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The current state of the London property market

As we enter the second half of 2018, the London property market continues to struggle says Dave Beard, Lending Expert from specialist second charge mortgage broker

Once a bastion of high prices and sales activity, the London market has struggled through much of the year. In July 2018, it was reported that London prices have fallen by 0.5%. In some ways, this could be considered an improvement; the fall in June 2018 was 1.9%. However, the continual downward trend is undoubtedly concerning.

The discrepancy between boroughs

However, it is worth noting that the continual downward trend is not displayed throughout every borough. The most expensive borough, Kensington & Chelsea, reported a 4.1% rise in house prices in July. This was by far the biggest increase, with the next largest rise – 1.5% in Greenwich – falling far behind. Tower Hamlets and Camden also saw house prices rise, but not enough to offset a grim picture elsewhere in the capital. Hackney, for example, saw house prices drop by 3.3%, while Hammersmith & Fulham and Lambeth fared little better.

London compared to the rest of the UK

The statistics above are particularly of note, given that house prices across the UK have continued to – albeit modestly – rise to the tune of 3.34%. London, once the leading light of the UK housing market, now appears to be losing its status – and Bank of England policy maker Ian McCafferty has offered speculation as to why: Brexit.

The “exodus” of EU bankers

McCafferty told LBC listeners that he believes an “exodus” of EU bankers is taking place, and drew direct correlation between this and the ongoing uncertainty regarding the UK’s withdrawal from the EU. With EU negotiations not set to resume until October at the earliest – and political turmoil predicted as a result – then, if McCafferty is right, it looks likely that the London property market may take a while to stabilise yet.

Foxton’s loss reflects growing fears

Unfortunately, it appears the current stagnation of prices has claimed a victim, with well-known agency Foxtons reporting a loss in its recent financial data. The company had already issued four profit warnings recently, and its share value has fallen from 250p to just 45p in two years. In the first half of 2018, Foxton’s lost £2.5 million, with the problems in the London property market being identified as one of the major causes.

The rental market

However, there is some sign of life in the London property market: average rental rates have risen to a new record high of £1,615. This is a 3.3% rise from this time last year, and is the first time ever that London rental figures have broken the £1,600 barrier.

This surge was particularly welcomed, given that rents in the capital fell – for the first time in seven years – in June.

In conclusion

Unfortunately, the current state of the London property market is rather unhealthy. While the rental market returns to a gentle boom, London is falling behind the rest of the UK in terms of house prices. Foxton’s loss has demonstrated the very real consequences of the continued difficulties facing the London property market, they are likely to be just the first casualty.

Source: London Loves Business

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Mortgage lending drops to ‘disappointing level’ as buyer interest falls away

Nationwide this morning reported the biggest monthly drop in house prices since July 2012.

The lender said that the average house price is currently standing at £214,745 this month, down 0.5%  from £217,010 in July.

The fall brought annual house price inflation down to 2%, and Nationwide said it expects house prices to finish this year 1% up.

Meanwhile, mortgage lending fell to £3.2bn in July, the lowest figure for 15 months, according to the Bank of England.

Mortgage approvals for house purchase dipped to 65,000, while the number of approvals for remortgages fell 5.5% to 45,000.

Estate agent Jeremy Leaf said the figures were disappointing “in that they reflect a period when we would have expected a pick-up in the market over the spring buying season”.

John Eastgate, sales and marketing director at OneSavings Bank, said: “Buyer activity remains pretty depressed as the market comes to terms with economic uncertainty on top of existing obstacles of a lack of supply and increasing affordability challenges.”

Separately, NAEA Propertymark said that in July the number of properties available per estate agency branch rose for the third consecutive month, from an average in 33 in April, to 37 in May, to 39 in June, and to 41 last month.

Measured year on year, this is 17% up on July last year, when agent branches had an average of 35 properties.

While supply rose, demand shrank for a second month running, to 303 applicants per branch. However, the NAEA said this was entirely in line with seasonal trends.

