of its traditional post-Easter boost, but this Spring we’ve seen an injection of new stock and an uptick in buyer interest.

“Of course the number of homes for sale remains at a desperately low level, but crucially the market has become free-flowing again.”

Source: FT Adviser

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Have mortgage reforms saved the UK property market from a slump?

While it seems almost inevitable that UK house prices will fall in the short to medium term so far the annual performance has remained positive. When you consider the issues facing the UK property market, and UK economy as a whole, how has the market remained relatively strong?

MORTGAGE REFORMS

When the UK government introduced an array of mortgage reforms, with the intention of maintaining long-term security, many suggested the new regulations would impact demand for UK property. Politicians fought amongst each other, investors grew concerned about the availability of finance and there were few people who had anything good to say about the reforms. However, if we look at the UK property market today could it be that the reforms have helped to avoid a slump?

OVEREXTENDING FINANCES

Tighter regulations effectively ended the 100% mortgage which was for some time a dark cloud hanging over the UK property market in the aftermath of the 2007/8 US mortgage crisis. It soon became obvious that many investors had over extended their finances, the reduction in property prices would push them into negative equity and many would either default on their mortgage or sell their property to crystallise a loss. This raft of forced sales placed pressure on the UK property market, at a time when investment markets were under pressure, leading to the inevitable.

HEADROOM

It is obvious that the tighter regulations, reducing the level of borrowings made available to purchase property, while also increasing minimum deposits, created headroom. This headroom effectively ensures that any short-term movement in property prices can be absorbed (at least to a certain degree) thereby reducing the number of forced sales and number of investors that were slipping into negative equity. As long-term investors in the UK property market began to appreciate there would be limited distressed sales they have begun to take advantage of the ongoing “correction”.

IMMIGRATION

As the UK population continues to grow, via net births and net immigration, this will continue to increase demand for housing. Many people fail to appreciate that while the UK will be leaving the European Union this will not end immigrants from Europe moving to the UK. They will simply need to adhere to current non-European immigration procedures and have as much chance as anybody of securing a move. It is also worth noting interest from the Commonwealth with regards to trade with the UK and despite recent immigration scandals many Commonwealth residents are still interested in moving to the UK.

HOUSING STOCK

It was interesting to see that the vast majority of UK housebuilders have been reporting broadly positive results with an encouraging view of the UK housing market in the short to medium term. The fact that the UK is unlikely to hit new home numbers required to fulfil existing demand means there will always be a shortfall. To a certain extent this shortfall will add a degree of support to current house prices.

It would be foolish to suggest there is no potential for further downside in the short to medium term but the “expected” crash in UK property prices is unlikely to emerge as a direct consequence of Brexit. It is also fair to say that mortgage reforms have helped to support the UK housing market – now who expected that?

Source: Property Forum

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Land designated for nearly 100 properties in Largs Glen

LAND has been designated for nearly 100 properties in Largs Glen near Noddleburn Meadow – despite flooding concerns raised by two councillors.

The council has earmarked space for 95 houses at the furthest end of Largs Glen beyond the as-yet unbuilt, Phase II at Noddsdale Meadow.

Local elected members are divided on the issue, with SNP councillor Alan Hillopposing the allocation of the new site and Conservative councillor Tom Marshallspeaking up in favour of it.

Cllr Hill said: “I am concerned about the possibility of flooding in this area.

“We have had serious flooding from Noddsdale Water in the past.

“A flooding study is still to report however given ongoing climate change issues I am just not convinced that we should be building in this particular area at the moment.

“There is adequate housing land available in Largs at the moment, including 122 homes on the site of the former Largs Academy and Kelburn Primary, new housing in Nelson Street and on Greenock Road.

“Noddsdale Meadow Phase II has outline consent to go ahead when and if the flooding issues have been addressed.

“Apart from those sites I have mentioned there is also housing land available on the St Mary’s School site and further up the hill at the site of Brisbane Primary.

“This is a 10 year plan and it will take that time to develop the sites that I have mentioned without bringing into play a new site opposite Kilburn Water at the farthest end of Brisbane Glen Road.”

Housing was proposed for Noddsdale Meadow Phase II at the time of the last Local Plan.

This was removed due to flooding fears following a request from Councillor Hill but subsequently reinstated at appeal.