Source: Property Industry Eye

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Property transactions hit four-year low, but are sales picking up?

Transactions in England and Wales are at their lowest level since the new graduated rates of Stamp Duty were introduced, but may be starting to improve, figures suggest.

Data from property investor London Central Portfolio (LCP), based on cumulative Land Registry sales registered in the 12 months to July, show residential property transactions fell 2% in that period to 876,628.

This is the lowest annual figure since the new graduated Stamp Duty system was introduced in 2014, LCP said.

Average prices in England and Wales are up 2.5% annually in the 12 months to July to £293,897, while new-builds are priced at a 21% premium at £343,175, according to the research.

The capital has seen a bigger drop in sales, down 8.3% over the 12 months to 3,831 in prime areas and 6.5% in Greater London to 88,189.

Average prices in prime central London (PCL) are up 12.5% annually to £1.96m, while Greater London saw a 2.2% increase to £293,897.

The data also shows that new-build prices in London have reached record highs, at £3.4m in PCL and £784,892 in Greater London.

Naomi Heaton, chief executive of LCP, said: “There are very few causes for optimism in the domestic property market, where real terms, inflation-adjusted house prices are no higher than they were in 2007.

“Affordability remains heavily constrained in a post-Mortgage Market Review world, where wage growth struggles to out-pace inflation.

“Artificial stimulation of the market through Help to Buy and first-time buyer incentives has supported the market but there is a general reticence amongst up- and down-sizers to commit at this point.

“The continued lack of a defined exit plan from the European Union, combined with economic uncertainty and a number of punitive tax changes targeting the buy-to-let sector, have caused the market to stagnate.”

However, official Land Registry data suggests transactions actually picked up last month.

Its latest Price Paid Data for July 2018 shows 89,454 residential sales lodged at the Land Registry last month.

This was up 12.2% on June and the third consecutive month that registrations have increased.

The figure is also up 1.7% annually.

There is a time lag between a property sale and its registration, but the Land Registry said 24,719 transactions took place in July of which 526 were of residential properties in England and Wales for £1m and over.

The most expensive residential sale was of a terrace property in the Royal Borough of Kensington and Chelsea, London for £18.5m, while the cheapest was a terrace property in Henllys, Cwmbran, for £6,120.

Source: Property Industry Eye

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Quarter of cities still below pre-crisis house prices

House prices in a quarter of the UK’s largest cities are still struggling to surpass pre-crisis levels, Hometrack figures have shown.

In its latest UK cities house price index released today (28 August), the property market analysts found prices in Belfast, Liverpool and Aberdeen were still lower than in July 2008.

Prices in Northern Ireland’s capital were 28 per cent lower than they were a decade ago, now at £129,629.

Compared with data from July 2008, Newcastle and Glasgow have seen weak growth – at 3 per cent and 1 per cent respectively.

In contrast, the average value of properties in Cambridge has increased by 70 per cent to £432,410 and London prices have grown by 65 per cent to an average of £483,792.

Meanwhile averages prices in Oxford have grown by 55 per cent to £411,900 and in Bristol they have grown by 53 per cent to £280,200.

Richard Donnell, insight director at Hometrack, said while 2008 was the year house prices fell at their fastest rate, they continued to fall for a further three to four years in weaker markets.

He said: “These past 10 years would have been difficult for many homeowners living in these cities, with low prices, weak growth making it difficult to move homes for work or to up-size to accommodate growing families.”

Mr Donnell said stronger performance in Cambridge, London, Bristol and Oxford have been driven by stronger economic growth, a broader base of demand for housing and limited availability of homes for sale.

He added: “However, these cities are now registering the weakest annual rate of growth as tax changes impacting investor and affordability pressures impact demand and the level of house price growth.”

Hometrack’s index reported UK house prices had risen by 4.2 per cent in the past year, mainly driven by growth in medium-sized cities such as Nottingham and Leicester.

In fact Nottingham saw the highest level of year-on-year increase to July 2018, with average house prices rising by 7.5 per cent to £152,000.

In the 12 months to July 2018 average house prices in London fell by 0.1 per cent while in Aberdeen they fell by 4 per cent.

Steve Seal, director of sales and marketing at Bluestone Mortgages, said figures from the past decade showed the vast regional differences in the UK housing market and suggested the only real solution was to increase the UK’s housing supply.

He recognised that in the meantime schemes like Help to Buy continued to provide much-needed support for first-time buyers hoping to step onto the property ladder.

Mr Seal said: “There is, however, another group of borrowers we need to consider; those with irregular incomes or a weak credit history, as these customers are often unable to obtain mainstream financial support.

“Real life is full of unforeseen bumps and a one-off event should not have a permanent bearing on someone’s ability to borrow – instead, lenders need to take the time to recognise the underlying circumstances and offer solutions accordingly.”

FT Adviser

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Rental supply fails to keep up with demand as landlords ‘are pushed out of the market’

Demand for rental property has hit its highest level so far this year, but supply has failed to keep up, letting agents report.

ARLA Propertymark’s July Private Rented Sector Report – based on responses from 191 members – shows that the number of new prospective tenants registered per branch increased from 71 in June to 79 in July, the highest level so far this year.

It matches the previous high reached last September.

However, the supply of available properties moved in the opposite direction to demand, falling from 191 in June to 184 last month.

There are also reports of fewer tenants experiencing rent increases, with the proportion of tenants seeing hikes falling from 35% to 31% between June and July.

David Cox, chief executive of ARLA Propertymark, said: “Buy-to-let investors are being pushed out of the market by increasing costs and continued regulatory change, and new landlords are being deterred from entering.

“Last month, an average of four landlords took their properties off the market per branch, up from three this time last year – and as supply falls, competition among tenants increases, which pushes up rent costs.

“Almost a third saw their rents rise last month, and although this figure was down from June, it’s still far too high. To put tenants back in the driving seat, we need more homes available to rent, and the only way this will be achieved is if the Government makes the market more attractive for buy-to-let investors.”

Source: Property Industry Eye

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London house prices to fall this year and next, 1-in-3 chance of a crash

House prices in London’s overvalued market will fall this year and next, a Reuters poll of analysts and experts predicted, and will tumble if Britain fails to reach a deal ahead of its departure from the European Union.

The quarterly poll of around 30 housing market specialists, taken in the past week, said house prices in the capital – where foreign investors have previously fuelled skyrocketing prices – will fall 1.6 percent this year and 0.1 percent next.

“Central London is tanking because the traditional international buyers are staying away – and the quantum of buyers is falling. A disorderly Brexit will exacerbate this trend,” said Tony Williams at property consultancy Building Value.

Uncertainty over how Brexit negations pan out has already spooked foreign investors. When asked what effect a disorderly departure would have on London prices, responses ranged from “short-term fall” to “damaging” to “disaster”.

“In the short term the additional uncertainty will disproportionately affect London, causing the value of some properties, particularly high value properties, to fall further,” said Ray Boulger at mortgage broker John Charcol.

Britain is due to leave the EU in March and sterling fell to a near one-year low against the euro on Tuesday amid no-deal angst. A weaker currency should make UK houses more attractive to foreign buyers but Brexit uncertainty is keeping them away.

When asked about the likelihood of a significant correction in London’s housing market before the end of 2019 the specialists gave a relatively high median of 29 percent. The highest was 75 percent.

But that might not be a bad thing – certainly for first-time buyers.

When asked to rate the level of London house prices on a scale of one to ten, where one is extremely cheap and ten extremely expensive, the median response was nine. Nationally they were rated seven.

“The weight of evidence suggests that housing is overvalued once more,” said Hansen Lu at Capital Economics.

In August the average asking price for a home nationally was 301,973 pounds and in London a whopping 609,205 pounds, according to property website Rightmove, putting home ownership out of the reach of many – despite historically low borrowing costs.