This site has the potential for 80 houses and can already be developed, subject to resolution of flooding issues.

Cllr Hill said: “Noddsdale Phase II was strongly resisted by residents of Largs Glen back at the time of the proposed 2014 Plan.

“We provided sufficient evidence to councillors to have this area removed from the Local Plan at that stage.

“It was disappointing therefore that local elected members did not manage to stick together on this occasion.

“I saw no reason to agree to these additional 95 houses until after we were satisfied that all flooding issues had been addressed successfully.

“We should have continued with the same policy in my opinion.”

Speaking at the Largs Community Council meeting, Cllr Marshall explained the reasoning behind the extra housing, pointing out that the population is dropping as a whole across North Ayrshire.

He said: “NAC have been looking for ten development sites for housing right across the district. They have agreement for ten developers to build housing over the next ten years. “The thinking behind is it to help build the economy in Ayrshire by bringing in more people, and there are also a couple of housing developments in West Kilbride.”

Source: Largs and Millport News

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The property sectors largely immune to Brexit

Conventional wisdom suggests property investors should avoid the UK due to the uncertainties surrounding Brexit.

Many market participants have issued grim outlooks on the prospects for UK property, particularly as growth has stuttered since the EU referendum almost two years ago.

However, this negativity is excessive. With interest rates still hovering at very low levels, there remains an abundance of investable capital seeking yield-generating assets.

The lower level of sterling since the EU referendum is also another positive for global investors.

The Cohen & Steers SICAV Global Real Estate Securities fund is currently overweight the UK, focusing on areas relatively insulated from the direction of the UK economy.

Importantly, the general scepticism surrounding the future direction of the UK economy has created opportunities in some segments of the market.

While the positive outlook is not widespread, a number of areas within the UK property market can continue to flourish throughout the Brexit negotiations and beyond.

Exporting education

One of the UK’s most valuable exports is higher education.

International higher education students contribute 10 times more to the UK economy than the hosting costs, with this contribution totalling in excess of £22bn in 2015-16.

We expect sterling to be structurally weaker following the EU withdrawal, which is supportive of an increase in international student numbers, as it lowers the cost of an esteemed UK education.

An undersupplied market, UK student housing has experienced dramatically rising demand over the past decade.

This dynamic indicates that the sector will remain compelling for some time to come.

The student housing space is also relatively insulated from the domestic economy, as student numbers have tended to stay stable throughout the economic cycle.

In the aftermath of Brexit, we do not foresee the UK government restricting student numbers.

As a result, we increased our allocation to the UK student housing market in the wake of the Brexit vote.

Tailwinds for industrial logistics 

Exports should also be boosted by a weaker sterling level in the aftermath of the UK’s withdrawal from the EU.

Between February 2017 and the end of January 2018, UK exports rose 11.5 per cent to £626bn. Goods contributed significantly to this growth, with goods exports rising 12.6 per cent to £345bn.

Industrial logistics property should benefit from rising exports, particularly in the south east.

The large majority of the fund’s exposure is in the south east, which is where a significant proportion of goods flow out of the UK.

While exports have suffered a brief relapse in the first quarter of 2018 as sterling strengthened, this seems to be only a temporary shift and the pound’s bias is towards the downside.

As export-focused industrial logistics properties are largely reliant on overseas demand dynamics, this segment is also rather defensive in the face of any domestic economic downturn.

The sector is also benefitting from the tailwind of rising e-commerce.

The by-products of Brexit 

Of course, the outlook for UK property is not universally positive.

The weakened sterling is particularly detrimental for UK retail, as import costs rise. This has prompted us to sell our exposure to this area.

A further point of contention is the UK’s position within the Single Market, particularly in respect to the financial services sector.

In 2016, financial and insurance services contributed £124.2bn in gross value added (GVA) to the UK economy, 7.2 per cent of the UK’s total GVA.

While financial services will likely be covered in the eventual trade deal between the UK and the EU, it will probably be much more restricted than the current system of passporting within the Single Market.

Any shrinkage of financial services will likely have a significant impact on the London office market.

Cohen & Steers sold its position in this area of the market ahead of the Brexit vote, on the view valuations had reached a peak. There is limited upside potential for rents in this market.

Following the capital flight 

While any flight of capital and business operations from the UK would particularly damage the London office segment, other markets around Europe would be beneficiaries.

Amsterdam has surprised market observers by attracting a significant number of operations recently – including the European Medicines Agency and MUFG, Japan’s largest bank.

Amsterdam has compelling dynamics. It is a market with a relative undersupply of quality office space, which is helping to drive up rents and property values.

Other markets – including Frankfurt, Paris, Berlin and Madrid – are similarly set to benefit from attracting capital from the UK. Each of these markets currently have relatively low rents, leaving significant room for growth.

It is expected that a large number of financial institutions – alongside businesses in other sectors – will soon seek to firm up plans to deal with the UK’s eventual withdrawal from the EU.

These announcements should give a clearer steer on where the capital flows will be directed, as well as the markets likely to experience stronger rental growth.

Source: FT Adviser

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UK growth falls to five-year low, Bank of England seen delaying rate hike

Britain’s economy suffered its weakest growth since 2012 in early 2018, with heavy snow only partly to blame, prompting investors to slash their bets on a Bank of England rate rise next month.

Britain’s economy grew by just 0.1 percent in the first quarter of 2018, well below the BoE’s prediction of 0.3 percent and at the bottom end of economists’ forecasts in a Reuters poll, official data showed on Friday.

Sterling tumbled by more than a cent against the U.S. dollar GBP=D3, and interest rate futures more than halved the chance of a May rate rise to less than 20 percent BOEWATCH.

“A very weak Q1 GDP print has ended the chances of a rate hike in May. For us, it means no hike at all in 2018,” John Wraith, a market strategist at UBS, said.

In year-on-year terms, growth slowed to 1.2 percent from 1.4 percent, its weakest since the second quarter of 2012 and a rate likely to keep Britain lagging behind its international peers.

A spokesman for Prime Minister Theresa May said the numbers were “clearly disappointing”, but played down suggestions that uncertainty over Brexit was to blame.

The slowdown from already modest quarterly growth of 0.4 percent in the fourth quarter of 2017 was driven by a sharp fall in construction output.

Unusually heavy snow storms in late February and early March, dubbed “the Beast from the East”, were known to have hurt some businesses before Friday’s data. But the Office for National Statistics said the problems went beyond that.

“While the snow had some impact, particularly in construction and some areas of retail, its overall effect was limited with the bad weather actually boosting energy supply and online sales,” ONS statistician Rob Kent-Smith said.

Consumer-facing businesses also slowed in the first quarter, the ONS said, probably reflecting higher inflation.

The pound’s fall after the June 2016 Brexit vote eroded households’ disposable income throughout last year.

The scale of the slowdown may unsettle the BoE’s Monetary Policy Committee (MPC), which next week begins considering whether to raise rates on May 10 for only the second time since the 2008 financial crisis.

However, some BoE policymakers have said early estimates of first-quarter GDP are often revised up – on average, by 0.3 percentage points – particularly at times of harsh weather.

“If the MPC wants to look through this number and hike they can justify it – they just have a challenge selling it to the man and woman on the street,” Scotiabank economist Alan Clarke said.

A key factor will be whether April purchasing managers’ surveys next week rebound from weak March readings. If they are similar to data this week from the Confederation of British Industry, the recovery may be limited.

RATE HIKE ODDS LENGTHENING

Until recently, most economists were predicting that the BoE would not be swayed by weak first-quarter data because inflation is running above its target and the unemployment rate is the lowest since 1975.

Two of the BoE’s nine policymakers voted to raise rates to 0.75 percent in March, saying the economy was running at close to full capacity – a view largely shared by their colleagues.

But many economists had begun to think the BoE might be getting cold feet about a May rate rise after Governor Mark Carney alluded to “mixed” data last week and the possibility of moving rates at a later meeting.

Markets now price in just one rate rise for 2018, probably by August and almost certainly by November.

UBS’s Wraith said he thought the economy would slow further, and that the BoE would be unable to raise rates later this year.

“Brexit-related anxiety is a headwind that is blowing more strongly as time goes by,” Wraith said.

In the final three months of 2017, Britain recorded the slowest year-on-year growth of any major advanced economy. For this year, the International Monetary Fund predicted last week that Britain would move ahead of Japan and Italy.