The Bank of England pushed interest rates above their financial crisis lows this month but signalled it was in no hurry to raise them further. It will add another 25 basis points in the second quarter of next year, taking Bank Rate to 1.0 percent, another Reuters poll predicted.

So with mortgage rates staying low house prices are expected to increase nationally by 2.0 percent this year and next – slower than inflation – and then 2.3 percent in 2020.

“We see little upward or downward pressure on house prices at current near-zero interest rates. However, risks lie substantially to the downside,” said Andrew Brigden at Fathom Consulting.

“Were interest rates to return to pre-crisis levels or higher, which may prove necessary if there were a sharp fall in sterling after a General Election, for example, then house prices could fall by around 40 percent.”

Source: UK Reuters

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Carney ‘asked to stay’ as BoE governor amid Brexit concerns

Bank of England (BoE) governor Mark Carney has been asked by the government to stay for another year in a move to settle the City’s Brexit concerns, according to a report.

This means Carney would remain BoE governor until June 2020, staying for an extra year on top of his original departure date of June 2019.

The report, in the London Evening Standard’s Diary section, claimed the chief reason would be so Carney could provide continuity following the UK’s exit from the European Union, which takes place on 29 March 2019.

However, a Treasury spokesperson denied the story.

Carney has already extended his term once at the Bank in a move to ensure continuity through the Brexit negotiations.

He had originally only intended to remain for five years after joining in 2013, but announced plans to stay an extra year four months after the Brexit Referendum in June 2016.

BoE deputy governors Ben Broadbent, Dave Ramsden and Jon Cunliffe are among the favourites to replace Carney, along with Financial Conduct Authority CEO Andrew Bailey.

In May, the governor warned economists about the dangers of a “disorderly Brexit”, adding monetary policy could be placed on a different path if the transition is not “smooth”.

In August, the Bank’s Monetary Policy Committee unanimously voted to hike interest rates by 25 basis points to 0.75%, the highest level in almost a decade and its first rise since November 2017.

Silvia Dall’Angelo, senior economist at Hermes Investment Management, commented: “It would be ideal if Carney decided to remain at the helm of the BoE for longer.

“It would provide continuity in the approach to monetary policy, shoring up business and consumer sentiment during the Brexit process and potentially allowing for a smoother transition.

“Reports he was asked to stay on until 2020 suggest there is broad-based awareness that continuity is needed at such a crucial juncture for the country.

“That said it is unclear whether the rock star governor is willing to accept what looks like an unpalatable offer.

“As the chances of a hard Brexit are “uncomfortably high”, risks that his otherwise stellar reputation gets smeared in a potentially disruptive process, are also elevated.”

Source: Professional Adviser

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Home ownership doesn’t have to be a distant dream for young people

WE heard headlines recently about house prices in Northern Ireland having fallen in the second quarter of this year. Good news for affordability and first time buyers? In short, unfortunately not.

When we look beneath the headlines, official figures show house prices here continued to rise by more than four percent on an annualised basis. In Q2, we also see that the kind of property first time buyers and those on lower incomes are likely to buy actually continued to see an increase in prices, or were broadly flat. It was only detached properties that recorded a significant fall in prices in the quarter.

The media reaction to rising prices is usually positive. For a house builder and for 66 percent of people lucky enough to own their homes, I guess it is.

But what I think is telling from much of this commentary is a world view that sees property as an investment vehicle rather than a basic need. House prices rising at well above the rate of inflation, with weak economic growth, stagnant wages and increasing interest rates isn’t good news if you are a young person looking for your first home. For you, it feels like that home ownership is getting further away or is simply unattainable.

Many people aspire to home ownership because of the advantages it brings, but more fundamentally people want a home. Somewhere that is affordable, secure, provides modern standards of accommodation and is convenient.

Other recent data which is less publicised, points to the lack of options for young people on low and moderate incomes. Average private rents in Northern Ireland have now risen to £650 per month and over the last 12 months have risen by 4.3 percent – the highest increase in the UK.