Britain’s preliminary GDP data – which only has 40 percent of the figures used to calculate the final estimate – precedes most other European numbers. But the French statistics agency has estimated French GDP growth fell to 0.3 percent during the first quarter from 0.7 percent in the quarter before.

Source: UK Reuters

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Property prices in regional UK cities continue to outpace London

The “scarcity” of property in key regional cities such as Manchester is also supporting “above average capital growth”.

Summary:

  • Average property prices in the UK continue to rise fastest in key regional cities outside of London
  • Edinburgh, Nottingham and Manchester witnessed the strongest levels of capital in the 12 months to March 2017, with growth in London registering just 1.6%
  • These cities are also seeing sales levels match supply levels, with this “scarcity” driving performance for investors

Investors looking for the best locations for capital growth in the UK’s residential property market should continue to look outside of London.

According to the latest index from HomeTrack, which analyses 20 cities across the country, key regional locations continue to post the sharpest increases in average property prices annually. Prices in Edinburgh increased by 8.1% in the 12 months to March 2018, followed by Nottingham (8%) and Manchester (7.4%).

In comparison, growth in London hit just 1.6%. While HomeTrack does not anticipate prices will fall in the city any time soon, it did indicate that London’s market is more inflated than those in other UK locations. 1.5 homes come onto the London market for every sale, while it also has the longest selling period nationally at 17 weeks.

The picture is different elsewhere. In regional hotspots, the undersupply of property means that new properties coming onto the market are often sold in a relatively short period of time, one of the biggest drivers of investment performance.

The HomeTrack report outlines: “In cities where house price growth is above average, we find that new supply is broadly in line with sales. The ratio of sales to new supply is around one to 1.1 times in Manchester, Birmingham, Edinburgh and Glasgow. This creates scarcity and, together with attractive affordability levels, supports above average capital growth.”

Despite being one of the UK’s fastest growing economies and populations, property supply in Manchester cannot keep up with demand. Figures suggest its population is growing at 15 times the rate new homes are currently being built at, with residential housing delivery in Manchester likely to meet just 25% of annual demand based on current projections.

Source: Select Property

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Nearly 160,000 homes bought with Help to Buy scheme

Since the Help to Buy: Equity Loan scheme was launched on 1 April 2013, a total of 158,883 properties have been bought with an equity loan up to the end of 2017.

The latest government figures show that the total value of these loans was £8.27 billion, with the value of the properties sold under the scheme totalling £39.28 billion.

Four out of five purchases (81%) were by first-time buyers accounting for 128,317 homes.

The mean average purchase price of a property bought under the scheme was £247,230, and the mean equity loan was £52,026.

In London, the maximum equity loan was increased from 20% to 40% from February 2016. Since then up until 31 December 2017, there were 6,867 completions in London – the majority (5,546) were made with an equity loan higher than 20%.

For the Help to Buy: NewBuy scheme, 5,694 house purchases were made since the launch of the scheme in March 2012. This scheme closed to new mortgage offers on 8 March 2015.

One in four new housing completions bought with Help to Buy loan

According to research by the Intermediary Mortgage Lenders Association (IMLA), the Help to Buy scheme made up 27% of all new housing completions between April 2013 and March 2017. So its role in helping people get onto the ladder cannot be underestimated, says the trade body.

Kate Davies, executive director of IMLA, commented: “These statistics show that there is still considerable appetite for Help to Buy among first-time buyers. As we approach what is a pivotal juncture for the industry – with the scheme due to come to an end in 2021 – clarity is urgently needed over what will come next.

“The scheme has already helped over 150,000 households into home ownership – and with the government setting itself targets to build a million new homes by 2020, it seems counter-intuitive to close the door on what has been a successful vehicle for helping to purchase those new homes.

Help to Buy should not close in 2021

Davies says it is unclear why Help to Buy should not continue: “Forty three percent of all new build properties are currently dependent on Help to Buy, so the potential effect of any withdrawal would be significant, not just to developers and lenders, but also to consumers who may, in turn, see house prices increase.

“IMLA, along with many industry stakeholders, would welcome an announcement – or at least a firm indication – that some form of government support will continue post-2021.