A mortgage will cost around £100 a month less on a typical first time buyer property than the current average rent. The longer-term outlook in the private rented sector looks challenging with UK rents expected to climb by 15 percent over the next five years. The cause of the increase in rents is a lack of supply, caused at least in part by small private landlords leaving the market due to tax changes.

This was the intention of the tax changes as the Conservative government saw private landlords competing with first-time buyers. It was intended to support home ownership, but instead has made private renting unaffordable for an increasing number of people. The private rented sector is also increasingly carrying the burden of the lack of social housing. Recent Housing Executive research shows that over 50 percent of people in private rented properties are in receipt of Housing Benefit and 81 percent of those people say that Housing Benefit did not cover the full cost of the rent.

So why do people rent privately if home ownership or indeed social housing is so much more affordable and secure?

The average annual pay of a first time buyer applying to Co-Ownership is just over £20,000, which equates to take home pay of about £1,400 a month. Paying an average rent on that level of income is clearly not affordable even if it is what many are forced to do. But there are few other options available. Social housing is not an option because you are regarded as being adequately housed. Home ownership is probably not an option because you do not have a deposit and because debt and insecure employment mean you cannot get a mortgage. Banks are also rightfully very careful these days that the mortgage payments will not place undue stress on people’s finances. So the private rented sector or staying with friends or family are often the only options.

Clearly part of the solution is building more social housing for a wider range of people. We need to support people into affordable home ownership through building more homes and providing a helping hand. But we also need to focus on increasing the supply of affordable, high-quality rented properties through the private sector. This is something successfully done in many European countries, but which has been given little priority by government here.

Source: Irish News

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Rental demand rises as supply falls

July rental demand reached its highest level this year – as there were 79 prospective tenants per branch, ARLA Propertymark research shows.

However the supply of available properties moved in the opposite direction, falling from 191 in June to 184 last month.

David Cox, chief executive of ARLA Propertymark, said: “Buy-to-let investors are being pushed out of the market by increasing costs and continued regulatory change, and new landlords are being deterred from entering.

“Last month, an average of four landlords took their properties off the market per branch, up from three this time last year – and as supply falls, competition among tenants increases, which pushes up rent costs.

“Almost a third saw their rents rise last month, and although this figure was down from June, it’s still far too high.

“To put tenants back in the driving seat, we need more homes available to rent, and the only way this will be achieved is if the government makes the market more attractive for buy-to-let investors.”

In July 31% of tenants saw a rental increase, down from 35% in June.

The last time there were this many tenants per branch was in September 2017.

Source: Mortgage Introducer

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House purchase approvals slide from five-month high

The value of mortgage lending rose in July but fewer home purchase loans were approved, data suggests. It comes after mortgage approvals for house purchase hit a five-month high in June.

Lending data from banking trade body UK Finance shows that the number of mortgage approvals for house purchase fell 0.6% annually to 43,976 during the month, although the number of remortgages rose 2.8% to 28,294.

Actual mortgage lending values were up 7.6% annually to £24.6 bn.

Commenting on the figures, Paul Smith, chief executive of haart estate agents, said branch activity is being driven by first-time buyers and called for more support for landlords.

He said: “Conditions are still ripe for further growth in the lending market this year.

“The UK is currently experiencing the highest level of employment in decades, mortgages remain readily available, and rates are still historically low, despite the recent base rate rise.

“On the ground, activity is looking positive – our branches have seen a 10% increase in transactions on the year. This surge of activity is largely being driven by first-time buyers who are continuing to take advantage of their Stamp Duty cut.

“However, landlords are still feeling the pinch with 12% fewer landlords buying property than the same time last year.

“The buy-to-let sector is a fundamental part of the UK property market, and with fewer landlords, we are seeing rents rise. The Government must stop penalising those who are willing to invest in the rental market and stop its needless crackdown on the sector.”

Source: Property Industry Eye