“We would welcome discussions with government as to what that continuation might look like: some adjustments might be appropriate given the experience to date – but the impact which the scheme has had on new home ownership is surely too significant for it simply to be abandoned at this stage.”

Source: Mortgage Finance Gazette

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London house prices creep up as northern cities drive UK growth

House prices in London have crept up 1.6 per cent in March, according to the latest data from property analyst group Hometrack.

The group’s UK Cities House Price Index for March 2018 showed that house prices in UK cities were up 5.5 per cent overall, with the country’s northern urban centres driving growth.

Edinburgh led the way with an 8.8 per cent increase in prices, closely followed by Nottingham and Manchester with 8 per cent and 7.4 per cent respectively.

Graham Davidson, managing director of Sequre Property Investment said: “Once again, the northern cities are driving house price growth with healthy year-on-year price increases in Manchester, Leeds and Liverpool. Investors who chose these key northern cities for buy to let several years ago will be enjoying a significant amount of capital growth already, but there is still a fair way to go”.

Cardiff, Leeds, Newcastle and Sheffield also recorded sustained price gains over the last year, with all cities across Britain seeing an uplift in sales that was slightly higher than the year before.

Hometrack’s data also showed that supply of homes for sale has also increased steadily, particularly in cities where house price growth was above average.

However, in London, property sales are not keeping up with the level of supply coming to the market, with only 1.5 homes coming up for sale for every transaction made.

“Demand remains high, particularly in city centre locations and developers continue to have confidence to plough on with ambitious projects,” said Davidson. “For investors looking for high yields and significant capital growth, now is the time to invest in these key northern cities.”

Source: City A.M.

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UK mortgage approvals fall to second-lowest level since 2015

British banks approved the second-lowest number of mortgages since the start of 2015 last month, as icy weather appeared to exacerbate an already-muted housing market in much of Britain.

Banks gave the green light to 37,567 mortgages for house purchase last month, trade association UK Finance said, the lowest since December and the second-lowest since January 2015.

“It is possible that mortgage approvals … were affected by the severe weather (but) even allowing for this, the underlying performance points to the housing market remaining muted,” said Howard Archer, chief economic advisor at consultants EY ITEM Club.

Consumer spending power has been squeezed by a year of high inflation since sterling fell after Britain voted to leave the European Union, and higher property taxes and concern over Brexit has hurt demand for high-end property in the London area.

Seasonally adjusted net credit card lending increased by just 10 million pounds ($13.9 million) on the month – the smallest rise since April 2016 – though the annual growth rate was little changed at 5.8 percent.

Net lending to businesses was its highest in a year at 3.241 billion pounds.

Archer said the prospect of higher interest rates might also be weighing on home-buyers.

Financial investors are unsure if the Bank of England will raise interest rates next month – something they had previously thought was highly likely – after Governor Mark Carney highlighted recent “mixed” economic data.

Thursday’s UK Finance data cover major British banks, but do not include building societies, which account for a big chunk of mortgage lending.

The Bank of England releases industry-wide data on May 1.

Source: UK Reuters

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UK commercial property lending surged to £26.8bn in second half of 2017

Commercial property lending in the UK surged at the end of last year, offsetting a drop in lending earlier in the year to bring overall rates in line with 2016.

According to the latest figures from Cass Business School, new commercial property lending overall reached £44.5bn for the whole year, equalling figures for the previous year.

Commercial lending had dropped by 24 per cent in the first half of the year, however, the second half of 2017 was much busier, adding another £26.8bn in new lending.

The total value of loan books identified by the CASS research increased by four per cent to £199bn by the end of the year, including both drawn and undrawn amounts.

Commenting on the Cass figures, Melanie Leech, chief executive of the British Property Federation said: “It is encouraging to see property lending in 2017 remain consistent with the levels seen in 2016, and it is hugely significant that development funding has reached a new high – with a particular focus on residential.

“At a time when government is focused on tackling the issues caused by at least 20 years of housing undersupply, this increased investment into creating new, high-quality homes will provide much-needed new homes to support the UK’s productivity, economic growth and social wellbeing.”

The research from Cass showed that non-bank lenders were actually the most active group, increasing their market share of new loans to 14 per cent from 10 per cent a year earlier. In total, they wrote £6bn of new loans of which 60 per cent was sourced from insurance and pension funds.

Source: City A.M.